Like all Braves fans, I was happy to see Tim Hudson make his return to the mound for the Braves last night. This led me to wonder whether or not the Braves will pick up Hudson’s option for next season. If the Braves decide to keep Hudson, they will have to pay him $12 million; if they decline, they must pay him $1 million. Therefore, the cost of hiring Hudson for the 2010 season is $11 million—$1 million is a sunk cost and therefore not relevant. If Huddy’s value is close to this figure, then it may be a worthwhile investment.
Valuing Hudson is a bit difficult, because of his recent past performance. He pitched well in 2007, but his 2006 and 2008 seasons weren’t as good—the latter season was marred by injury. Let’s just assume that 2007 was Hudson’s true-talent level. Given aging and league salary growth, I project Hudson will be worth $11.25 million in 2010. The Braves having an above-average team pushes this value upward a bit, but slower-than-normal revenue growth would lower the value. In addition, injury recovery isn’t guaranteed, which makes him riskier than I have assumed in this analysis.
By the rosiest of scenarios, Hudson will be worth the option. Given the dearth of pitching already owned by the Braves, and the possibility of a weak free-agent market (Update: by weak, I mean talent will be cheaper than usual, not weak in talent), I suspect that the Braves will pass on Hudson’s option.
Postscript: The salary estimates presented in this post—and from now on—are derived from an updated methodology that differs from estimates that I previously presented before my blogging hiatus. The underlying marginal revenue product framework is the same, but the calculations have changed significantly following updated analysis. I shall be presenting this new method in the future.