Getting Value Up Front
This morning’s poll results on “How Much Is Too Much For Albert Pujols” make it a clear that a lot of you are out and out against long term contracts that will end with a player being drastically overpaid and underproductive at the end of the deal. More than 1/3 of our readers said they would not give Pujols a 10 year deal at any price, even when presented with an option as low as $150 million.
While I understand the desire to not guarantee big money to a 41-year-old first baseman, that kind of risk aversion is simply too extreme. Put simply, you can’t look at the expected return on investment in only the latter part of a long term contract and determine that it’s a bad deal if the player is not earning his keep at the end of the deal.
Because of the time value of money, Major League teams structure long term contracts in a way that makes most of these contracts winners at the front end and losers at the back end. This is by design, and is true of even the best contracts for the best players – in fact, if a team is getting positive ROI on the final year or two of a free agent contract, the player likely exceeded expectations to a tremendous degree.
Let’s use the rumored 10 year, $220 million offer to Albert Pujols as an example. Here is a year by year breakdown of salaries and value, based on how these things are often structured.
| Year | Salary | $/WAR | Inflation | Exp WAR | Req WAR | Value Diff |
|---|---|---|---|---|---|---|
| 2012 | $17.50 | 5.0 | 5% | 6.2 | 3.5 | 2.67 |
| 2013 | $18.50 | 5.3 | 5% | 5.7 | 3.5 | 2.15 |
| 2014 | $19.50 | 5.5 | 5% | 5.2 | 3.5 | 1.63 |
| 2015 | $20.50 | 5.8 | 5% | 4.7 | 3.5 | 1.13 |
| 2016 | $21.50 | 6.1 | 5% | 4.0 | 3.5 | 0.43 |
| 2017 | $22.50 | 6.4 | 5% | 3.3 | 3.5 | (0.26) |
| 2018 | $23.50 | 6.7 | 5% | 2.6 | 3.5 | (0.94) |
| 2019 | $24.50 | 7.0 | 5% | 1.9 | 3.5 | (1.61) |
| 2020 | $25.50 | 7.4 | 5% | 1.2 | 3.5 | (2.28) |
| 2021 | $26.50 | 7.8 | 5% | 0.5 | 3.4 | (2.95) |
| Total | $220.00 | 35.0 | 35.0 |
Using the $5 million per win/5% inflation assumptions, $220 million over 10 years essentially requires Albert Pujols to be worth 35 wins over the life of the deal in order to make it a fair contract. I set the expected WAR to match that exactly so that we could have an example of what Pujols would need to be in order to justify the dollars exactly.
As the table shows, Pujols begins to return negative value beginning in year six, and is a below average player for the last three years of the deal. The end of this contract is clearly an albatross. However, even with the expected overpay at the end of the contract, this is still a scenario where the contract works out, because the deal is setup to provide enough value at the front of the contract to make up for the expected negative return at the end.
You have to analyze a deal by the total value it will return and not simply focus on the latter years of a long term deal. Those final years will almost always be bad for the organization handing out the contract, but the idea is to get enough value up front to make it worth giving up those years on the back end.
Don’t judge contracts by how they are viewed at the tail end of the deal – judge them by what a team gets in totality.
Dave is the Managing Editor of FanGraphs.
All this means is over 30% of fangraphs readers do not understand simple concepts like inflation
Agreed. When looking at the total number value of a contract, it would be a lot more accurate to use the Net Present Value.
For NPV – and my memory is hazy on this – wouldn’t you also have to take into consideration some estimate of the non-WAR contributions of Pujols (e.g., butts in the seats, jersey sales, etc.)?
Luckily, due to the way that this statistic is derived, 130% of Fangraphs readers will understand this concept by the time the deal is complete.
What should be the Presen Value? 135 millions accounting for the 5% inflation rate?
Not at all… an honest answer to the question. I wouldn’t give him 10 years.
