2006 Free Agent Signings
With free agency nearly over, and by popular demand, here is my list of the ten best and worst free agent signings this winter. I’ve been vocal in my criticism of some of the decisions made this offseason, and there have been some horrible contracts handed out, but there have also been some good deals signed this winter.
So, without further ado, as of 12/28, the best and worst of the offseason signings:
Best Contracts of 2006
| Rank | Player | Team | Years | Total |
| 1. | M. Mussina | New York Yankees | 2 | $23m |
| 2. | G. Maddux | San Diego Padres | 1 | $10m |
| 3. | A. Pettitte | New York Yankees | 1 | $16m |
| 4. | D. Matsuzaka | Boston Red Sox | 6 | $102m |
| 5. | R. Durham | San Francisco Giants | 2 | $15m |
| 6. | D. Dellucci | Cleveland Indians | 3 | $11.5m |
| 7. | A. Iwamura | Tampa Bay Devil Rays | 3 | $13m |
| 8. | M. Alou | New York Mets | 1 | $8.5m |
| 9. | M. DeRosa | Chicago Cubs | 3 | $13m |
| 10 | J. Valentin | New York Mets | 1 | $3.8m |
Honorable Mention: A. Kennedy, F. Thomas, J. Guillen, F. Catalanatto, R. Wolf
Worst Contracts of 2006
| Rank | Player | Team | Years | Total |
| 1. | C. Lee | Houston Astros | 6 | $100m |
| 2. | B. Zito | San Francisco Giants | 7 | $126m |
| 3. | G. Meche | Kansas City Royals | 5 | $55m |
| 4. | J. Pierre | Los Angeles Dodgers | 5 | $45m |
| 5. | G. Matthews | Anaheim Angels | 5 | $50m |
| 6. | A. Soriano | Chicago Cubs | 8 | $136m |
| 7. | J. Marquis | Chicago Cubs | 3 | $21m |
| 8. | D. Baez | Baltimore Orioles | 3 | $19m |
| 9. | S. Hillenbrand | Anaheim Angels | 1 | $6.5m |
| 10. | W. Williams | Houston Astros | 2 | $12.5m |
Dishonorable Mention: B. Molina, A. Gonzalez, J. Walker, J. Payton, M. Stanton, C. Bradford
It was a good year to sign aging all-stars to short term deals, as the top three guys on my list are all still among the better pitchers in their respective leagues, and required no long term commitment. There were quite a few good contracts signed, but the albatross deals handed out to mediocre players will be the story of the winter.
Sure, but in any of these contracts, you’re looking at players on the decline. Take the Matthews examples there: a 2/24 and a 2/19 deal might both be more than I would want to pay, but if you think he’s going to be a 4 win player for the next two years, it’s an overpayment of… 3 or 8 million. Over a nine-year deal, though, it’s not just that that gap grows with years, it’s also that his expected contribution drops as time goes on. You’re not going to continue to get 4 wins/year out of a player over seven years, so it’s a lot more like saying:
2/19 for the first two years, decent deal
2/19 for the next two years, less good
…
through the life of any contract.
You may not be too familiar with my chart, but I include a decline for performance, and an increase of $ per win for baseball-inflation. That’s why the chart works out the way it does.
I’d say I’m not so much unfamiliar as uncomprehending. The problem with that is that a 2-win player is not 1/2 as valuable as a 4-win player, because there are many more 2-win players. Their value as a commodity drops far more than a linear $5m/win=$value projection would indicate. If a 5-win player drops to a 1.5win player in the end of his contract, even with sustained inflation he’s not worth it.
But then, I also don’t believe a 10% annual inflation in payroll is sustainable.
You are correct that my chart is based on a linear relationship, and therefore a 2-win player will, for a single year, earn half as much as a 4-win player, who will earn, for a single year, half as much as an 8-win player.
The value in the commodity is in sustaining that ability. A 2-win player will say be 1.5 wins next year, then 1.0 wins, then 0.5 wins, then out of the league, so that over a 5-yr period, he’d be 5 wins total. A 4-win single-year player will be a 15 win player over 5 years, so he’d producing 3 times more value, rather than the initial year double the value.
I believe it is on that basis that the perceived “non-linearity” comes in.
