Thursday, November 20, 2008

An in-depth look at Vernon's contract.

After my misguided trade idea post, it occurred to me that there might be value in really digging into the popular assumption that Vernon Wells is overpaid (relative to the market, of course - every guy in the majors is overpaid in the abstract sense).

There are several factors at work here. First, is the inherent inflation of the MLB salary market. Every year their are shocking new deal which raise the average annual salary. While the AAS is not a perfect indicator of the market for upper echelon talent, I think it's a fair measuring stick because one could argue that the pre-arbitration players serve as a drag on the average and that the inflation of free agent deals (or deal which buy up free agent years) is actually MORE than the rate at which the AAS rises.

Second, there is the difficulty of perfectly discerning a players value based on comparisons to other players when no two players are exactly the same. Admittedly we can only approximate here.

Third is the "projectability" of any player. How will Wells, or any other player, age and what effect will that have on his market value.

So obviously there are enough uncertainties to make absolute decelerations impossible. Still, there is much we can learn. From the start, let's establish the comparables. If you look at the careers of Vernon Wells and Tori Hunter through the year in which they turned 30 (Wells turns 30 next month) you will find a very good comparison. Using OPS+ as a measure:

age - VW - TH
23 -- 96 -- 71
24 - 132 -- 80
25 - 105 - 101
26 - 104 - 124
27 - 129 -- 98
28 -- 85 - 104
29 - 121 - 106

Looking at that you HAVE to conclude Wells is a better hitter to that point in his career, and while his defense has slipped enough that fair minded people would agree it's not on Hunter's level anymore, he does enjoy a good reputation as a defender. Hunter went on to post a 112 and a 122 before his free agent year. That is to say the year he was a free agent he was essentially the exact same hitter Wells was in 2008. and had a lesser history with the bat.

Hunter signed a contract with an average annual value of $18 million, the same as Wells' AAV, by the way. Also the same as Suzuki's and roughly the same as Andruw Jones and one million more than Alphonso Soriano's. If you look at the last three years before the contract signing of each of those players you'll find they are pretty similar offensive forces, albeit with obvious differences in their strengths.

So I think we can say with some confidence that the market for a hitter of that caliber in the current market is an AAV of roughly $18 million.

As for the projectability and aging issue, Hunter signed a five year deal at about 32.5 years of age, Suzuki had just passed his 34th birthday, Jones was coming up on his 31st, and so was Soriano. Not to get ahead of myself, but just to get it on the table, Wells will turn 33 the winter of his option.

Now, with those parameters on the table, let's look at market inflation in baseball salaries.

Here's a chart of the growth in the average salary in MLB over the last seven years, and the precentage increase over the previous year:
(the original, going back to 1989, can be found here)

2002$2,383,2355.2
2003$2,555,4767.2
2004$2,486,609(-2.7)
2005$2,632,6555.9
2006$2,866,5448.9
2007$2,944,5562.7
2008$3,154,8457.1


Now, let's average the annual inflation rate over those seven years. When you do that you get 4.9%. for the sake of simplicity, I'm going to round that up to 5% annually. (nine out of the last 13 years it has been higher than that).

Now, let's take a player who is "worth" (in the current market) $17 million annually beginning in 2008 and see where his salary goes if he stays with a market that's going up at a rate of 5% a year. In the first column is the year, in the second is his market value in that year (all other things being equal of course), in the third column is Wells contract value that year and in the fourth colum is Wells age:

'08 - $17.00 -- $9 - 29
'09 - $17.85 - $10 - 30
'10 - $18.74 - $21 - 31
'11 - $19.68 - $23 - 32
'12 - $20.66 - $21 - 33
'13 - $21.70 - $21 - 34
'14 - $22.78 - $21 - 35
'15 - $23.92
'16 - $25.12

I remind you that after the 2011 season, when Wells can opt out, he will be approximately 5 months older than Tori Hunter was when he signed his 5 year, $90 million deal. According to this math, if he had signed that deal in the winter of 2011, at the same place in the market adjusted for baseball inflation, it would have been worth $114 million (an AAV of $22.8 million).

So, what can we conclude from this information?

First, that the seven year deal, as it stands, is not in point of fact, over-market. On the contrary, a deal which starts in 2008 at $17 million and escalates at the same rate of the overal salary structure in MLB does would - over seven years - total over $138 million (Wells deal is worth $126 million).

