The Other Side of the Chris Davis Contract

At the kind of money he wanted, Chris Davis basically had a one-team market. Other big-spending teams didn’t have openings at first base, and other big-spending teams weren’t buying Scott Boras’ pitch of Davis as a versatile could-be outfielder. The Orioles sensed even a month ago they would be bidding against themselves, and they attempted a couple leverage plays to try to force Boras’ hand. Yet Boras won, as he almost always does. Here’s what’s being reported: Davis re-signed with Baltimore for a seven-year deal worth $161 million. Somehow, the commitment got bigger from what was reported weeks back. The Orioles were the only team around $150 million, and Scott Boras got them to add on more.

That makes it kind of a bad look for Baltimore. The easy takeaway is that Peter Angelos just got played. And at the end of the day, it’s highly unlikely another team would’ve been willing to come close to this, had the Orioles walked away. But for one thing — however much this is worth — this does send a good message that the Orioles will spend to keep good players around. People have doubted that in the past, and now Davis joins Darren O’Day as a returning key player. And there are other factors, as well, in support of the idea this isn’t a certain catastrophe. This isn’t quite a straight-up $161-million commitment. There are, let’s say, special considerations.

Start with the on-the-field stuff. That’s the stuff fans care about most. There should be no doubting Davis is a good player. A risky player, absolutely, but last year he was a top-20 position player by WAR, and three years ago he was top-10. There’s a big range of potential outcomes, but it’s centered around a good stat line, and the Orioles, like everyone else in the American League, are a potential contender. Last year they won 81 times, yet the year before they won 96 times, and the bullpen looks fantastic. The rotation needs help. The team is thin. It could make the playoffs, though, is the point. This isn’t a cellar-dweller throwing money at wins that don’t matter.

Whenever you see a big contract like this, you see analysis based around player comps. And with Davis, there’s one comp that’s impossible to ignore. Almost without question, the most similar player to Davis, in recent history, has been Ryan Howard. And, yeah.

Chris Davis and the Uh-Oh Comparison
Player Ages BB% K% wRC+ ISO HR/FB% IFFB% Contact%
Chris Davis 27 – 29 12% 31% 140 0.292 28% 4% 68%
Ryan Howard 27 – 29 13% 29% 132 0.299 29% 2% 66%

It’s freaky how similar they look. It’s just about an identical skillset. Since turning 30, Howard has been worth right around one win above replacement. You know how Howard has gone. You can’t just shut this out, when you get to worrying about Davis’ future.

But you need to be careful with how you think about these things. Player-comp analysis, in general, has significant drawbacks, since every player is his own person, and everyone faces different circumstances in different eras. And, specifically, Howard here is legitimately a worst-case scenario. His performance fell off, and he sustained a major injury. Using Howard as a comp is kind of like using Brandon Webb as a comp for excellent starting pitchers. It’s a good reminder that things can just suddenly fall apart, but Webb isn’t a reason to never invest long-term in a starter. Webb was awesome. Howard was his own kind of awesome. He took a bad turn, but you’re talking about a sample size of literally one.

Not to mention, even with this comparison, Davis appears to be the better athlete. He moves around better, he rates as the superior defender, and Davis has played in the outfield without embarrassing himself. Davis has also played some third base. Again, teams wouldn’t buy Davis as anything other than a first baseman, but the recent versatility does suggest Davis isn’t just a classic one-tool slugger.

I remember reading some of the same stuff about Adam Dunn. People would defend Dunn’s athleticism as being better than it seemed, and that didn’t really seem to help Dunn age. It’s not promising that Dunn, also, struggled in his 30s. But one of the reasons it’s hard to find good Davis comps who succeeded in their 30s is there just haven’t been very many of these players. Not at Davis’ extremes. The best possible outcome, of course, is Jim Thome, and he’s hardly a worse comp than Howard. And, remember Russell Branyan? Branyan, in his 30s, actually out-hit himself between 27-29. He just wound up bothered by injuries, but the bat didn’t disappear. Branyan is proof this skillset can sustain, and it has sustained recently.

Moving on now to the financials, one issue is this isn’t just $161 million. It’s not an ordinary seven-year contract.

Adds Ken Rosenthal:

I’m not the econ guy — Dave is the econ guy — but even if you’re a non-econ guy, you have some basic understanding of what deferred money means. We went over this a year ago, when Boras designed a Max Scherzer contract with the Nationals that deferred even more. Future money is less valuable than present money, but it still finds itself into headlines like everything’s equal. Boras and Davis get to say they got $161 million. They’re not wrong, even if there’s an asterisk. This is one way of maximizing the commitment, and this might be what Boras and Angelos were working through the past few weeks. Some sort of compromise, that gave Davis the biggest superficial terms, while not actually costing the Orioles more than they were comfortable with.