I think if all players signed for exactly one year, the linear relationship would hold (like in fantasy baseball). In any case, I think my model as I’ve presented it would probably hold if we look at it long-term.
As for 10%, this has been the case if you look at most 10-yr periods. I wouldn’t be surprised if in the future it’ll be more than 10%.
Well, then, I disagree that that’s a reasonable way to look at it, or that player valuation can or should be linear, or that 10% payroll inflation is sustainable.
It’s like… say I can pick three car leases.
There’s the BMW for $1,000 a month for ten years.
Or a nice VW for $500 on a five-year deal.
Or a Civic for $300 on a three-year deal.
Further, assume that cars all degrade in value continually, quickly, and equally. And there’s no inflation. Also, no friction or gravity. At the end of the Beemer lease, you’re paying $1,000 for a crappy car that spends all its time at the dealer and they won’t give you a loaner.
You’re not better off having signed that lease because the initial quality was better. At that point, in that last year of the deal, you’re thinking “Crap, I could go rent two VWs for this money. Or three Civics. Then I could have one for me, one for the extra $100 I’m saving, and one for all the women who will want to date me for my amazing financial skills.”
Okay, so that’s not the best analogy, but I typed it out and everything so I’m not going back.
How much would you pay to each player if they were one/50th as talented as Albert Pujols? You can’t put a team together with 50 fractional Pujolses. And so on and so forth. Value can’t be linear. Teams may pay on the line, but that doesn’t mean it’s rational or a good idea.
And the economics thing – predicting even the near-term future of much larger economies is a crapshoot. I don’t know if they can sustain 10%, but I’m extremely skeptical.
I said this elsewhere, and I’ll repeat it:
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Why is 10% not sustainable? Payroll has grown at a 10% clip from 1985 to 2005. Also 10% from 1990 to 2005. As high as 9% from 1996 to 2005. While 6% may seem more appropriate, I’d counter that MLBAM money will be enormous. MLBAM is already worth more than the Yankees I’d guess. And one day, possibly within the next few years, MLBAM will be worth 50% of the entire league.
Teams will have lots of money floating around, and, while spending it won’t give them a bigger share of MLBAM, they won’t be able to resist not spending it. They are going to budget spending 55% – 60% of their revenue on payroll, even if 45% makes more sense because of MLBAM-revenue sharing.
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As for the non-linearity, if you play in single-year fantasy baseball, you will find that the valuations of players do follow the linear rule. I would say that if you were to construct a realistic baseball model (30 teams, average team payroll of 80 million$, with 1 SD = 15 million$), that the valuations of players would also follow a linear line.
I understand the “50 x 1/50th Pujols”, but the reality is that once a team pays for Pujols and Carpenter and Rolen, it’s tough for them to keep paying for other stars.
I know that MLBAM expects to see 20-30% revenue growth at least through five years. So 2010, they’d be taking in what, ~$800m+ in revenues. $500m more for 30 teams is $16m more a team/year, so that’s what, a 20% payroll increase, total, over those five years? That’s certainly not 10% year over year growth.
I probably just made some horrible math error: my chicken skewers are ready to come out of the oven, so I’m rushing.
Doesn’t matter. I’m skeptical of MLBAM’s ability so sustain that kind of growth that long, and baseball’s ability to sustain revenue growth over the next decade. I don’t know, certainly.
Sure, none of us knows!
Your numbers shows a 4% year over year, just based on MLBAM itself. If you can believe they would have done 6% growth, excluding MLBAM, there’s your 10% growth. Certainly teams have been spending this year like they expect 10% growth.
So, from 1985-2005, they actually have seen 10% growth. Inflation is what, 3%? MLBAM you say is 4%. If all they get is a modest 3% over and above all this on their regular product, we continue with 10%. At a pure minimum, using your numbers, it’s 7%.
The chicken skewers weren’t very good, btw, so I lose two ways.
Also don’t forget that capital appreciation of ball clubs also feeds into wages.
According to Forbes (and who knows how reliable a source it is) capital appreciation has grown in-line with wages). MLBAM also has a considerable effect of the value of the clubs as it is owner my the clubs. Add in non MLBAM appreciation too and you can start to see where a lot of the new money is coming from.