Second, if Wells did opt out after 2011, the 4 years that the Jays actually would have gotten out of him would have cost them $63 million (AAV $15.75). Our "market value" for those four years is over $73 million (AAV over $18 million). In that scenario we still somewhat underpay.

Third, and again, all this assume Wells maintains his current level of productivity through at least 2011, when Wells gets ready to make his decision, he'd be looking at 3/$63 to stay, or the potential of a guarantee of $100 million or more over five seasons if he gets a contract that is market value.

So, simply put, if Wells remains a guy who is a 110 or better OPS+ player on average over the next three yerars, he will have a strong financial incentive to opt out and, short of Halladay-esque loyalty, will definitely do so. He could even afford to decline somewhat offensively over that time and the decision would still be tempting. Further, barring a decline to under 100, or a complete lack of ability to play CF by then, the Jays would not be overpaying if he did stay the full seven years (albeit, they may have enough depth that they sould still prefer to see him move on).

The obvious conclusion is that Wells' contract is not too high, but is in fact, at worst, fair market value in the current market.

Now, does that mean it was a good or smart deal? No, I don't think it was (and THAT is what makes it harder to move) for this reason: if you are going to guarantee over $100 million over the next seven years, you should be getting a player at a recognizable discount which offsets the built in risk that the player will decline in productivity. IF Wells continues at his current level of production for three more years, then the Jays signed a deal which paid off. If, on the other hand, he declines significantly, either with the bat or his defense becomes so bad he has to be moved out of CF in that time span, then the Jays are on the losing end of the deal. the point is, that the Jays have assumed ALL the risk and got no significant discount for doing so.

So it's not a "good" deal, but it is far from an overpayment either.

~WillRain

11 comments:

Lloyd the Barber said...

Awesome. Excellent work.

I'll pose you one question though: if Wells's contract isn't good, who's would be? Can you think of a long term, big money contract that is a steal?

Also worth noting, both Ichiro and Soriano have already been moved out of centerfield.

Again, awesome work.

The Southpaw said...

Grady Sizemore springs instantly to mind. The idea in such a long term deal is that you get, if the player pans out, a sub-market deal in return for the amount of risk you incurred.

Longoria is a great example too.

~Will

Anonymous said...

I think what people rail against was the fact that Wells wasn't a free agent at the time. Those players were. Essentially, there was no "hometown" discount. I love Wells but wouldn't give him that kind of contract is what most people thought when they saw it. Plus, the fact that the Jays had Rios as a potential replacement makes JP look weak that he couldn't use that leverage. Finally, if anyone was going to get paid- everyone would want it to be Doc. If Wells wanted to be with Young in Texas, the Jays should have just taken the picks and had that money for Manny or someone else that wants to be there in Toronto.
-brent in Korea

eyebleaf said...

Great fucking post. Lots of math, but great nonetheless.

I still think Vernon's deal was a "good" one. I don't come at it from a mathematical point of view. Not at all. I'm just glad we got the guy to stay when I was damn sure he was going to leave.

The fact that you point out that the deal is, in fact, a fair one, makes me like it even more.

Wells' 2008 season was derailed by injury, but he still had a good season and over a full year, if healthy, he can be that dominant guy. I don't doubt that. I have faith in Vernon.

I guess that's why I like the deal. Cuz I got faith in the man.

The Southpaw said...

Twitchy makes an argument which derives from what economist calls "opportunity cost" and i do not disagree that since we have the potential to replace him at some point with a Lind/Rios/snider configuration that Wells money might be better spent elsewhere.

it's a solid argument - but that doesn't mean that the deal is a bad deal (and especially not at the time it was signed) - it simply means that a team which insists on arbitrarily capping it's payroll (which is the real elephant in the room here) might need the funds he takes up for other things.

Wells deal doesn't HAVE to be a bad deal for Twitchy to be right on that point.

Where we differ is that he thinks it's such a burden that it's worth it to give him away just for the benefit of recouping the cash....I would argue that such a move is too drastic unless the ownership intends to actually CUT payroll. Except for SS, I like our internal options for most needs in the near to medium term.

~Will

Jays2010 said...

Interesting post...I've believed for a while that if Wells maintains his offensive output and doesn't completely fall of the face of the earth defensively that he will opt-out in 2011 and this will be the best for both him (financially) and the Blue Jays.

