Another Way of Explaining Mike Trout’s $50 Million Valuation

Mike Trout is reportedly close to signing a long term deal with the Angels that will value the free agent years he’s giving up at around $30 to $35 million apiece. At the time he signs the deal, he’ll almost lock in the largest single season salary ever guaranteed to a Major League player, topping the $33 million that Clayton Kershaw will earn in the last year of his freshly minted extension. And even with that, he’s still going to be drastically underpaid.

Over the last few weeks, I’ve had a few conversations with folks where I’ve unsuccessfully tried to explain why Trout is worth something between $40 to $50 million per year for his free agent years. In a time where even the best free agents are signing for half of that, it’s a tough sell, and I’ve realized that most people just generally don’t believe that Trout is twice as valuable as other star players.

So, this post is an effort to help illustrate the dramatic gulf between Trout’s value and the kinds of players that are signing for $20 to $25 million per year. I’m going to try to make the math as non-scary as possible, and avoid using fancy acronyms or models that rely on black box data. We’re just going to deal with the basics.

Thanks to Jacoby Ellsbury and Shin-Soo Choo, we have a pretty good sense of what premium free agent outfielders cost this winter. Between the two of them, the Yankees and Rangers will pay an average of $40 million per year for the next seven years. Is it really possible that Trout and some random scrub is more valuable than having the two best free agent outfielders from the 2013 free agent class?

Well, just for fun, let’s do a comparison of their performances from last year, combining the two free agent outfielders into a tandem we’ll call Jacoby Choo. The difference between Trout’s individual line and their combined line produces the numbers that Random Trout Teammate would need to produce for that pair to be equivalent to owning both Ellsbury and Choo instead.

Name G AB PA H 1B 2B 3B HR BB SO HBP SB CS
Mike Trout 157 589 716 190 115 39 9 27 110 136 9 33 7
Jacoby Choo 288 1146 1348 334 229 65 10 30 159 225 31 72 15
Difference 131 557 632 144 114 26 1 3 49 89 22 39 8

To make Trout’s 2013 line match up with the combined line of Jacoby Choo, Random Trout Teammate would have to play fairly regularly, rack up some doubles, draw some walks, get hit by a bunch of pitches, and steal a lot of bases. He wouldn’t have to hit for any power, and since Trout and Ellsbury come pretty close to canceling each other out on defense in center field, he’d just have to manage to be about as good in a corner spot as Choo is, which is nothing special. Basically, he needs to be an average corner defensive OF with some speed, but no power.

He needs to be Eric Young Jr. Seriously, look at Young’s 2013 line compared with the gap between Mike Trout and Jacoby Choo.

Name G AB PA H 1B 2B 3B HR BB SO HBP SB CS
Difference 131 557 632 144 114 26 1 3 49 89 22 39 8
Eric Young 148 539 598 134 98 27 7 2 46 100 2 46 11

There’s 20 missing HBPs, but there’s also 16 fewer singles and six extra triples, and the differences mostly come out in the wash. 2013 Eric Young is almost an exact match for what Random Trout Teammate would have needed to do to make Trout’s pair equal the combination of Jacoby Choo. In other words, in terms of performance, you wouldn’t have a huge preference between having last year’s versions of Trout and Young or Choo and Ellsbury.

Last summer, the Rockies traded Young to the Mets for Colin McHugh, a replacement level minor league arm. Young wasn’t free, but he was pretty close to it. He played better in New York, so his stock has probably gone up some, but I think it’s fair to say that Young’s market value is in the low single millions. As a free agent, maybe he’d cost a few million, and land a similar deal to the ones signed by guys like Willie Bloomquist, Skip Schumaker, and Emilio Bonifacio this winter.

Just for sake of argument, let’s give Random Trout Teammate $3 million for the above line. That leaves $37 million per year for Trout, right? Pretty close to what the reports suggest he’s going to get for his free agent years from the Angels, so maybe this is all proof that the $50 million figure that $/WAR comes up with is total bunk, no?

