2016 Reds

Let’s Talk about Contracts

Here in Reds land, it seems there is an eternal debate about whether or not certain players are “worth” their contracts and about whether or not the Reds should give so much of their payroll to a few players and on and on. I thought it was time for a facts-based assessment. There will be a few opinions here, but mostly, I’m interested in looking at the facts. Specifically, how much value a player is providing relative to what he is being paid. First, however, we need to get two things out of the way.

  1. Free agents are more expensive than players still in their first 6 years of team control. This should be obvious, but too many people ignore it. You can’t reasonably compare the pay a player receives after his 6th year with the pay of players who are still under teams control. We need to compare apples to apples. To that end, I will use FanGraphs’ estimate on the cost of WAR/season on the open market. Right now that’s about $7.7M. However, that number will go up over the next several years because inflation happens in baseball.
  2. I’m not worried about percentage of payroll. What matters is production. On a roster like the Reds’, which is dominated by young players, it’s very easy for one or two veteran contracts to take a huge percentage of the payroll.

Now, let’s take a look at how the players currently on the team and past their first six years have done relative to what they’re being paid.

Good Contracts

Brandon Phillips, 6 years, $72.5

I’m just interested in the numbers and the numbers say that, so far, Phillips has been worth $82.2M since beginning his extension in 2012. That’s almost $10M in excess value and he still has a year left. Do I think Phillips should start next year? No, I do not. But he has provided plenty of value to the Reds since signing. This was not a bad contract relative to the market. He was underpaid for much of it and is now slightly overpaid. That’s usually how these things work.

Undecided

Joey Votto, 10 years, $225M

Chad tackled this for Cincinnati Magazine, and I suggest you go read it. The upshot is that as long as Votto doesn’t fall off a cliff, he’ll be worth the contract. Will he be overpaid at the end? Sure. But that’s part of what gets you about $60M in value last year.

Homer Bailey, 6 years, $106M

I don’t want to play hindsight too much here. So far, however, Homer has underperformed his contract by about $25M. In order to fully make up the value of his contract, he would need to be about a 4 WAR player for each of the next 3 years. That’s a tall task for a pitcher who’s only done it once before, but it’s possible. If you discount the TJ surgery, he would need to be roughly a 3 WAR player each year to be worth the remaining years of his contract, and that seems more reasonable.

Bad Contract

Alfredo Simon, 1 year, $3M

Despite only being paid $3M this year, Simon has actually cost the Reds about $11M total because he has generated negative value. And this gets to the point I want to make. It has never really been the big contracts that kill the Reds. It’s the little contracts. It often seems as though they just throw a few million at guys they know and assume it will be fine, but players like Simon and Schumaker and the like kill them because those guys do get playing time and when they play, they are bad and cost the Reds wins. Replacement level is meant to represent the kind of player who can be had on the open market more or less for free. If you are paying more than the league minimum to someone who is below replacement level, something has gone wrong. If the player is over 30 and doesn’t have a track record of being a truly valuable player, what’s gone wrong is that the front office has made a poor choice.

It’s not Votto or Phillips or even Bailey whose contracts cause problems. All of those deals are at least defensible. It’s they way bad, small contracts stack on top of each other that costs the Reds wins.

34 thoughts on “Let’s Talk about Contracts

  1. Thanks, I never really looked at the negative value of bad contracts like that before. I still tend to to look more at the team likelihood of making the playoffs when judging. For example, a bad contract in a year you just barely miss the playoffs is far worse than the current situation. I might go further and say that if you can move bad contracts into bad years it’s fine, if you balance that by underpaying in winning years.

  2. Nicely done. This had to be said, and in black and white for everyone too see. For some though that still criticize the Votto contract, they can’t let a few little things such as facts get in the way of a good rant.
    The money that Cozart gets is well earned. Mesoraco, on the other hand, has a lot of work to do to make his deal worth it. It happens.
    Just the facts, sir, nothing but the facts.

  3. WAR value does not appear to be linear. It’s more like the inverse of depreciation of a new car. The biggest hit in depreciation is the first year it’s driven off the lot. Each year the total dollar value of depreciation is less than the year before.

    With free agents, players producing 1.0 WAR do not get offered contracts of $7.7 million/year. I don’t believe the 2.0 WAR player is offered $15 million per year. At some point, a player’s WAR total becomes worth $7.7 million/WAR. When his WAR exceeds that value, he ends up getting more years added to the contract than he is likely to remain at that productive rate.

    I’m not sure that a player producing 2.0 – 2.5 WAR should really be considered to have contributed $15+ million value.

    • You are correct. Appears to be most similar to a logistic curve. No matter how productive a guy is, for example, he’ll likely never garner more than $40M in today’s market. That is, to say, no one will ever be paid like he’s more than a 5.5ish WAR player.