I wanted the Jays to trade Wells for Kemp and Billingsley (as was rumoured) instead of the extension simply because these types of deals are never that good. Future DH Carlos Lee may be "earning" his contract, but it is not a major deal and, for example, I'd rather have 2 Rios-type contracts on my roster than 1 Wells contract.

And yes, if you are going to overpay anyone on this roster it's Doc...nobody else is particularly elite enough to take up 15-20% of the payroll...

The Southpaw said...

It's definitely interesting comparing him to Hunter and other CF's to say that he's valuable, but I'd argue Hunter is overpaid, so just because both are overpaid doesn't make Wells' deal look any better.

I know there's no salary cap in baseball, but we've pretty much assumed there's a 100 or so million dollar ceiling put on the team each year. Wells & Rios provide similar levels of offense, and I think Rios is better defensively at CF. If you only have 100 million to spend, you have to be smart with how you spend it.

I use the same reasoning for trading Ryan as I do for Wells - with Ryan, we have League, Downs, Carlson etc waiting in the wings, so there won't be a huge drop off in the bullpen if you move him. With Wells, we have Rios in CF, and can put Lind-Rios-Snider as our OF.

We end up with similar levels of production with Lind--Rios--Snider, but we have an extra 10-20 million per year to spend on upgrading SS, DH, C, 1B, SP...whatever you want to spend on. It's more flexibility for the team.

The only way I can think of the move Wells is a salary dump to the Yankees, who still don't have a CF.

What worries me is when Wells is going to be taking up 20% of the payroll. Will makes some good arguments to him opting out, but I can't see him passing on 3 years and 63 million. Part of that is because I think at that point he'll be closer to a $ 13-15 million player rather than the $ 20 million player Will has him as.

Twitch.

ari said...

Will, Sizemore and Longoria are terrible examples, at least in a conversation with Wells and a good long term, big money contract. Both those guys were signed before they even hit arbitration, and their contracts would be comparable to Vernon's first 5/13 deal, which worked out great for the Jays.

Long term deals that worked for their teams? ARod was worth the dough in Texas, and Manny was worth his in Boston, off the top of my head.

johnny said...

Really, some great comments here and a very interesting piece.

Again, I really think the question is whether the Jays can bear the cost of Wells at >$20 mil/season, not whether the deal he signed seems reasonable compared to those for similar players signed by teams with much deeper pockets.

JP had 3 options w/ V-Dub at the end of 2006: a) trade him at his peak value; b) sign him to an extension at his peak value; or c) hold on to him and postpone any decision until sometime in 2007. You can talk about hindsight, but it looked like he chose the worst of the three at that time. What was the likelihood that V-Dub would have repeated his 2006 numbers in his walk year?

I thought there was a good argument for trading V-Dub or letting him walk based on his boom/bust offensive numbers year to year alone. I suppose you take it with a grain of salt, but there were some interesting rumoured deals...

JW

The Southpaw said...

Twitch,

I agree Hunter is overpaid...and so is Sorinao and so are the others I mentioned and so is Wells. But one player is a fluke outlier (see Zito) but three or four sets the market, even if the market is set "too high" - it is where it is.

you and me knowing that, in a vacuum, they are $12-14 mill guys, not $18 mil guys, doesn't change whet goes on in contract negotiations.

As for what he will be worth in 2011, it seems to me you are applying the '07-'08 market to that figure. If indeed Wells is really just a $14 mil guy now he'd still be a $17 million guy then if there's no significant decrease in skills. 5/17 is still $22 million more than 3/21.

However, his agent's argument will be this: "Here's a guy who is making $21 million a year now, and his skills are just as good as they have been, why in the hell would I take a pay cut for him?"

At worst he'd get a deal which matched the 3/21 he had in hand plus a couple of added years at $18 or so.

Again, assuming he remains at the same performance level.

I would argue that - actual value aside - in the baseball marketplace (and at the same production level) the likelyhood of him having to settle for $15 a year or less approaches zero.

~Will

SP said...

Awesome post and good work.

I've always loved V-Dub. He's great for the organization, nice guy, and a fine player. I don't think his fielding has fallen off as much as people think either. His arm has never been elite but his great jump is still there.

Despite the deal being market value as Will has shown, that also just means that he got a bad deal among a lot of other bad deals. It only take one guy to set a bad market precedent. As johnny just said, JP had the option to wait or trade also and as much as I like Vernon, I would've traded him.

I wonder if we could've got a deal that included Kinsler and Volquez for Wells.