Don’t Overpay For Darvish

Earlier this afternoon, Patrick Newman presented you with some Yu Darvish Facts, while Eno Sarris broke down the differences between Darvish and Daisuke Matsuzaka. I’m finishing off Yu Darvish Day here at FanGraphs, but I’m actually not going to write all that much about Darvish specifically.

Instead, I want to talk about Darvish’s price. Over the last few weeks, there’s been a lot of speculation about what kind of money it might take to obtain his services. Last week, Tim Dierkes of MLBTradeRumors.com polled five agents and a team executive on their expectations of Darvish’s cost, and they came in with an average of a $45 million posting fee followed by a “five or six year contract in the $72-$75 million range.”

I’m not here to say that those sources are incorrect, but I will say this – any team willing to pay that much money to acquire Yu Darvish is kind of crazy.

Using the lowest projected figures from that poll ($30 million posting fee, $72 million for a six year contract), the most conservative estimate puts the total price to acquire Darvish at $102 million, or $17 million per season. If you take the average instead, that pushes the total up to $120 million, or right around $20 million per season. Essentially, that price not only treats him as a player with the track record of a Major League front-line starter, but one who has the leverage of a free agent. In reality, he doesn’t have either of those things.

Let’s deal with the latter portion first, as a player’s leverage is a far more important factor in his overall price than his current talent levels. Currently, Darvish is four years away from actual free agency, so from a service time perspective, he’s in a similar position to a player who just finished his second full season in the big leagues. In some ways, you could think of Darvish as being the ultimate Super Two, and we’ve seen some pretty terrific pitchers become eligible for their first big paycheck after completing two full years in the big leagues.

If we travel back just a short period of time, we find a pretty analogous situation in Tim Lincecum. From 2007 to 2009, the Giants ace led the Majors in ERA, FIP, and xFIP, and he won back to back Cy Young awards immediately before qualifying as a Super Two. No matter how great you think Darvish has been in Japan, his resume simply doesn’t stack up to what Lincecum compiled at the beginning of his career. He was arguably the best pitcher in Major League Baseball at age 25, and like Darvish, he was due a substantial raise and was four seasons from free agency.

Lincecum signed for $23 million over two years – $11.5 million per season with no real long term risk absorbed by the Giants.

Why? Simply put, he had no real leverage. He could go to arbitration and get a pretty nice paycheck for 2010, but the market forces that drive free agent salaries up didn’t apply to Lincecum. Because he was essentially only able to negotiate from the standpoint of not taking a multi-year deal, his alternative was about $10 million for one year – the expectation of what he might have received as a Super Two if he went through the arbitration process. Darvish made the equivalent of $6.5 million last year, and Patrick Newman informs me that he’d be in line for an $8-$10 million paycheck from Nippon next year if he ends up staying in Japan – similar to the salary Lincecum could have expected by going to arbitration.

Now, Darvish probably has a bit more leverage in his current situation than Lincecum did in his. After all, the Giants controlled his rights entirely, so regardless of what path he took, he was going to pitch for them in 2010. The team that submits the highest posting fee for Darvish does not automatically acquire his rights – if they don’t also sign him to a contract, he doesn’t join their team. So, their decision is “Darvish at x cost” or “no Darvish”, whereas the Giants were simply choosing between “Lincecum at x cost” or “Lincecum at y cost”. Either way, the Giants did not have to negotiate against the potential of not having him on the roster.

However, there’s little to suggest that Darvish’s ability to stay in Japan should be worth an extra $6-$9 million per season with 3-4 additional guaranteed years tacked onto the end of the deal, and that’s only starting from a position that Darvish = Lincecum in terms of future expected performance, which is not a position I would want to argue.

Lincecum essentially set the bar for what a young pitcher that is four years away from free agency should be able to receive. It’s nearly impossible to make the case that Darvish’s performance in Japan cleared the Lincecum Bar, or that he’s currently worth more than Lincecum was following the 2009 season.

In fact, the rumored price tag is actually valuing Darvish at the same level of Felix Hernandez, Justin Verlander, and Jered Weaver, all of whom signed deals for five years for between $78-$85 million. However, each of these pitchers were not only proven All-Stars, but each were only two years from free agency when they re-signed with their current organizations.

Darvish may eventually prove to be as good as Hernandez, Verlander, or Weaver, but that’s about the most aggressive projection you could possibly put on a player who has never pitched an inning of Major League Baseball, and even his terrific performances in Japan shouldn’t lead us to expect him to pitch at that level. In addition, those pitchers were each two years closer to being able to have their salaries determined by the market than Darvish is. There’s simply no reason to pay Darvish as if he’s already that good or that close to free agency.

Because the Major Leagues don’t operate as a free market, contract prices for players are essentially determined by current value, risk absorbed by the team, and the leverage of the player conveyed by his current situation. Darvish’s current value is something of a question mark. The risk absorbed by a team investing heavily in a long term contract for a pitcher is fairly high. Despite his success in Japan, Darvish has minimal leverage.

The realities of his situation simply don’t support the need for a huge contract. There are legitimate reasons supporting the projected posting fee – $45 million for six years of team control of a potential impact player probably isn’t out of line, honestly – but once a team wins the bidding for Darvish, there’s no reason to offer him a contract that values him as one of the best pitchers in baseball.

Whatever team wins the bidding for Darvish should use the Lincecum contract as a template – offer two or three guaranteed years up-front with an annual average value of around $10 million per season, then add in a few team options to ensure that he gets paid well if he performs at a high level. This structure shifts some of the future risk back to Darvish rather than being carried by the organization, but compensates him at fair rates if he proves to be an elite starting pitcher. To make sure that teams aren’t abusing his lack of MLB service time in deciding whether to exercise the options, grant him free agency after his fourth year if any of the team options are declined. Essentially, treat him like a Super Two, and pay him in line with what other Super Twos of significant value have received previously.

But, to pay upwards of $40 million for the right to reward him as if he’s already established himself as one of the best pitchers in all of baseball? That doesn’t make any sense, and Darvish doesn’t have the leverage to hold out for that kind of contract.