Contract Crowdsourcing style is a better way to poll. I think 6/$150m is fair and reasonable. 10/$150m is a ridiculous answer because (1) he’d never accept it and (2) I don’t want those last 4 years of headache/PR mess. I have a hard time believing he’d take an AAV less than A-Rod.
so you see him getting less than Carl Crawford
What PR mess?! You release him if he’s bad enough to be a problem. Deferring money is GOOD. It’s a gain right there. If you will pay $150/6 then saying you won’t pay $150/10 is saying “I really really like throwing away millions of dollars pointlessly.”
You are assuming that the Marlins on not working on a relatively fixed budget payroll..
In all likelihood the difference between 6/150 and 10/150 is the marlins spending on other players (and not ‘saving’ money). Like most teams they are probably working toward a specific overall # so stretching out the money to one player just shifts it eslewhere…. The longer contract means 10 extra mil to spend on players in the first 6 years and 15mil less in the last 4 years.
The only REAL NPV gains is if team is banking those saving and are adjusting their team level salary targets. Your assertion that “I really like throwing money away” is an academic argument that is often misused as it doesn’t factor in the reality of how teams operate.
The owner’s assets aren’t that limited and he does in fact bank large amounts of money. You are in fact throwing away millions of the owners dollars as GM if you sign for six rather than twn. That’s not seriously debatable.
James, that’s still completely illogical. If you think he’s worth $150M/6, but you don’t want his services for the last 4 years, you can still just release him after year 6.
Or, better yet, if he was still a useful player in those last years, you could trade him (along with most of the money he’s owed) for a prospect.
Please show me the precedent of when this has ever happened. Just like the Yankees have been stuck with A-Rod, AJ, and all the other shitty long-term contracts they signed over the past decade, the Marlins, or whoever signs Pujols a 10-year deal will be stuck with him at the end. Former star players do not gracefully take being reduced to part-time status (see: Posada, Jorge), can not easily be dropped in the batting order (see: Jeter, Derek), and certainly will not allow you to mess around with them too much with regards to coaching (see: Giambi, Jason). To say that some team could just take the first six years of Pujols, and then simply release him, thus earning the value of his contract, and not being stuck with a “anything else is just free money” on their roster for a couple years, is laughable. Roster spots are finite, and former star players are not simply released, nor traded along with the value of their whole remaining contract for a prospect.
Uhh Seideberg, A-Rod was traded in the last couple of years of a 10 year contract.
Uh, Jason, A-Rod was traded before his age 28 season. Pujols, with 4 years left in a 10-year contract, would be traded before his age 38 season. Slight difference there. Also, he had 7 years left on his contract.
You asked for players that were traded after signing a 10-year contract. If you don’t like irrefutable evidence perhaps you should get off this blog and go back to one that will coddle your childish self esteem.
Jason -You didn’t read his comment (or apparently the one he responded to), made a mistake and then jumped on him and insulted him when he pointed out your mistake I suggest you look over the comment he responded to and re-read his original comment.
He said show him a precedent…. in response to the claim above that he could always be traded in those **last years** You mistakenly used ARod as an example of a player being traded at the end and when your mistake was pointed out you decided to reframe his comment to mean any player at any time, rather than own your mistake (or take the time to read the comments properly?)
The other minor detail worth considering…. Pujols will have 5-10 rights halfway through any 10 year contract (or if it’s the Cards, he already has it)… In all likelihood the team that signs him has him to the bitter end. So even if there is no no-trade clause the team may still have limited options.
The only childish response was yours… when you suggest he get off the blog and go to one that will coddle his self esteem. The only self esteem issues I see is the person who made a mistake and when it was pointed out to him decided to resort to a personal attack rather than taking the time to re-read the comments (when you might have found the error of your ways)
A-Rod had an opt out after seven years that was always assumed would be used. He was traded after five years. Sure, it may be re-positioning the argument, but the guy ranted how this has never happened when there have only been a handful of 10-year deals and one of them featured a guy traded in the middle of it.
I did read his comment and I thought it was written by a dumb animal who should be talked down to at every opportunity.
And for the second time now you are WRONG about ARod…. I mean are you trying to fool people or can you just not look the info up properly?
He was signed by the Rangers to the 10 year deal prior to the 2001 season and dealt to the Yankees prior to 2004…. this is THREE years into the contract… not the end, not 5, but 3… this is not the MIDDLE of the contract…. why do you continue to try to misinform and mischaracterize this?