No, because there’s one more thing we have to keep in mind: Ellsbury and Choo are getting $40 million per year for their age 30-36 and 31-37 seasons, where significant decline is expected. The Yankees and Rangers have locked themselves into a $20 million per year valuation for each player despite knowing that neither is going to continue to be as good as they were in 2013. They’re almost certain to get worse simply due to the effects of age. Trout is 22. While he has to be expected to decline a bit just because there is far more downside than upside when you’re a +10 WAR player, the rate of decline is much slower for a great young player than it is for a good old player.

In other words, Trout should be able to retain a good chunk of his value for the next seven years, while by the end of their current deals, Ellsbury and Choo will probably be somewhat close to worthless. The Yankees and Rangers knew this, but were willing to guarantee them $20 million per year for those worthless years because they believe that they’re worth more than $40 million per year in the short term. They’re getting a discount on the value of their current performance in exchange for paying for years where there won’t be much value coming back in return.

These deals for Ellsbury and Choo essentially value their combined value at somewhere in the range of $50 million for 2014, and hope that they’ll play at that kind of level long enough to make up for the fact that they’ll be getting money for nothing at the end of the contract. Since Trout would not be expected to be a nothing player at the end, his free market value wouldn’t have to reflect that kind of significant decline, and thus, his long term AAV would be even higher than the one commanded by guys in their 30s.

Now, of course, Trout isn’t a free agent, and he doesn’t get to sign a deal that pays him market value for the next seven years. But the recent trend of extensions shows that players are getting something very close to current market value for the free agent years they sell in advance, essentially exchanging their injury/collapse risk for the team’s risk of future inflation. If Trout’s really planning on signing away three or four free agent years for between $30 and $35 million apiece, the Angels are getting a huge steal, because Trout actually is, by himself, as valuable as two premium free agents. You are as well off with Trout and Random Trout Teammate as you are with Choo and Ellsbury.

Certainly, there’s additional risk with tying up your value in one player, as having an +8 WAR player instead of two +4 WAR players means that one injury can do more damage to your team’s chances of success. However, there’s also a decreased chance of injury, since it’s less likely that Trout will get hurt than that either Choo or Ellsbury will get hurt, and there are the roster benefits that go along with consolidating value into one player instead of requiring two roster spots to get the same total production.

I’ve spent a lot of time arguing that having one superstar isn’t clearly better than having two good players of equal value to the one star, but at the same time, it isn’t clearly worse either. The point is to accumulate value, and if you can +8 WAR in an +8/+0 package versus a +4/+4 package, you shouldn’t pay dramatically more for either one. +8/+0 should cost something fairly similar to +4/+4, and the market is pricing +4 WAR free agents at between $20 and $25 million per year for their decline years.

I know it’s not easy to accept, but Mike Trout is worth more than Ellsbury and Choo combined. And the market clearly is pricing that kind of combination in the $40+ million range. If Trout takes anything less than $40+ million for his free agent years, he’s giving the Angels a real discount.





Dave is the Managing Editor of FanGraphs.

201 Comments
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PWR
8 years ago

but we know you don’t think Choo is worth that contract so don’t we need another comp that you think is fairly priced to say Trout is “worth” it (as opposed to what one team would be willing to pay)

PWR
8 years ago
Reply to  PWR

comment aside, it’s not very hard to see Trout is worth over $40mm

JimNYC
8 years ago
Reply to  PWR

Perhaps he’s worth $40 million. Perhaps he’ll get $40 million. I wouldn’t have said that if somebody hadn’t already agreed to pay Clayton Kershaw $33 million, but perhaps Trout will get $40.

But I can’t see him getting $50 million, because at a certain point the mathematics of his value breaks down and you start to run into a St. Petersburg Lottery paradox. At a certain point, no matter how high the expected return you’ll get from a player, the cost just isn’t feasible for clubs to take on.

