THE BOOK--Playing The Percentages In Baseball

Friday, May 13, 2011

Nomar, Vlad: model for quick signings

After his 0 WAR September call-up year, and his 6 WAR rookie year, Nomar signed a 5 year / 23MM$ deal, that bought out all his arb years.  That was entering 1998.

After his 1 WAR half-rookie year, and 7 WAR full year, Vlad signed a 5 year / 29MM$ deal, that bought out all his arb years.  That was entering 1999.

Back in 1998-1999, the marginal dollar per marginal win was about half what it was today.

But, pre-free agents (slaves and arb-eligible) simply have not kept pace with the overall baseball inflation.  That’s why you are not going to see star players with 1+ years of service (i.e., 1.000 to 1.171) sign 5 year / 50MM$ deals.  For all intents and purposes, the pre-free agents scale has not budged much.

The more interesting cases to discuss is what to pay players with less than 1 year of service, like Longoria did (and Hossmer might).  With Vlad and Nomar, you had one MVP-level season in MLB, so you have a great level of certainty that they were well above-average players.

With Hossmer and Longoria, you didn’t have that.  You have to first decide what are the chances that they were as good after 2 weeks, that Nomar and Vlad showed after a full season.  Let’s say that’s 60% chance of being MVP-level, 30% chance of being above-average, and 10% chance of being close to a bust.  Then you have to decide how much inflation has there been between when Nomar/Vlad signed, and today (among the non-free agents).  It should be 100%, but let’s say it’s actually 50%.

Let’s add it up.  First, let’s turn Vlad/Nomar into today’s dollars, meaning between 35MM$ and 45MM$.  We’ll settle on 40MM$.

Then, we give Hoss/Longo 60% chance of being worth 40MM$, 30% chance of being worth 20MM$, and 10% chance of being worth nothing.

Add it up, and we get 24+6+0 = 30MM$.

So, if Longoria and Hossmer want the quick security after 2 weeks, then they’ll sign for 30MM$. 

(Longoria’s 3rd through 7th seasons were signed for 21MM$, so he signed at a huge discount.  Basically, it would have made sense if it was 1997, not 2008.  In addition, he threw in 2 free agency years at 11MM$ each, which was ridiculous for him to do.  If Longoria told the Rays that he would sign for 21MM$ and buy out all his arb years, they’d have been enthralled, considering it should have been for 30MM$.  To then throw in TWO highly discounted years of free agency will guarantee the Rays front office of accolades for years to come.)

Anyway, if Hossmer is as good as advertised, then 30MM$ to buy out his arb years would seem to be the industry standard (if he signs today).  Of course, if he has an MVP-type year this year, and signs after that (1 year of service time), then it would take close to 40MM$ to buy out his arb years.  If he keeps waiting, then either an injury will knock him out, or he can go year-to-year and look for a Ryan Howard payday and make far more than 40MM$.

That’s why you have to look at this in terms of chances of him performing at a high level or not, and chance of injury.