Stop trying to win the argument, look up the actual information and take the time to listen and stop insulting people.
The only person that appears to need to visit a blog that will coddle his self esteem is the one that keeps throwing out insults instead of owning up to his mistakes. It would be nice to have a civil discussion without people resorting to terms like childish and dumb animal when they have their mistakes pointed out to them.
And now get the last word in, please insult me for pointing out your continued mistake with ARod and move on…
It might also be interesting to look at what the future salaries look like relative to WAR by adding a column discounting them back to their present value. Don’t know how probative that would be in terms of the actual analysis, but I’d be interested to see it just as a side by side comparison.
I think you’re much more likely to see 2% inflation versus 5%, though. And that makes a big difference.
No, it doesn’t. It just means that Pujols has to produce 40 WAR instead of 35, and you need him to be a 6.7 WAR player in true talent level right now. You might think that’s less likely, but it doesn’t change the fact that the first five years will be positive value and the last five will be negative value.
Just semantics. The difference between a high and low inflation estimate would likely effect the bottom line offer by 12, maybe 15%, which in this case is north of 30 million dollars. Not arguing with anything that you laid out in this piece – I agree that some folks were confused or perhaps didn’t fully grasp what they were voting on in your previous piece. The issue of inflation is an interesting one, and while it will likely end up being in our expected range of 4-5%, it could conceivably be much lower.
I think Dave mentioned in another article that the 5% is used only for demonstration purposes, and that you are free to use the rate that you understand fits best the situation.
I seriously doubt that.
The new CBA is structured to reduce money directly to player acquisition. Why? Because the MLBPA (the already acquired guys) want to redirect money to themselves in arbitration and free agency. If anything, the new CBA suggests that baseball salaries will see a big rise in the next few years.
And the magnitude of the money being moved from the ‘capped’ levels in the amateur and IFA market is on aggregate going to have a significant impact on the pool of money available in the FA market?
Any estimates on the amount of money that has been redirected (relative to the total FA money spent)?
That’s a nice academic argument but you have to look at the relative magnitude of spending in order to assess if it will really have an impact.
I think that’s being a good deal pessimistic as well. Pujols can definitely be a player that produces 5+ WAR. His caree-low in WAR was in 2010, which was 5.1, due mostly to a freak injury and helped by a monster finish.
His 87.8 career WAR spread out over his 11 years averages out to an annual WAR of 7.98. 2010 (7.5) and 2011 (5.1) are the only times he did NOT have a WAR over that since 2002 (6.0; also a 7.7 in 2001). Basically, since he’s come on as the possible best hitter of this generation, he has established himself as a capable fielder, respectable baserunner, 35+ HR guarantee, and an 8+ WAR MACHINE.
So a realistic WAR graph of Pujols would start at the 2010 total of 7.5 AT WORST. Using normal math does not apply to this guy. We’re saying he needs 35 WAR over 10 years to be worth it? Take out his career-best single-season WAR (10.1), and you still end up with a guy who posted 77.7 WAR over 10 years.
I don’t think it’s any question Pujols will be worth a 10-year, $220 million contract. In fact, people should be BEGGING to get him at that price, since we started the season talking about how negotiations were starting at 10/$250-300 million and that Pujols wanted to top A-Rod’s deal.
Lack of big-market teams in need of a 1B is the only reason Pujols isn’t going to make a bajillion dollars. If he had hit free agency after 2010, when the Cubs got Pena and the Red Sox got Gonzalez, he probably would be getting $275 million+.
Keith, maybe my memory is fuzzy but didn’t Pujols have a subpar season before his freak injury, and he was great after coming back from the injury? I wouldn’t blame the career-worst WAR on the injury – he was just a different (and worse) player at the beginning of the year.
And to say that the worst case starting point is 7.5 WAR – after he didn’t come close to that in the most recent season – that seems a little optimistic to me. Yes, he might put up 7.5+ WAR but there’s certainly a chance that he falls short of that.
He had exactly a 7.5 WAR last season, and I guessyou could call that a down year, since he usually is in the 8-9 range (8.2-9.1, to be specific).
