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From BJOL this week:

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rtalllia's question and your answer (would you get out of A-Rod's contract now if you could, yes) reminds me of something I've thought for some time now, and that's whether some criticisms of long-term contracts might be misplaced. It seems to me that you can think of a long-term contract as equal to a shorter contract for more money. Say you want Albert Pujols but won't pay $20 million a year for 3 years ($60 million), and he won't take $10 million for three years ($30 million), so you give him $12 million a year for 5 years and figure you're really getting the 3 years you want for $36 million, and the other 2 years is the price you have to pay. The $8 million a year ($24 million) you save in the first three years of the contract lets you improve your team in other ways, and because the discount rate is positive, you come out ahead. And if Albert is really no good 4 years out, you release him with his money and move on. Is this a completely wrong way to think about it?

Asked by: flyingfish

Answered: 2/6/2013

No, it's a valid way to think about it; I'm not sure that I understand how Pujols fits in here, but otherwise it's valid.   When salaries started to move upward two or three years ago, it was clear that what was happening was that teams were adding years to the contract as a way to avoid admitting that they were, in reality, simply paying more per season.   If you sign a 32-year-player to a 4-year contract, you can't SERIOUSLY expect to get four years out him.   The fourth year is a kind of a dodge to avoid the contract being accurately valued.

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Felix has been worth this many WAR the last four years, 2009-12:

• 6.8
• 6.0
• 5.2
• 6.1

So there isn't any question that he has been giving the M's 6 WAR per season.  That doesn't take into account other factors that may imply that Felix is actually worth more than that.  If you're just paying for WAR, the past cost of WAR has been $4-5M each, so Felix as a Strat-O-Matic player has been producing $24-30M in value per season. 

In Net Present Value ($175M is $134M in real dollars at a 10% discount rate), the M's are paying Felix for 27-33 WAR under past market rates.  If rates go to $6M per WAR, they're paying him for only 22 WAR.

That's if you DON'T value any of the below factors.

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Q.  What other factors are you talking about?

A.  Including but not limited to:

(1) The domino effect on the M's ballclub.  Suppose Felix blew out his shoulder in Arizona?  Do you suppose that baseball will just subtract -6 wins from the M's and move on?  Or do you suppose they'll declare the season over?

Teams give up and throw in the towel in May; we've been watching that in Seattle for 35 years.  Or they get on a roll and start believing.  Is Felix an advantage as it pertains to this question?

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(2) We didn't take into account whether WAR underestimates bases gained and lost.  For example, WAR doesn't run off actual ERA.  It runs off FIP, meaning that it "normalizes" a pitcher's bases gained and lost to what he "might have done" with an average defense.  If WAR thinks that Seattle's defense was great but the defense was actually only good, then it's going to normalize away some of Felix' on-field bases gained and lost.

That's fine, if that's what you want, but be aware of it.  WAR doesn't measure what Felix did.  It predicts what he'd do again under similar circumstances.  (To some extent.)

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(3) Paying Felix doesn't take into account the value of reliability - the value of MINIMUM 5.2 WAR -- Felix isn't Josh Hamilton.  You can rely on Felix.

You can quibble, but you know what we mean.  Felix isn't Erik Bedard; he's a horse.  Ask Eric Wedge whether that's important.  Okay, LrKrBoi29, ask Tony LaRussa or Bobby Cox.

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(4) This doesn't take into account whether Felix is going to produce 7-8 WAR in the future.  Justin Verlander's WAR the last four years:

• 8.3
• 6.4
• 7.0
• 6.8

(I wonder to what extent the Tigers' defense vs the Mariners', and the parks, is a good part of the difference.  I'd just as soon have Felix as have Verlander.)

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(5) It doesn't take into account the Roster Fungibility benefit of a Stars & Scrubs configuration.  Teams have always been willing to pay for Stars & Scrubs setups -- that's why the contracts of Manny Ramirez, ARod, etc., have always pushed the envelope.

The M's didn't push any envelopes with Felix.  They just flat out got a great deal.  They got perhaps the game's most valuable commodity, at a mundane contract.

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(6) It doesn't take into account the value that a Sandy Koufax has in the playoffs, or in a stretch drive -- where you can, for example, use that ace more-than-average for a short time.  Leveraging -- teams actually do leverage their pitching staffs in the playoffs.

Think wild card sudden-death playoff.  Or, think first game of a 4-game Texas series.

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(7) It doesn't take into account that maybe we overvalue fielding and undervalue pitching.  The assumption behind that 6.0 WAR is that 1/3 of runs prevented are with the leather.

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(8) Future WAR pricing.  One WAR -- +10 runs gained either with pitching or hitting, which raises a team from 81-81 to 82-80 -- has cost $4-5M in the past.  It's looking like it's heading to $6M or higher this winter.  

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(9) It doesn't take into account the face of a franchise.  Supposing that Felix improves the Mariners' brand, he is worth some part of his contract just as an advertisement.  Meaning that only some fraction of his contract is for on-field bases gained and bases lost.

Have Felix, and Ichiro, been the only good things about the Mariners' brand since 2004?

Felix isn't a clubhouse maintenance issue, like Randy Johnson, or a volatile personality, like Clemens or Pedro.  Felix is a team captain.  James has always remarked that your best player MUST be an org guy.

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(10) There is Net Present Value that we mentioned.  If salaries inflate by 10% a year, as they always have, Felix' contract is worth a total of $133.9M in present dollars.

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Just paying Felix $4-5M per WAR, you just paid him for 27-33 WAR ... that is, 4-5 years' performance  If you're paying $6M per WAR, you just paid Felix for 22 WAR - less than four years' performance.

That's if you DO NOT buy into any of our points (1) through (9).  If you do buy into any of that, Felix accepted less than four years' salary for his seven years' performance.

Admittedly, this is not the case, relative to other pitchers - MLB has done a good job holding down contracts for the Verlanders and Sabathias of the game.  And, true, Felix gets nominally the largest contract given to a pitcher.  And, true, it replaces his existing contract.  That's nice.  Relative to other pitchers, Felix did fine.

Relative to absolute value, the M's made out like bandits.

Those pitchers get contracts that are artificially low, compared to the true value of such aces.  It insulates them against the 30% (?) attrition rate.  The point is, if Felix does NOT do a Brandon Webb, he's going to be pitching at 60, 70 cents on the dollar.  Maybe less.

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To focus too much on risk here, that would be like a poker player holding a full house and fretting about his opponent drawing to an inside royal flush.  It's just dumb to let that hold you back.  You've gotten great value for your bet and if it goes sideways, that's the nature of dice and cards.

The M's got their 300-win Aircraft Carrier, and got him at a battleship price.

Now can we get rolling on the second ace?  Show of hands, down there in the bullpen, anybody?  It's when you start coming up with the 2nd and 3rd starters.  Get a couple of 'em together and you really have something.

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Did we get two years free, or three?,

Dr D