Pitching contracts

[biggentleben]

Not to distract from the in depth thread on the Twins forum, but a point raised there has piqued my research interest.  Many seem to say that long-term pitching contracts cannot produce any value for the team due to the inevitable decline.  I decided I'd use those pitchers who had "earned" a $90M+ overall contract or a shorter term contract with $20M+ AAV.

 

The lists:

 

$90M total contract club - 15 members (don't count CC twice)

Clayton Kershaw $215M 7 years, 2014-2020
Justin Verlander $180M 7 years, 2013-2019
Felix Hernandez $175M 7 years, 2013-2019
CC Sabathia $161M 7 years, 2009-2015
Masahiro Tanaka $155M 7 years, 2014-2020
Zack Greinke $147M 6 years, 2013-2018
Cole Hamels $144M 6 years, 2013-2018
Johan Santana $137.5M 6 years, 2008-2013
Matt Cain $127.5M 6 years, 2012-2017
Barry Zito $126M 7 years, 2007-2013
CC Sabathia $122M 5 years, 2012-2016
Mike Hampton $121M 8 years, 2001-2008
Cliff Lee $120M 5 years, 2011-2015
Kevin Brown $105M 7 years, 1999-2005
Adam Wainwright $97.5M 5 years, 2014-2018
Carlos Zambrano $91.5M 5 years, 2008-2012

 

$20M annual contract club (excluding those who are in the first club) - 3 member, one twice

Roger Clemens $28M 2007

Roger Clemens $22M 2006

Tim Lincecum $40.5M 2012-2013

Roy Halladay $60M 2011-2013

 

So, I'll break them down a little bit.  For a guy resigning with his original club when he hits free agency (or as an extension to avoid some arbitration years), there is very good value for the club (even Zambrano, which thoroughly surprised me).  As an example of this, Clayton Kershaw will earn $215M starting this year and going into a current 6th grader's senior year of high school.  However, including this year's significantly discounted first year of the contract, Kershaw has earned $23,844,000 in his career, and according to Fangraphs, he has delivered $166.4M of value, meaning if he pitches for the Dodgers the entire contract, they'll have paid him roughly $240M total for 13 years of play for their team.  They've already earned $166.4M of that money, so Clayton really needs to produce roughly 14 WAR over the rest of the contract to earn the difference, and he's already had a 6.7 WAR season this year on the heels of a 6.6 WAR season last year, so barring injury, the Dodgers will likely make out very well in Kershaw's career.

 

The short term deals pretty much all went belly up.  Clemens earned $50M in 2006-2007 and produced $18.9M in value.  Lincecum returned $10.7M in value on the Giants' $40.5M investment, though one could use my Kershaw logic to say they were already ahead, paying $24.55M for $110.6M in value produced.  Halladay by far came closest to producing value in his short-term, high-money deal, earning $42.8M while being paid $60M.  He was coming off a season after the Phillies traded for him where he gave them $24.4M in value for $15.75M in salary, meaning Philly paid $75.75M for Halladay's time with the team and got $67.2M in value, which isn't horrible considering he retired at the end of that contract.

 

The third category is the straight free agent pitchers.  These have had varying values.  The guys in this category are CC Sabathia's first contract, Greinke, Tanaka, Zito, Hampton, Lee, and Brown.  Sabathia currently has produced $112M in value since signing that contract and been paid $132.9M to do it.  Not a great value, but certainly not horrific.  Greinke has produced $33.5M while being paid $45M since signing his deal.  Tanaka produced $16.8M in his injury-shortened season while being paid $22M.  Zito was the big flop everyone refers to, producing $24.1M in value, meaning the Giants lost over $100M on the deal in salary paid vs. production.  Lee has been one of the better signings, costing the Phillies $82.5M while providing $85.5M in value (and he was signed going into his age 32 season). Hampton and Brown started their contracts before FanGraphs valuation formulas begin, so they are both estimations.  Hampton produced an estimated $33.7M in value for his $121M, though a big part of the lost value for Hampton, especially once he ended up in Atlanta rather than Colorado, was the games he missed, only starting 147 games in the 8 years of his contract, missing 2006 and 2007 completely, and only pitching 200 innings once in the entire deal.  A bit of trivia on Hampton: he was one of two pitchers not named Greg Maddux to win a Gold Glove from 1990-2009, and all three have Braves ties (you can easily Google the answer, but try guessing first).  Kevin Brown was the originator of the $100M pitching contract, and his is still seen as one of the better investments, and the values are hard to measure, but he earned an estimated $67M of value for his $105M cost.

 

What did we learn?  Honestly, not as much as you'd like.  The free agent pitchers still under contract have earned 88% of their paid value so far in the contracts.  Zito earned 19% of his contract, and Hampton earned 28% of his contract while Brown earned 64% of his deal.  It is of interest to note that between Hampton and Zito's deals, there was a 6 year hiatus in big deals like this for all pitchers, and in general, the deals signed since Zito's have been fairly successful (or a reward for value already produced in an extension).