His 2011 BABIP was also 34 points off of his career average (that produces that 7.98 WAR per-year average), so he was both hurt AND unlucky.
We still saw him go on an absolute tear down the stretch. His OPS by month:
April: .758
May: .752
June: 1.197
July: .955
August: .951
September: .954
Basically, you have to ask if Pujols is turning into Mark Teixeira at the start of a season, or if it was bad luck. That, and if the trend of early struggles of such magnitude will continue. May is his worst offensive month in his career, but April is a pretty good one, so I think it is more lukc than anything.
Maybe the idea of starting at 7.5 is generous, but seeing as he average 7.98 when you factor in this season of major bad luck, it also doesn’t seem unreasonable. Since he REALLY came on as a major force (2002), 7.5 is the floor for Pujols, while 10.1 is the ceiling.
I also am of the belief that Pujols is going to hold up pretty well for the first half of his contract. My 7.5 starting point might be excessive, but I think that the doomsayers are even worse on the negative spectrum, haha,
As we saw, Pujols only has to be a 0.5-WAR player in the final season of his contract, if you use the given formula, to be worth the money, starting at what would be his third-worse WAR season in his (after next season) 12-year career.
I gave him the benefit of the doubt for 2011 based on his career performance, but I also think 6.2 is really selling him short.
I understand the concept, Dave, but I think your math is off. Multiplying your “$/WAR” column by your “expected WAR” column, and adding it up, we get a total of $206M in value off of a $220M contract.
What fraction of 100M+ contracts turned out to give surplus value? What about 10 year contracts? At this point, it seems like an empirical question.
And subject to sample sizes too small to be informative. I could (quite easily) argue that 100% of completed ten-year contracts provided fair value on their investment. Of course, that’s a sample of Jeter and A-Rod (assuming he didn’t opt-out), but it’s still “empirical.”
I may be in the minority, but I just don’t agree with the last 2 paragraphs. Total value over the life of a contract is not relevant to helping you make the playoffs each year. The last 4 years are a bad deal for the team, period. At that point there will be another “best player on the planet” and Pujols will no longer be worth that kind of money. If he were a few years younger at least you would be getting him in his prime, but he is already likely past his prime and you are getting ten years of (possibly rapid) decline.
Ten years is just too long for any athletic contract in my opinion. That’s well beyond the total length of most major league careers.
Ding, ding!
It is possible to have a ‘win’ on the contract that still becomes an albatross and has a massive impact on the team… This is the problem with a lot of the SABR type analysis…. while it’s important to look at things on aggregate, sometimes the consistency or variability really matters.
If Albert post 9WAR seasons for the next 4 years and falls off a cliff and posts 1 WAR over the last 6 years… this contract is declared a “win” as he produced surplus value in aggregate. I would view it as a disaster.
Now obviously the #’s I made up are arbitrary and a distribution like that will not likely happen (except for maybe serous injury), but there are other components beyond a simple aggregate surplus value in play and you can’t simply evaluate the relative goodness of an individual contract in a complete vacuum over a 10 year period.
It’s funny I “often” here the counter argument when SABR folks talk about relievers….Something to the effect: “I’d rather drastically overpay a reliever on a 1 or 2 year deal then have a long contract which might not be as much of an overpay”, but the simple aggregate surplus value argument here suggests otherwise, no? It’s almost like flexibility, variability, risk and other factors might matter some….
If he posts 9 WAR seasons the next four seasons, the Angles have a great chance of winning one or more World Series, which is what it is all about. So then the Angels struggle for 6 years- that’s better in my mind than being a fringe playoff candidate for 10 years.
This is ignoring the preference of readers and probably GM’s who just want to avoid the albatross end of any contract, regardless of name or legend. Pujols is a special, special player, but lets take that chart to be the mean of what we expect Albert to produce vs. what he’s paid. I think it’s more than fair and actually wise to avoid a ten year contract if it means not hamstringing a team salary for that final 3-4 years, regardless of how special the player is during the first 6-7. With the salaries stated above (barring a massive amount of deferred money) the team is precluded from being able to trade him away when he gets to “below average,” and probably even before that point unless you’re eating salary, which means either way you’re stuck with taking a huge loss for multiple years.