      Take Mike Trout, for example. Let’s assume he was a free agent tomorrow. He’d probably get something like 10/$400M. Which, by the $7.7 M metric, would be a huge value if Trout stays healthy.

      Perhaps injury risk serves to impose an upper limit?

      Hard to say, given the individual nature of each contract given.

      • The lack of linearity is not just at the top end, where annual salary reaches some peak. At the low end, WAR has little value. A player projected to produce 1.0 WAR won’t be getting offered $7.7 million.

  4. Great reminder, Jason. “Hey Mike Lincoln, how’s $4 mil sound?” How did that even happen?

  5. I believe Simon’s contract is 2 million, not 3….according to Spotrac amongst other sources.

    Any/ all contracts have to be evaluated based on the circumstances at the time they were signed.

    Simon was signed as the result of an injury rash that hit during spring training. He was available without given up anything of value ( or specifically anything at all)….he enabled them to not rush Stephenson, Garrett, Reed early in the year. While active, he was 4% of the roster and he cost about 2.5% of the overall opening day payroll.

    Does he suck? Yes. Did he cost the Reds victories? Very likely…though we don’t know what a specific replacement would’ve done on the specific days he pitched. Was it a bad move? In the short run, yes. For the long run, no.

  6. Isn’t it a little deceptive to apply today’s WAR value/season on contracts that began in 2011? As you said, inflation happens. Just a quick google search shows Fangraphs had an article in spring of 2014 that says WAR value/season was up to $6m. And in 2013 Beyond the Box Score said it was common practice to site 1 WAR being $5m.

    To find a more accurate value of a contract, shouldn’t you apply the WAR value for each individual year, and then add those up against what the player actually made?

  7. I didn’t figure the WAR numbers I used the old fashioned “eye test” and as some on this sight has taught me my eyes lie. I have felt all along that BP has outplayed his contract less so last year. I have felt that he hasn’t been quite that productive this year but close something your article states is true. You made a point and this is the one that is hard to live with if BP is worth slightly less this year and a little more so next year it wouldn’t be the god awful contract that some feel. The true downside to this contract is him blocking the path of younger players while we try to rebuild. I feel he has earned the right to block any trade 10 years in the majors and 5 with the same team is quite the feat. I go back to the rumors that I can’t verify if the difference in getting him to accept a trade was deferred money. I just really can’t see if that was the case and the only hang up why the team didn’t go ahead and pony up the deferred money.

  8. Logic. Who would have thunk. Great Talking point to make everyone think a little bit. We are all always so quick to jump to conclusions.

  9. If injuries are seen as a cost of doing business, then perhaps all WARs should not be costed the same?

    If pitchers as a group lose more time to injury, then perhaps the cost of a pitching WAR should be greater, especially given it is essentially a unique skill? And while I’m guessing versus knowing, outfielders or catchers probably miss a greater percentage of available player/games next after pitchers followed by middle infielders then finally by corner infielders.

    It would not surprise me at all to learn that in the boiler rooms of some orgs where analytics meets finance that such allowances are made,

  10. The Reds had a $12.5 million option for Phillips for 2012. So the extension was really $60 million for 2013-2017.

    Three sources for Phillips WAR from 2013-2017 are FanGraphs (7.7 WAR), Baseball Reference (7.2 WAR) and Baseball Prospectus (6.2 WAR). Those average out to 7.1 WAR and that’s current up through today.

    At 7.1 WAR times $7.7 million, Phillips would have earned $54.67 million. (To give context, Joey Votto earned about that last year alone.) So whether his contract was actually good or not, even under the assumptions of this post about WAR value, depends on how much Phillips produces next year.

    But that $54.67 million isn’t quite right. As others have pointed out, WAR is worth $7.7 million in 2016, but a WAR was worth less in previous years, and a WAR will be worth more than $7.7 million next year.

    When you factor the changing value of WAR, including inflation next year, Phillips has probably earned about $50 million so far under his extension. He’ll need to earn about 1.5 WAR during the remainder of this season and 2017 to make the contract worth it.

    It’s possible BP will have negative WAR the rest of the way out. He was in negative numbers for most of this season.

    If he comes close to earning his $60 million, that’s a good contract, not a great one.

    • Thanks for bringing this up. I thought 2011 seemed off for the extension. So I have found articles listing WAR/value for 2013-present. WAR was worth approximately $5m in 2013, $6m in 2014, $7m in 2015, and $7.7m in 2016.

      According to Baseball Reference Phillips accumulated 1.8 (13), 1.7 (14), 3.5 (15), and .2 (so far in ’16).

      Multiply that out, and he was worth $9m, $10.2m, $24.5m, and $1.54m. Totaled that’s $45.04m dollars plus whatever he’ll add in the final month this year. During that time he’s paid $46m dollars. Essentially he’s been exactly worth his contract.