 

Here's a quick list on those extensions - total value provided with team, total salary earned thus far, and total salary investment from the team by the end of the current contract:

Kershaw - $166.4M value, $23.84M earned after 2014, $240M committed

Verlander - $208.8M value, $86.5M earned after 2014, $226.5M committed

Hernandez - $210M value, $85.2M earned after 2014, $217.5M committed

Hamels - $152.5M value, $78.4M earned after 2014, $180.4M committed

Santana - $54.3M value for Mets, $137.5M earned from Mets (career totals of $170.9M value and ~$161.5M earned)

Cain - $120.4M value, $71.7M earned after 2014, $144.2M committed

Sabathia - $112M value to Yankees, $132.9M earned after 2014 from Yankees, $185.7 committed overall by Yankees (career totals of $243.4M value, $169.4M earned, and $222.4M committed)

Wainwright - $147.1M value, $56.2M earned after 2014, $134.2M committed

Zambrano - $111M career value, $114M career earnings 

 

TL;DR, I know.  Sorry.  This was just freaking interesting as I dug into it more and more!

[beckmt]

Interesting, almost a discussion of why not to sign big ticket FA pitchers.  Would be interesting to see how the short term deals have worked out.  But the short term deals were much riskier.  And some of those are like lottery tickets. Small risk, large payoff.  Doubt the Twins will be players for starters this winter, but hope I am wrong.  We shall see.

[drjim]

Interesting work, thanks for doing it.

 

Two thoughts jump out at me:

 

1. I'm not sure I would add previous value to a contract that is signed. I would be most interested in the value of each contract in a vacuum. It is interesting to see the value of each player over their career, but as the Twins consider signing a free agent value provided before the free agent contract doesn't really matter (with the caveat that I realize you are doing an analysis far beyond what it means for the Twins).

 

2. I would still argue that with very few exceptions, there is a reason that pitchers that sign extensions will generally provide more value than straight free agents. In short, there is a reason that teams lock up certain pitchers and let other pitchers walk. I think that you analysis shows that.

[biggentleben]

Interesting work, thanks for doing it.

 

Two thoughts jump out at me:

 

1. I'm not sure I would add previous value to a contract that is signed. I would be most interested in the value of each contract in a vacuum. It is interesting to see the value of each player over their career, but as the Twins consider signing a free agent value provided before the free agent contract doesn't really matter (with the caveat that I realize you are doing an analysis far beyond what it means for the Twins).

 

2. I would still argue that with very few exceptions, there is a reason that pitchers that sign extensions will generally provide more value than straight free agents. In short, there is a reason that teams lock up certain pitchers and let other pitchers walk. I think that you analysis shows that.

 

I only included total value on those guys who re-signed or signed an extension with the team they're on for the reason of your first point.  I only wanted to count the value that the team got, so CC's totals are in parenthesis, but I was more concerned with the overall value he's given the Yankees.

[biggentleben]

I do think it interesting on an overall view (I did something similar with hitters a couple seasons back when the Braves were considering which CF to sign) that very few players actually ever earn the amount of value that they produced for their team.  Albert Pujols, for instance, is considered dramatically overpaid in his current deal, yet he's given his teams just short of $340M in value, and by the end of his current contract will have been paid $344M total, so if he produces 1 more WAR in the rest of his career, his career value will be more than what he got paid.  Situations like Zambrano are very rare.  Even Santana outperformed his career earnings in spite of the bad contracts.  Guys like Zito and Hampton underperformed, but they're often held up as bad examples for a reason.  Kevin Brown, despite only earning 65% of his big contract, well exceeded his overall career earnings.  Basically, even though they may not earn the value of their big deals, players are screwed over by the MLB pay system.

[drjim]

I do think it interesting on an overall view (I did something similar with hitters a couple seasons back when the Braves were considering which CF to sign) that very few players actually ever earn the amount of value that they produced for their team.  Albert Pujols, for instance, is considered dramatically overpaid in his current deal, yet he's given his teams just short of $340M in value, and by the end of his current contract will have been paid $344M total, so if he produces 1 more WAR in the rest of his career, his career value will be more than what he got paid.  Situations like Zambrano are very rare.  Even Santana outperformed his career earnings in spite of the bad contracts.  Guys like Zito and Hampton underperformed, but they're often held up as bad examples for a reason.  Kevin Brown, despite only earning 65% of his big contract, well exceeded his overall career earnings.  Basically, even though they may not earn the value of their big deals, players are screwed over by the MLB pay system.

 

I think that is probably the wrong way to think of it. Isn't the money value of players based upon changing production into monetary value and then dispersing that to each player as some function of their total WAR.

 

Wouldn't it be more accurate to say some players are "screwed" and others get paid way more than they are worth?

 

I think the only way players are "screwed" is if the owners pocket an obscene amount relative to their salaries. While I'm sure they could get paid more, I'm not sure this is the case.

[biggentleben]

I think that is probably the wrong way to think of it. Isn't the money value of players based upon changing production into monetary value and then dispersing that to each player as some function of their total WAR.