The idea that WAR and salary even out by the end of 10 years doesn’t justify trading 6-7 years of value for 3-4 years of losses when you don’t have to. Pujols is one player who will play for one competing team in a league of 30. As talented and productive and marketable as he is, he is not a championship in a box. No one player in baseball ever is. Few in history can match what his production has been to this point and probably few in the next 4-5 years, but wouldn’t it be smarter to find a player who can approach 3-4 annual wins through his prime at a 5-year pact? That’s why people are judging the 10-year concept and I’m willing to bet that’s why Pujols’ market for that deal is so small.
I am not a big fan of the way Fangraphs values players over the life of contracts. Every single contract seems to be valued with the assumptions of a half a win decline and 5% inflation, the inflation is fine but because every single player is given a half a win decline per season the result is that the projections of the first years WAR is all that matters in determining who has the most value. I feel like in real life one of the main reasons GMs value players with the specific values they do is because of their opinions on how the player’s aging curve will look.
Inflation of what? I’m missing something here, perhaps because I’m brain fried at the moment, but are we talking about the inflation on player contracts (which I have no idea whether 5% is at all reasonable), or are we talking about CPI inflation, which at least on the front end, ain’t going to increase at 5% annually. Hopefully by 2021 that assumption might be reasonable, but we’re inflating at around 1-2% right now.
You’re still not getting it. You aren’t worth something because WAR says you are. You are worth something because of how you rate next to similar signings.
Let’s say that Adrian Gonzalez is worth 6.2 WAR next year, not unreasonable since he was at 6.6 this year. Using your %’s of decline for years 3-7 of his contract, and using a rate of decline of .93 and .92 for the first two years of his contract, then using the same model you use, his 7-year WAR is ~ 34. Pujols is 31.7. Cut it up anyway you want, but it is tough to make a case for Pujols being any better than Gonzo over the next 7 years (mostly due to being younger, and therefore a smaller decline).
If the number for Pujols is $220M/10, then Gonzo should be at least that, since his decline over his last three years of the 10 years would be far less than Pujols.
I see no way to justify Pujols based on how he compares to Gonzo.
The main problem with your analogy is that Pujols is a free agent and Gonzalez is not. How he compares with Gonzalez is, therefore, irrelevant. It’s not like the Cards and Marlins can choose between the 2 since Pujols is the only one of them who’s a free agent.
For all we know (or care) Gonzalez can be worth $400 M over 10 years. It doesn’t matter one iota since he’s not a free agent. He forfeited that right by signing his long term contract following the trade. It’s absolutely irrelevant to determining what Pujols is worth.
I think the biggest problem with a ten year deal for a team like the Cardinals is that while Pujols will be helping them for the next five years or so, he will be hurting their chances in the last four or five years of the deal. The average full time first basemen is worth around 3 wins, so for maybe half the deal you’ll be paying premium prices for average output.
Now you would say that while yes, he does hurt the teams chances later in the deal, that the added benefit right now is worth it, but I’m not sure I buy that. The Cardinals are in a very winnable division, and even without Pujols I think that they have a fighting chance in the next couple of seasons, especially if they used the money that Pujols would have gotten to fix multiple weak spots.
I just think huge long term contracts to players over 30 are rarely worth it.
The other problem with the Cardinals is that most of their stars will be getting old at the same time. So, StL has a really good chance to be good for 2012 and 2013, and decent chance for 2014. But, after that who knows? Who knows with any team?
StL is in good position (likely) from 2012-2014. Then there’ll be some key retirements, players eligible for FA, etc. If I’m StL I don’t think I go overboard locking things up for 2016-2019.
StL is in likely good positions for the next 3 years with current stars under contract for good performance years, and enough young players producing at team friendly costs (seriously, look up the production/cost for Garcia, Freese, Craig, and Jay … it’s amazing).
Pujols was THE reason why StL is 3rd on the list of price per win over the past decade. His surplus performance has been THAT much. But, StL is no longer in a position that they HAVE to sign him.