      The problem is that it’s trending down in a real bad way this year. And without the huge boost in WAR in 2015 (where he had doubled the two previous years totals) it would look real bad.

      But beyond that, the main issue I’ve had with the Phillips contract, and I’ve seen other post similar thoughts, was the length. I felt the Reds extended him about two years too long, as it would push past 35 in those years.

      • I don’t believe he has even been worth that much. WAR has practically no value at the low end. That is why 1.0 WAR players don’t get paid much. 2.0 WAR players aren’t getting signed to $15.5 million/year contracts. At some point above 2.0, a player’s accumulated WAR does equal $7.7 million/year in value (in 2016).

        But Phillips would not get offered $13- 14 million to produce 1.8 and 1.7 WAR this year, much less back in 2013 and 2014. The lower WAR years need to be discounted to reflect the actual value a player delivered.

  11. 1000 WAR per year divided by 4 billion in payroll equal 4 million per win.

    It usually takes upward of 35 WAR to contend for a playoff spot. Paying the market rated of 8 million per would require a team to spend over 240 million dollars just to field an 88-92 win team.

    The Reds should never ever be satisfied paying 8 million per win for these reasons.

    None of Bailey, Philips or Votto were free agents at the time that they were signed. The team still had a little leverage so you shouldn’t use the free agent rate anyway, IMO.

    I think the Votto contract was risky, but good. Phillips wasnt great but not horrible either. Bailey was bad because they paid him as if they expected him to get better even though he was already in his late 20’s.

    • Teams (other than the Yankees and Dodgers) have to rely on the segmented labor market to accumulate enough WAR to win a pennant. Some is earned by the pre-free agent market. Those are super cheap. But others must be acquired through free agency or trading for players who have been free agents. Averaging the two is flawed methodology. Some teams, like Tampa Bay, have to get more WAR from pre-arb players. But that’s not the issue here. Contracts, like the ones Jason writes about here, are judged based on comparisons to other free agent contracts.

      You should familiarize yourself with the terms of the Bailey, Phillips and Votto contracts so you’d see how the club exercised its leverage from negotiating prior to free agency for those players. None of them earned more (in two cases, they earned less) than what they would have earned in arbitration, or in Phillips case, by his contractual option in 2012.

      The Reds weren’t paying Bailey on the assumption he would get better. He earned 4.1 WAR (FG) in 2013. If you take his $96 million and divide by $7.5 million (open market value of 1 WAR), Bailey would have to earn about 13 WAR in 5 years. That’s not even 3 WAR/year.

      • That 4.1 win year was by far his best year. His second best was 2.7 and he hasn’t been above 2 in any other seasons. The projected WAR for Bailey at the time of the contract wouldn’t have been close to 4.1. But the Reds paid him as if that 4.1 was a baseline and not a career year.

        And you also use the 7.6 million figure when discussing Bailey. The price of a win wasnt that high on the free agent market after 2013. And again Bailey wasnt a free agent.

  12. These types of comparisons are always interesting (although I also wasn’t clear on whether you used this year’s $/WAR value for all the years or used each individual year’s $/WAR value to find a player’s total value).

    The problem to me is defining these as “good” contracts. Based on Jason’s numbers, the Reds beat the average free agent signing value with Phillip’s deal. That is undeniably better than the alternative, that they would have gotten less value than an average free agent deal. But is it good?

    If you took $100M and spent it on better than average free agent production this year (say $7.0M per WAR), you could say that you did a good job, but you would have a 14WAR team and would almost certainly be one of the worst 10 teams in the league.

    So we know that you can’t build a good team based just on these “good contracts.” As Jason said, you will get more value for players that are under team control, either pre-arb or arbitration eligible. Usually you would also get more value from players that are signed to extensions prior to reaching free agency (as the Reds signed with Votto, Phillips, and Bailey, which wasn’t really discussed in the article; the Reds should have been looking for a discount on free agent prices).

    So that means that, from a team perspective, free agent deals are basically the worst way that a team can spend money to get production (from the player’s perspective they are the best way). However, we know that a team has to go out and get a key player sometimes, a player that pushes them into contention, or keeps them there. So to me, you can’t just do some basic division and assess whether a free agent contract was good or bad.

    If we know from the start that a free agent deal is the most expensive way to pay for production on the field, then whether a deal was slightly more or less expensive than the average most-expensive-expensive-way-to-pay-for-production deal that year sort of misses the point to me. If a team pays $9M/WAR to a free agent this year, but the signing has the intended effect (they win the pennant say) that seems like a way better signing than paying a guy $6M/WAR to bolster a losing team.

