Archive for November, 2010

The Rockies Curious Moves: de la Rosa and Tulowitzki

Yesterday, the Colorado Rockies made two odd moves: one that I’m pretty sure is a bad deal, and one that is bold.

First, the Rockies agreed to a three-year, $32 million deal with Jorge de la Rosa. De la Rosa has pitched well for the Rockies, but he’s averaged under 150 innings per year for the last three years. If he pitches consistently as well as he has over 220 innings per season, then this might be a good deal—and maybe the Rockies think he can—however, I think that’s unlikely—his career high is 185 innings pitched (2009). I estimate his worth to be about $21 million over the next three seasons.

Second, the Rockies are supposedly nearing a deal with Troy Tulowitzki on a six-year extension for $119 million. While I’m normally a fan of locking up guys long-term while they are young, Tulowitzki’s new contract doesn’t kick in until 2015, and runs through 2020. A lot can happen between now and then, and the Rockies own his rights in the meantime, so it’s quite a gamble for the Rockies. Over the term of his contract, I estimate Tulowitzki to be worth $190 million, which makes $119 million sound like a cyber-Monday discount. But, given that so much can happen between now and then, I think it’s a large risk for the Rockies to take. Maybe they think that they can directly buy insurance, or diversify away much of the risk in a way that makes it a good gamble. Frankly, I’d love to know the motivation behind this deal, because it is so unique. It seems so crazy, I feel like they must be on to something.

Valuing Juan Uribe

Several sources are reporting that the Dodgers and Juan Uribe have agreed to a three-year, $21 million contract. Over this time, I have him valued at just under $23 million, so this deal seems about right.

Uribe is often criticized for being overweight and underwalked. But, on the upside, he plays good defense and hits with power. Such players are valuable.

Q&A at Wages of Wins

Here’s an interview about Hot Stove Economics with Dave Berri at Wages of Wins Journal. Here is a tease.

2. There are many sabermetric books, or books looking at statistics in baseball. How is your book different from the other books in this area?

Well, I use some sabermetrics in my book for valuing players. Bill James, John Thorn and Pete Palmer, and Voros McCracken all made important contributions to helping us understand what things players do to help teams win. I don’t dwell on sabermetric questions. My main goal is to understand the business relationship between play on the field and financial success. Sabermetricians have used some financial models to connect player performance and worth, but these simple approaches are too limited to proxy the impact of performance on revenue. What’s missing from sabermetric value assessments is economics. I approach the problem using common tools of labor economics, which has been missing.

Valuing Aubrey Huff

Many sources are reporting that the Giants have signed Aubrey Huff to a two-year, $22 million deal. The deal also supposedly includes a team option for a third year (no details yet).

I estimate Huff to be worth about $23 million over the next two seasons, so this deal seems about right.

Valuing Victor Martinez

Rumor has it that Victor Martinez has agreed to a four-year, $50 million contract with the Detroit Tigers. Supposedly, Martinez has turned down other offers of $48 million.

Over this contract term I estimate Martinez to be worth approximately $47 million. The estimate is a little less, but in the ballpark of the reported contract.

Albert Pujols: The First $40-Million Man

It looks like the St. Louis Cardinals and Albert Pujols are looking to sign an extension that will keep him in St. Louis for life. Jon Heyman writes that Albert Pujols is looking for a contract similar to Alex Rodriguez‘s ten-year, $275 million deal that he signed with the Yankees in 2008. Heyman predicts that Pujols will be getting an eight-year, $240 million deal. I think these predictions are way off, on the low side.

When his new contract kicks in, four years will have passed since A-Rod signed his deal with the Yankees. When league revenues have been growing at a rate of 8-9 percent per year, salaries escalate quickly as the revenue growth rate compounds. In 2019, $27.5 million is going to seem like peanuts. I agree with Heyman that ten years is probably a bit much, but for an eight-year deal, I estimate Pujols is looking at a $350 million contract ($43.75 million per year). While that’s a big number to swallow, Pujols’s continued excellent performance and MLB’s growing revenue are going to push that number easily over the $30 per year million mark. And, I won’t be surprised if he ultimately ends up with a contract that averages over $40 million per year.

Breaking Down Uggla for Infante and Dunn

So, the Braves didn’t wait long to get the power bat they were looking for, acquiring Marlins slugger Dan Uggla for Omar Infante and Mike Dunn. So, how does the deal break out?

I estimate Uggla’s play to be worth $11 million in 2011, while collecting a salary of $9-$10 million in his final year of arbitration. I estimate Infante to be worth $5.5 million with his salary contractually set at $2.5 million. Dunn is expected to be worth $800,000 with an estimated salary of just over the league minimum of $400,000. The values reveal that the Braves become a better team, but they will be paying for it. Infante will be in the last year of his contract, while Dunn still has five years of service time left.

