THE BOOK--Playing The Percentages In Baseball

Tuesday, June 16, 2009

How much for Strasburg?

About ten days ago, I declared Scott Boras is right in terms of trying to crystallize Strasburg’s value.  The question however would be to figure out what his fair market value would be, given that there is no market to establish that value.

The Book readers however see his value fairly clearly, at somewhere halfway between Jair Jurggens and Justin Verlander, who I’ll call Jair Verlander for brevity’s sake.

If Strasburg signed a deal in an environment like Evan Longoria (highly touted, signs away his pre-arb and arb years within months of playing MLB), then we can try to estimate what Jair Verlander got/would get, and establish that as Strasburg’s pre-free agency value.

- Verlander received 3.15MM for signing bonus, and another 3MM for his 3 pre-arb years.  He signed a 3.7MM in his first arb year, and will likely sign for 13MM in his next two arb years, for a total pre-free agent compensation of around $23MM

- Jurggens received no signing bonus, will play for barely above the minimum his first 3 pre-arb years (1.5MM total), and will likely get a 13MM deal if he were to sign away his 3 arb years, for a total compensation of $14.5MM

Jair Verlander therefore would get a $19MM deal, which includes his signing bonus and his salary for the next six years.

However, Stephen Strasburg is not yet in the sole ownership of the Nationals.  He can decline to sign with them, and will take his chances with the draft (and the Nationals will get an extra pick as compensation).  Therefore, the 19MM value does not apply specifically here.

What if we treated him as a free agent instead?  Well, the typical player in his pre-free agency years gets 30 cents on the free agent dollar.  That is, players sign heavily discounted contracts simply because they have little leverage.  Star players, pitchers especially, sign even bigger discounts.  If Jurggens and Velander were free agents today, and if they were signed to six-year deals, they’d probably get 60MM and 100MM, respectively.  So, Jair Verlander would get an $80MM free agent deal.

Seeing that Strasburg should get about 20MM if he simply goes the traditional route, over his first 6 years, and that he should get about 80MM if he were truly a free agent, there’s 60MM being left on the table, that he thinks he’s not getting today.

The problem is that he wants a large portion of that 60MM today, AND he also wants the extra premium that free agents have been getting, when it will be his time to be a free agent.

Seeing that Strasburg’s true status is somewhere between being the sole property of the Nationals and being a free agent, he should settle for a portion of that 60MM that he thinks he deserves.  I think his true status is much closer to the sole property point, and therefore, should sign for about one-fourth to one-third of the way, or 15-20MM.