To give a parallel example, picture the most valuable possible player. It would have to be a pitcher — once a hitter gets to be too good, opponents will resort to intentionally walking them every plate appearance, limiting their value ceiling. So the most valuable possible player would be a pitcher who throws 81 pitch, 27-strikeout perfect games every single appearance and can go every fourth day because he keeps his pitch counts low.

Such a player would be worth, what, 20 WAR? 25? And so his nominal value would be over $100 million a year? For a median-payroll team, that would be the equivalent to their entire payroll. For a top-level payroll team, that would be equivalent to half their payroll. Putting aside the actual money, there would be a tremendous political capital investment for a team to make that kind of a guarantee to a player — it would chance the entire structure of the franchise. No matter how large the franchise. And the downside risk of that player blowing out his arm is just too high for any time to make that type of political capital investment, no matter financial sense it might make in a WAR / dollar calculation.

Where does that line lie? The line where, in addition to the actual dollars being spent, the structural cost to a team in terms of shunning by other teams; internal costs of building the rest of the payroll around that player; marketing and fan-support investment; etc. just become too great to risk on on a player getting injured or somehow not panning out, no matter how great that player is and how great the potential reward of his production is?

Do I think Trout will continue to be an 8+ WAR player for the next seven or eight years? Yes, I do. But there’s a risk that he won’t. You can’t compare anybody exactly to Trout because there’s never really been anybody like Trout, but history is riddled with great, transcendent players who, for one reason or another, flamed out early. George Sisler put up 8.3 WAR one season and then got an eye infection and was basically done. Pete Reiser was astounding, amazing talent until he ran headfirst into a wall and his brain stopped working properly. Trout seems to be durable, but you never know when a Tony Conigliaro situation could pop up. Once you get to a certain dollar figure, how good the player is begins to become irrelevant, as a team has a certain risk ceiling that they’re willing to accept, no matter the payoff.

Johnny Ringo
8 years ago
Reply to  JimNYC

I kind of thought the same, but this was explained in an excellent fashion.

There is a financial limit for teams to be certain. And, if a real dollar crisis hits, then what?

Paul Sorrento
8 years ago
Reply to  JimNYC

Your hypothetical pitcher would certainly be worth $100 million plus per year and would get that sum. He would win about 45 games per year (call it 42 for simplicity of math in the other 120 games). A team of replacement players will post a win% of .294, adding about 35 more wins, and that doesn’t account for the natural attrition that occurs during a season where the replacement players that are performing well will end up getting more playing time. All you would need is for a handful of MLB capable above replacement quality players to vault this team to the playoffs where they would certainly be a huge World Series favorite since they would only need to win one game our invincible player doesn’t play in to win a series.

Jeffrey
8 years ago
Reply to  JimNYC

You’d also get over 40 wins promised to your team….requiring only a 50-70 roster when he didn’t pitch to make them a playoff team.

And then, you win at least 2 out of your best of 5 playoff series, and you win at least 3 out of every best of 7 playoff series….

This is a team that doesn’t need a lot more to be World Series Champions

B N
8 years ago
Reply to  JimNYC

Actually, that player is probably worth more than you’d think, due to short-season postseason play. You’d never lose a play-in game or a divisional series, basically. Even in the Championship and World Series, you’d need to win just 1 out of 4 games he’s not in. Which admittedly, would be tough if you had only replacement-level pitching for the rest of your team, but Houston still won 1/4 of their games, so… All I know is, Steinbrenner would have signed him for $125m even though the next-highest bid was $80m.

Luke in MN
8 years ago
Reply to  JimNYC

I think that’s one big reason he won’t get what he’s likely to be “worth” in an extension and the other is: why on earth give him a contract extension now unless you get a big discount on what he’d get as a free agent? I mean, you can always decide to pay full value for his free-agent years later, after, you know, making sure he doesn’t lose his arm or something over the next four years.

Nick C
8 years ago
Reply to  JimNYC

I think I saw that movie. Brandon Frasier, right?

novaether
8 years ago
Reply to  JimNYC

If this super-player were to be injured, game attendance would be ruined. Nobody would watch the games on TV. It would ruin the reputation of the team and the loyalty of the fanbase. The risk extends beyond a wasted salary.

