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Wednesday, February 23, 2011
Forget about “average annual value”
Let’s say you have a pitcher who is forecasted(*) for 2 WAR, and the going rate is 4.675 MM$ per win. That means he’ll be paid 9.35MM$, plus the 0.4MM$ minimum salary for a total of 9.75MM$.
And let’s say that next year (as of today), he’s forecasted for a 1.3 WAR, and the going rate is 4.885MM$ per win. So, 4.885 x 1.3 + 0.4 = 6.75MM$.
This pitcher therefore would either sign a 1/9.75MM$ deal or a 2/16.5MM$ deal. Forget about that in the 2yr deal, the “average annual value” is less than the one year deal. We don’t care about that, and you should never ever think like that. Don’t ever do any of your math based on it. Don’t even treat it as a shortcut. Don’t do it, because that’s not reality.
Joe is reporting that when Carl Pavano signed his 2/16.5MM$ deal, Pavano had on the table a deal from the Yankees for 9.75MM$ for one year.
Basically, if (and this could be a big if, based on how Pavano perceives himself) the above illustration is correct, then Pavano would be ambivalent in which of the two deals to choose. He was basically offered identical deals.
You should always think of these deals on a year-by-year basis, and how much he can earn and how much he’d get paid in those years. If the deal with the Twins was structured as a 6.75MM$ per year, with a 3MM$ signing bonus paid in the first year, then it’s easy that they paid for expected performance. But, if it’s a flat 8.25MM$ per year, then he’s being underpaid the first year and overpaid the second year (such that it balances out).
(*) Alert to language police: Firefox spell-checker says this is not a word.
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