StL almost always has good teams, and has star players that the fans love. StL is not in a position where Pujols departing crushes the franchise.
I think a “worth it contract” makes it about a 50/50 decision for StL. In other words if they pay for X WAR and he delivers X WAR, then it’s currently a 50/50 decision. It depends on how much you like what you have now compared to what you might have in the future.
StL has brought in guys like Rolen, Edmonds, Will Clark, McGwire, Berkman and they have done very well and StL has given up very little to get them. This is not an organization that is in a “Pujols or Bust” situation.
IMO, the perception about Pujols changed with StL fans when he turned down the 9/200 or whatever it was. Don’t get me wrong, we love the guy.But, if he wants 23M+ a year for 10 years, I think enough StL fans look around at 2B, SS, SP, etc and see where that 23M/y could go to improve the team as a whole.
I think many readers (myself included) read “I” would pay Pujols “X” on a 10 year contract to imply that the “I” would be if I ran my personal favorite team.
If my team would not be in position to make the post season in the first 2 years of the deal, then the overall value of Pujol drops significantly to my team. Yes, he would technically be “worth” the “X” I was paying him, but those dollars would be much better spent elsewhere.
I am Cubs fan, and I would enjoy watching Pujol play……but come hell, high water or Albert Pujol my Cubs are not making the playoffs next season (highly unlikely in 2013 either).
I selected the 10/150 based on eliminating his first two years of value. After reading this I realize I should have gone into the 190 range. I would prefer the Cubs not go after either Pujol or Fielder, but instead continue trying to weed out the bad contracts, make smart deals (DeJesus) and get a cost controlled foundation…then go after the “big” pieces we need to win.
So, you’re basically saying that if you can get WAR for cheaper than the average rate, you’d rather spend the money elsewhere.
Well, yeah.
You only want to spend you money if you can get back more than what the average deal yields.
I only want to buy winning lottery tickets. Heh Heh.
I get your point, but just think there’s no way to really spend your money with an expectation of getting back more return than average.
But, I think the point you’re making is that a team like you describe would be better off spending money on younger talent that may be eventually worth more WAR for the same or less money.
Say what? I thought he made it pretty clear that “contenders” should be okay with the value averaging out, while it would be absolutely silly to accept surplus value early in a contract when that value will be essentially wasted. Congratulations, the Cubs only finished 12 GB with Pujols this year! Quite the accomplishment. Let’s remember this when we’re paying him a ridiculous sum of money for being average. Albert Pujols kept us in the 2012 and 2013 playoff races for 6 extra days!
It’s like buying a lottery ticket for “FREE CAR DETAILING FOR THE NEXT FIVE YEARS!” People that have nice cars might be interested in it, but there’s a lot of people out there with Kia’s going like..”WTF AM I EVEN GOING TO DO WITH SUCH THINGS!?!?”
No one wants to get back more in return. They just want to get it back when they need it.
Hey, Dan Szymborski and I were just talking about this a few hours ago. I personally think contracts should ONLY be evaluated by NPV. I assume each (billionaire) owner’s collective businesses earn enough revenue every year that the relative value of the salary of any one player is fairly small. So instead of worrying if Pujols gets $220m over 10 years or $200m over 8 or $190m over 6 (all NPV@7% = 150m using the same $1m raises), pay Pujols the equivalent NPV at the schedule of his choosing, and use your other investments to shift the burden forward or backward to the schedule of your choosing. If Pujols will take his money slower, you can “pay” him more than his salary that year, but invest the difference to cover the future cost.
That investment is why I used a discount rate of 7%, not 5% (which is a bit steep for just inflation). The (billionaire) owners have some marginal ROI that they can earn on their money, and you can bet it’s higher than anything safe we have access to. Any discount rate needs to take that into account in addition to inflation.
that’s actually a really clever way of dispensing a 10 year contract.