The Marlins move was preceded by Uggla turning down a four-year, $48 million contract that I thought was a fair offer. The Braves may think that they can use the next year to hammer out a reasonable extension, like they did with Tim Hudson after acquiring him from the A’s, but Uggla does not seem to be willing to take a discount—he’s reportedly asking for five years and $71 million, too steep. Maybe, now that Uggla is reunited with manager Fredi Gonzalez he might be more amenable to a deal, but that’s wishful thinking.

The Marlins get some good value out of a player whom they were going to lose after this season anyway. Infante will immediately fill Uggla’s hole in the lineup, and while I don’t expect him to repeat his 2010, he’ll do a fine job on a reasonable contract. Dunn’s performance projection has wide variance; he could become a regular reliever or never make a big-league roster again. He’s a junk bond that the Marlins are willing to gamble on. When the Marlins open their new stadium in 2012, they’ll have salary room to add a player or two and be on the fringe of contention as they seem to be every year.

Baseball Prospectus Interview about Hot Stove Economics

David Laurila interviews me about Hot Stove Economics at Baseball Prospectus.

Here’s an excerpt.

DL: Do the luxury tax and revenue sharing work?

JCB: My thought is that there are some very real negative incentives created by it, which cause bad teams, particularly bad losing teams, to continue to lose. There is a disincentive to win, because winning would mean you’re not going to get the revenue sharing that you were once getting.

One of the things that I find in my estimating-revenue function, which includes revenues from revenue sharing, is that at very low levels for bad teams there is actually a revenue bump. I call it the loss trap. It shows that as you lose games, you can increase your revenue. That’s consistent with the economic incentives created by the welfare system—you realize that if you better yourself with work, you’re going to get less of the welfare transfer, so you have little incentive to work.

I don’t think that many teams are actually trying to exploit this revenue bump, but what it does demonstrate is that if you’re very bad, and the high returns to winning don’t kick in until teams are earning in the mid-80s of wins, in revenue, you have teams that are winning 70 games saying, “I don’t want to fall off into the abyss and become a really horrible team, but there’s really not a huge incentive to get better if I can sit here and get fat off of revenue sharing.” The documents that were released this summer seemed to indicate that is what some teams were doing.

Part II will be posted on Wednesday is now posted. Thanks to David for conducting the interview

On $-per-Win Estimates of Baseball Players’ Worth

Frequently, I receive a comment or e-mail that brings up the dollar-value estimates at Fangraphs.com. Fangraphs is a fine site with lots of interesting numbers, but I don’t think the dollar-value estimates listed on the site (or any simple wins-to-dollars conversion) properly value players. Here’s why.

1) The derived estimates are based on the assumption that there is a constant linear relationship between wins and dollars. This assumption is incorrect: there are clear increasing returns to winning. This is the revenue function I estimated for my book, converted to wins instead of runs.
Returns to Winning

2) By dividing the total value of free-agent contracts (Y) by total “wins” added by the signed free agents (X), this method assumes the y-intercept (b) is 0, which biases the estimates. Y = mX + b, when you assume b is zero when it’s not, bad things happen to slope m. The graph below from the popular econometrics textbook Understanding Econometrics: A Practical Guide by A.H. Studenmund demonstrates why this assumption biases the estimates.

Suppressing Y-Intercept

Due to the thinness of the free-agent market and the potential for market mistakes, I prefer a fundamental-value approach to valuing players as opposed to a market-valuation approach. However, if I want to use the free-agent market to value talent, I prefer Anthony Krautmann’s “free-market returns” approach, which can be implemented in ways to avoid the problems mentioned above.

In Chapter 4 of my book, I explain why I prefer the Gerald Scully inspired approach to the free market returns approach. This is not to say that market prices are not useful for valuing free agents. In my book explain where free market returns helped me shape my estimates. Also, here is a working paper in which I discuss the pros and cons of the Scully and Krautmann methods.

How Important Are Managers?

Not very, according to my new paper.

HIRED TO BE FIRED: THE PUBLICITY VALUE OF MANAGERS

Abstract
Sports teams frequently fire and hire managers when they experience losing. However, determining managerial responsibility for player performance is difficult to measure. This study examines how major-league baseball players perform under different managers and estimates that managers have little effect on performance. The study further investigates whether or not replacing managers serves as a signal to fans that the team is improving, which boosts attendance. The results indicate that new managers were associated with increased attendance in the 2000s; however, such effects were not present in the 1980s and 1990s.

Here’s an old blog post on some preliminary results from the study. I really wished that I had written a chapter in Hot Stove Economics on this topic, but I just didn’t have the time. I will be presenting this paper at the Southern Economic Association annual meeting later this month.

So, don’t fret Mets fans. I’m not sure it matters all that much whom the front office hires as manager. But a popular hire could at least give a boost to the fan base.