So when you’re comparing the Davis contract to what you think he should’ve gotten on the market, you can’t just use that $161 million, straight. He’s effectively earning less than that, even if not by that much.

Now there’s one final consideration, that might ultimately be the most important of all. When we talk about whether contracts are “good” or “bad”, we lean upon a critical assumption — there’s a fixed amount of money beyond which owners won’t go. So if a team has a budget of, say, $120 million, then the team needs to be careful to maximize its efficiency below that line. Every dollar spent poorly is a dollar that can’t be put to better use. This is the risk of dead money. Dead money reduces the “effective” budget.

What if the assumption is wrong, though? What if an owner decided to just spend more? A contract isn’t bad if an owner just spends his way out of it. Then the team wouldn’t really be affected at all. We don’t see this very much, but Peter Angelos clearly believes Chris Davis is special.

The idea presented: the money budgeted for Chris Davis wasn’t being budgeted for just anyone. Angelos has a particular fondness for Davis, and a particular appreciation of everything he’s done. It’s not quite that Davis is being paid right out of Angelos’ pocket, from a completely separate budget, but there are hints that the Orioles’ payroll might go higher with Davis than it would’ve without Davis. If that’s in any way true, then it has to also be a factor, because it means the Orioles would spend more on a team with Davis than they would on a team with, say, Yoenis Cespedes. Again, if that’s true, it would mean Davis is getting money that wouldn’t have been put elsewhere.

So that would further complicate the evaluation — making it no less friendly for Davis, who doesn’t care where the money comes from, but making it less not-friendly for the team. It’s a hell of an assumption, but Angelos clearly thinks of this player and circumstance as unique, and the easiest way to think of it is just by chopping some money off the top when you’re figuring out the team’s commitment here. It’s not like all the money would be coming from a separate budget, but it would be a fraction.

There are problems — maybe in time, Angelos would change his mind. Maybe especially if Davis declined. And as a fan it could be frustrating to think about this situation because you’d want the same amount of money to be available regardless. This is getting into weird territory, where it’s difficult to prove almost anything. But if there’s “free” money involved here, then the team itself assumes less risk, because Angelos would be deciding to dip into his own piggy bank.

I think we all have a pretty good idea that the Orioles spent more than anyone else would’ve been willing to spend. Just in that sense, the Orioles are taking a big risk, and this is a huge win for Davis and Boras. All else being equal, the Orioles probably would’ve been better off luring Cespedes or Justin Upton. But for one thing, there’s no guarantee Davis begins a steep decline, just because a few players with his skillset have done that. His future doesn’t have to be dark. And then there are financial considerations — deferred money, and Davis being one of Peter Angelos’ favorite players. There’s a chance Angelos is putting money into the team here he wouldn’t have put in otherwise, and if that’s true, that’s more good than bad. We should all want for owners to spend more than they do. The alternative is that the money stays with the owners.

We hoped you liked reading The Other Side of the Chris Davis Contract by Jeff Sullivan!

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Jeff made Lookout Landing a thing, but he does not still write there about the Mariners. He does write here, sometimes about the Mariners, but usually not.

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walt526
Member
Member
walt526

They’re paying Davis $119M/7yr with a $42M obligation (that has a NPV of ~$18.6M) following the end of the contract. It’s not a great contract as it still has nothing but downside for the Orioles, but it’s not quite the disaster a standard $161M/7yr would be.

n0exit
Member
n0exit

Not a finance specialist, but what discount rate did you use and why?

walt526
Member
Member
walt526

7.5%, because presumably the Orioles have a competent investment advisor and the time horizon is 22 years.

If you use 5% instead, then the deferrals have a NPV of $17.3M.

jcxy
Member
jcxy

no reason to use anything more than 3-4% for these purposes. t-bill rate is what, 2%? there’s not a whole lot of logic to it other than for a back of the envelope calc other than you’d prefer to err on the conservative side. 19MM seems fair.

Phillies' Front Office
Member
Phillies' Front Office

Almost any business of the Orioles’ size, or for that matter, any accredited walk in financial advisor, could easily beat a 3-4% annual return over the given time frame.

Antonio Bananas
Member
Member
Antonio Bananas

Over that length of time, you survive bear markets. Simply putting every dime in the ETF “SPY” or “DIA” would probably beat that rate.