I voted for not giving him a 10 year deal and jokingly made a comment that he was overrated. I don’t think he has been, but I think the assumptions about his short-term value (first few seasons of the contract) are a bit higher than should be. It wasn’t the same Albert Pujols anytime I would watch him last season, and that worries me heading into a 10 year contract that is starting at age 31/32. It is also easy to notice that both his offensive and defensive stats have been slipping the past two seasons. He is in good shape, and appeared to be super human last season after coming back from that wrist injury so fast, but he doesn’t appear to be a super athlete a la ARod (and he won’t be able to juice a la Barroid), and even the best athletes can have big injuries. If he needed a hip surgery (say) or loses most of a season, especially before years 4-5, then your team is hamstrung and you won’t be getting the value you expected.
Also, I disagree with the notion that you dismiss the negative value at the end of the contract because he would still be overall worth the contract. It is not the expected return at the end of the contract that worries me, it is the hole a franchise could fall into if they have too many bloated contracts and unmovable players at the end of the deal.
These are just some of my initial reactions while I should be studying for finals, and I am always open to be convinced otherwise or as to why I am thinking about this the wrong way, so you really don’t need to come at me to bash
I may be missing something, since I’ve taken about two minutes to skim the post and some of the comments.
The method makes a lot of sense, even if the example may not reflect the real numbers. One key to this that I didn’t see mentioned is that with players such as Pujols and Fielder, if you don’t offer the length of contract that gets you into the negative return territory, you don’t get the front end years of positive return. They go to some other team.
Pujols playing for a team that isn’t yours has a very minimal impact on your team’s ability to win games. Even for a division rival, you see Pujols against you 18 or 19 games out of 162 and even for those games, he can only contribute so much against you.
While everyone is trying to calculate what Pujols is worth in an absolute sense, he’s one guy! The vast majority of contributions toward a winning team feature 8-9 regular hitters, 5 starting pitchers and 1-2 dominant relievers. Unless you’re a specific exception (i.e. the Yankees or the Red Sox) it’s rare for any single player to be worth an annual salary of $25M that could range anywhere from 20-30% of your player payroll. That’s even before considering attrition and age. If you’re a contending ballclub needing that many productive pieces and if it TAKES 10 years and 220 million to sign him, wouldn’t you rather someone else take that hit? I know I would. The impact he has on your team is great if he’s putting up 8-10 win seasons, or even 6.5, but that still comes with the salary caveat. Then what happens when he ages, you have all that production to make up but still have the salary locked.
This shouldn’t be an argument so much against what Albert Pujols is worth via WAR. This is a question of strategy. If you’re a GM, you’ve got a projected payroll of $110-120M, how much are you willing to give a single player?
I may not be doing math incorrectly, but one thing that I think Dave is not giving credence to is trade value at the end of the contract.
Say after year 6 the Cards are in the cellar and want to clean house. First on their list is to get rid of Pujols and his contract.
Under Dave’s example, he would be owed 100 million over the last 4 years of the deal. In my example I continued on with the theory that any team trading for Pujols would only be comfortable paying him 60 million over that deal.
So in Dave’s example where he is owed 100 million at the end of the contract, the Cards would need to eat 40 million, the NPV of which is $26.46.
The Cards would have gotten the first 6 years at an NPV salary of $100.79 + $26.46 to get rid of the contract for a total of $127.25 million cost for $160.30 million worth of WAR (assuming Dave’s 5% inflation and player decline curve.
In the example I set up, I had the Cardinals paying Pujols the same $220 million, but every year was $22 million a year.
The NPV of the first 6 years of the contract is a higher $111.67 million. However, lets assume teams still will only pay $60 million of his contract, except now Pujols is only owed $88 million over those 4 years. The Cards would only need to cover $18 million, NPV of which is $11.91 million for a total cost to the Cards of $123.57.
So in Dave’s they pay $127.25 and get $160.30 worth of WAR
in my example they pay $123.57 and stil lget $160.30 worth of WAR.
Now, i know my example may be a tad ridiculous (the amount teams would be willnig to pay Pujols 7 years from now) and I’m not sure whether I should have used Year 7 as Year 1 when figuring out NPV of the Cards payment or take it all from Year 1(now) which is what I did.
Hopefully I can inspire someone much smarter than I to take on this theory.
Nevermind!!! The complex math I got right, but 88-60 = 28 not 18. Awesome, anyway I’d love for others to tackle the possibility of something like this.