 

Wouldn't it be more accurate to say some players are "screwed" and others get paid way more than they are worth?

 

I think the only way players are "screwed" is if the owners pocket an obscene amount relative to their salaries. While I'm sure they could get paid more, I'm not sure this is the case.

 

Oh, the owners in baseball make out better than any other sport.  It's part of why it's so hard to get into ownership.  Every sale has to be approved by the owners, and no owner wants a new guy in who wants a more even split of money.  Especially with the limited revenue sharing, what your team makes is yours more than it is in any other sport's ownership.

 

The valuation numbers I'm using are based on what 1 WAR of player costs in the free agent market in that particular season.  So if a 1 WAR reliever gets $12M and a 1 WAR bench player gets $1M, then the value of 1 WAR that offseason is $6.5M/WAR.  It's not a perfect way to look at it, but it's a good idea of market value for a player's skillset.  If every player was put on a one-year deal with no reserves to his current club every single year, that's supposed to be the contract he would earn due to his production.  Part of the fault of the system is that it's a look-back, not look-forward system, so it can't tell you that based on some formula 1 WAR in 2017 will be worth $7M, in 2020 it will be worth $8M, and in 2023 it will be worth $9M.

[Thrylos]

I think that age of the pitcher when the deal was signed matters. 

 

And value is relative.  Example:   What was Don Baylor's or Steve Carlton's value for the '87 Twins?   Objectively and without context: not much.  Subjectively within that context: without those guys, the Twins would not had make the post-season.

 

Thus, paying a tad for 10 games of Clemens vs a rookie as your 5th starter, might matter a lot.  

 

One of the issues I have with "value" (as in the dollar value in fangraphs based on WAR) is that real value depends on the return of the investment.   e.g: If "overpaying" $5 million is what you gets you to the postseason and you make an extra $40 million because of that, I'd say it is pretty good investment.

 

Context is really important.   Also are results

[biggentleben]

I think that age of the pitcher when the deal was signed matters. 

 

And value is relative.  Example:   What was Don Baylor's or Steve Carlton's value for the '87 Twins?   Objectively and without context: not much.  Subjectively within that context: without those guys, the Twins would not had make the post-season.

 

Thus, paying a tad for 10 games of Clemens vs a rookie as your 5th starter, might matter a lot.  

 

One of the issues I have with "value" (as in the dollar value in fangraphs based on WAR) is that real value depends on the return of the investment.   e.g: If "overpaying" $5 million is what you gets you to the postseason and you make an extra $40 million because of that, I'd say it is pretty good investment.

 

Context is really important.   Also are results

 

Never once is this claimed as the end-all, be-all way to value contracts, but it's one that we can measure at this point.  Carlton and Baylor are short term assets that wouldn't even enter into this conversation.  This was based off a discussion of whether or not long-term, high-dollar contracts ever earn their value, and in fact, a number of them do, but free agency is typically the toughest place to make that work.

[drjim]

Oh, the owners in baseball make out better than any other sport.  It's part of why it's so hard to get into ownership.  Every sale has to be approved by the owners, and no owner wants a new guy in who wants a more even split of money.  Especially with the limited revenue sharing, what your team makes is yours more than it is in any other sport's ownership.

 

The valuation numbers I'm using are based on what 1 WAR of player costs in the free agent market in that particular season.  So if a 1 WAR reliever gets $12M and a 1 WAR bench player gets $1M, then the value of 1 WAR that offseason is $6.5M/WAR.  It's not a perfect way to look at it, but it's a good idea of market value for a player's skillset.  If every player was put on a one-year deal with no reserves to his current club every single year, that's supposed to be the contract he would earn due to his production.  Part of the fault of the system is that it's a look-back, not look-forward system, so it can't tell you that based on some formula 1 WAR in 2017 will be worth $7M, in 2020 it will be worth $8M, and in 2023 it will be worth $9M.

 

I would say quite confidently that NFL owners do much better than MLB owners.

[drjim]

I think that age of the pitcher when the deal was signed matters. 

 

And value is relative.  Example:   What was Don Baylor's or Steve Carlton's value for the '87 Twins?   Objectively and without context: not much.  Subjectively within that context: without those guys, the Twins would not had make the post-season.

 

Thus, paying a tad for 10 games of Clemens vs a rookie as your 5th starter, might matter a lot.  

 

One of the issues I have with "value" (as in the dollar value in fangraphs based on WAR) is that real value depends on the return of the investment.   e.g: If "overpaying" $5 million is what you gets you to the postseason and you make an extra $40 million because of that, I'd say it is pretty good investment.

 

Context is really important.   Also are results

 

A good analysis will capture this. Much more value in the 5 wins that move a team from 85 to 90, than from 65 to 70 or 95 to 100.

[biggentleben]

I would say quite confidently that NFL owners do much better than MLB owners.

 

They have to share all revenues across the league, though, so the only real local money you get is in ticket sales.  That is the last review I've seen roughly the time of the NFL lockout, though, so the money could be changed some now. Baseball was far and above the highest percentage take away for the owners.