PWR
8 years ago
Reply to  Dave Cameron

my mistake then. I thought the thesis of this article was that Mike Trout is worth $40mm”, not what somebody would be willing to pay.

tz
8 years ago
Reply to  Dave Cameron

However, in most recent instances, the market value for the “top” player only moves slightly above the previous record high, regardless of whether the inflation-adjusted value moves up or down. So if we want to be consistent in using a “market” value for Trout, we’d probably get a value closer to Kershaw’s than to the $37 million quoted above.

I wonder what would happen if we went back in time to ARod’s deal with Texas to make a similar comparison to the Trout vs. Choo/Ellsbury comp. That A-Rod deal was the one time that I remember a free-agent deal blowing away the previous record $/yr, and is probably the closest analogy to what Trout’s 20’s are worth. It would be informative to know if, using your methodology, whether A-Rod was worth $30+ million, or closer to the $25m/yr Texas actually gave him.

Rex Manning Day
8 years ago
Reply to  tz

Perusing this list (http://sportsillustrated.cnn.com/baseball/mlb/news/2000/12/14/freeagent_signings_ap/), replicating Dave’s process exactly is difficult because there were very few big free agent infielders that year. However…

The 2nd largest non-pitcher contracted given out that year was to Manny Ramirez (age 28), at 8 years and a $20M AAV. The 2nd largest contract given to a SS that year was to Jose Valentin (age 31), at 3 years and a $5.2 AAV. Together, Valentin and Ramirez were paid $25.2M per year, exactly matching A-Rod’s (age 25) AAV.

In 2000, Ramirez and Valentin were worth a combined 9.3 WAR; A-Rod was worth 9.5. Between 1998-2000, Ramirez + Valentin were worth 23.7 WAR; A-Rod was worth 22.1.

So in both AAV and WAR, A-Rod was worth as much as 2000’s priciest OF and the 2nd-priciest SS combined. This is obviously a much more back-of-the-envelope sort of analysis, and the different positions and ages makes it much less straightforward, but still. The basic premise does appear to hold up.

For what it’s worth, over the life of Valentin’s contract (the shortest of the 3), A-Rod was worth 26.8 WAR while Valentin + Ramirez were worth 26.9. Over the life of A-Rod’s original contract (ignoring the NY changes), A-Rod was worth 69.5 WAR while Valentin + Ramirez were worth 52.3 (of course, Valentin had retired after 2007).

tz
8 years ago
Reply to  tz

This is very cool. Bet if you shared that with Tom Hicks, you’d have a friend for life.

Another way to look at this:

Young A-Rod = Jose Valentin with Manny Ramirez’s bat.

Mo
8 years ago
Reply to  tz

price of a win was 2.60 in 2002. Assuming a 9 war year that’s around 23 million per year (or 20 for 8 war).
While Arod would have seen a greater decline due to aging, this suggests that he wasn’t worth 30 mil or so.
http://www.fangraphs.com/blogs/win-values-explained-part-six/

Cool Lester Smooth
8 years ago
Reply to  tz

But you also have to account for the inflation over those 7 years.

hunter pence
8 years ago
Reply to  Dave Cameron

Aren’t you arguing for stars and scrubs here, in effect?

Belloc
8 years ago
Reply to  hunter pence

That isn’t far from the typical distribution of talent on a Major League roster. And that is true for the teams that are great and the teams that are awful. The main difference between a winning team and a losing team is that winning teams have a dearth of replacement level players. But most teams have a star or two whose individual value dwarfs the rest of the team.

This holds true even with the Moneyball teams. The Rays and the A’s had a skewed talent distribution in 2013.

Ben Hall
8 years ago
Reply to  PWR

But he’s not comparing their projections (what they’re worth) but what they did last year. Last year Choo was worth 5.2 WAR and Ellsbury was worth 5.8 WAR.