Now that I fixed my mistake, I don’t think it would be better to have a smaller amount towards the end of the contract, at the very least not in the example I created.
It doesn’t work exactly this way, where total value is the only consideration. The opportunity cost of having Pujols on the roster in those latter years can hinder a team with a budget. If Miami ends up winning the sweepstakes for example, they would effectively be working with a budget that is 20mil less than what they are actually paying, because Pujols is no longer providing excess value. Long-term deals like this concede that you will likely have money problems at the end. They only make sense if you are cool with having a tough time competing 10 years in the future. Essentially, you get tons of value up front and can compete now, but concede future wins. What if you want to win every year? Then you have to restrict yourself in terms of what you would offer over such a long contract. 150mil would be ridiculous, but thats not happening.
Contracts are not “often” structured the way you put it…. more often than not they are flat AAV or maybe have one or 2 years as a lower value and then plateau. How many contracts gave a straight linear progression like that (certainly not a majority of them)?
You also ignore several key factors in your analysis…..
1) roster flexibility… while total surplus value (or lack thereof) is obviously the dominant factor, there is still some value to not having that roster spot locked up… of you had 2 deals one at 8/100 the other at 6/80 and they both were estimated to provide 5mil of surplus value over the life of the contract would these contracts be equally good?
2) Risk… there are a lot of complex risk scenarios to consider. A couple examples:
– injury (specifically a significant one that severely degrades performance.. this risk (probability) is somewhat dependent on contract length
– the risk that the assumptions you are initially plugging in change over the course of the contract… as an example the chances of your inflation assessment being right over a 3 year period vs a 10 year period
….A longer deal introduces more potential variability in the estimation of that deal and I don’t think you can say it is as simple as looking at total value. That is obviously a key (and biggest) part of the equation, but it hardly is the whole story.
I would have liked to see an acknowledgement that there’s an awful lot of fudge factor in value dollars, but otherwise, Thank You.
When I responded to the poll, I was shocked to see so many respondents choosing the cop out answer.
when assessing any long term contract, you also have to imagine what the deal will do to the team’s payroll “cap” down the road. Let’s say the Marlins plan on having a $80-$100m payroll 7-10 years from now. If so, $20 million a year for a declined Albert Pujols might not look so hot on the books at that time.
So is killing your payroll for 3 or 4 years in the future worth the marginal improvement to turn your team into a 85-90 win team the next few years?
I don’t know what the right answer is. I suspect if he goes to Miami the Marlins will be quite happy with the contract for at least the first 3 years. Hopefully they make the playoffs at least once in that time span. After that, it’s anybody’s guess how the contract plays out.
250-260MM from the Halo’s?
Very interesting. Would like to see requirements to provide value in this context.
Angels may well benefit from Pujols more than the Cards would. But it’s also a ton of money.
Based on 0.5 WAR regressions and 5% inflation and 5m/WAR starting, then Pujols has to start at 6.5 WAR to be worth it. Under the math in this post if he starts at 6.5 WAR, he’s worth 249,618,787.
eww, totally disregard this. I just realized a column was in the wrong place and inflation was applied to the wrong thing. Totally wrong.
6.9 WAR = 249m and change under OP formula. Sorry about triple post.
Why would you assume the first year $ WAR value has 11% inflation?
It was the same thing last year… Dave convinced himself there would be massive salary inflation, creates the narrative early in the offseason when the big contracts are signed and as the offseason wears on the smaller contracts get signed and the $/WAR value comes back down.
1 WAR was 4.5mil last year… if you are going to assume 5% inflation in years 2-10, why not have year 1 be 5% inflation as well?
It only changes your calculation a bit (makes the starting point around 7.2WAR), but I don’t know why folks continue to insist on using Dave’s arbitrary (and non data driven) 5mil/WAR figure…
I’ve read through 59 comments but haven’t seen this mentioned: Most GMs don’t last 10 years. If you can be a powerhouse for next the few years and win a couple championships, you’ve cemented your place in franchise history. If you’re gone 6 or 7 years from now, a) it’ll be someone else’s mess to clean up, and b) someone will offer you a job based on your prior championships.