    That’s why things like timing and opportunity cost are important. I think the Reds would be much better off now if they had moved on from Phillips and Bailey when their earlier contracts were up, and started the rebuild sooner, rather than paying them like free agents during the rebuild.

  13. I’m not sure Bailey and Votto deserve to be in the same category. Votto has so far been worth his contract. As Chad says in the article “according to the arcane number-crunching of moneyball obsessives, Votto has actually been underpaid so far.” This is not the case for Bailey who can’t stay on the field. Votto “just” has to keep doing what he’s doing. Bailey has to (1) get healthy enough to stay on the field and then (2) pitch at a high level.

    No one can predict the future, but to date one has been worth his contract and one clearly hasn’t.

  14. The poison for the Reds has definitely been the smaller contracts to the bums! Simon, Schumaker, Marquis, Gregg, Boesch, Badenhop, Renteria, Milton, Corey Patterson, and many more I can’t remember! During the Jocketty era they must have 5 misses for every Jerry Hairston Jr. that actually plays well for the Reds for a few years. Not to mention the Bailey’s, Mesoraco’s, and Ludwick’s that they gambled the Reds future on with little to base it on. Its also one thing to stick with Finnegan or Suarez during times of struggle because they’re young but the Reds will stick with an aging underperformer like Simon or Schumaker for as long as they can physically get out there!

    You have to give credit when it is due for obtaining guys like Disco, Duvall, and Suarez cheaply but overall Jocketty has been very poor.

    My hope would be that they can keep eliminating salaries…Cozart then BP, etc. and develop these young guys and maybe load up the piggy bank somewhat for 2018 and get us a big-time hitter later next year or in the 2017 off-season! Anyone remember Matt Holliday in 2009? He was 29 and not doing that great in Oakland. There were the regular rumors that much of the success he had in Colorado was just by being in Colorado. St. Louis bought low and he’s been a kingpin of their franchise ever since! The Reds had a ton of young/cheap talent at the time and Holliday might’ve put us over the top!!

  15. I don’t see much analytic value in $/WAR. For one thing, the $7.1mm per WAR figure appears to be calculated based on what teams–generally big-market teams–are paying on the open market. But every team, including the Yankees, is in reality trying to implement Jason’s Principle #1–Get Younger and Cheaper Players.

    The bigger flaw in it, though, lies in the theory that the “winner” of an auction of a unique asset is in economic terms actually the “loser” of the auction. If Cueto signed with the Giants for 6 years at $130mm, that means that the other 29 teams believed Cueto was not worth that much. Who is most accurate about what Cueto’s services are worth? The highest bidder, or the other 29 teams who passed at that valuation?

    Similarly, a buyer of a top thoroughbred yearling auctioned at Keeneland “wins” the yearling only when all other (and presumably equally well-informed) potential buyers, have bowed out. An auction of a non-unique asset, such as a cattle futures contract at the Chicago Mercantile Exchange, will yield a market price, But the results of an auction of an elite baseball player’s services probably should not be used to calculate an across-the-board value for players

    To apply one figure for what a guy is worth, I’d just use money itself, not $/WAR. The Angels pay Trout $2 gazillion/year based on a variety of factors, but primarily how much they think he will produce. I doubt that the Reds did any $/WAR analysis when they signed Bailey, nor do I believe any team does this.

    • In general I agree with you which is why I stated above that perhaps a “pitching” WAR should be costed (valued) on a different basis and that teams probably have proprietary costing methods.

      We are essentially just playing an interesting virtual parlor game here because we have no idea how the teams really assign cost or how much they actually spend to fulfill a given contract. For instance, Phillips and I believe also Votto are known or believed to have significant deferrals in their deals. The sums that get published are the team’s eventual payout to the player; but what is the present value each season of the contract versus the end future value of payments charged to that season? In the last off season, I began to notice for the first time that many media sources were attempting to assign present and future value to contracts which tips me that teams must be making significant use of these figures in calculating worth and cost of players.

      Until and unless we know these sort of things, in many cases we can’t make a truly informed statement that a contract was good or bad.

    • I agree with your general premise. I do however believe that teams do similar analysis when deciding on the value and potential future value of a player. I’m doubting that teams use WAR however. I would think most teams have their own proprietary measures.

  16. Aside from the production side of baseball there is an entertainment side as well. This comes into play when owners believe keeping and over paying current players or over playing a free agent will make fans happy and spin the turnstiles. The Reds did it with the final Larkin deal for $27 million. The Reds have not been big spenders on free agents but the trade for Griffey Jr. and signing him for $113 million was an entertainment move. The last Phillips contract bordered on entertainment as the Reds thought keeping a popular player was fan friendly. The Votto signing is similar in that ownership signed Votto off an MVP season and saw him as a the multi- year face of the franchise. The trade of Frazier proves Reds management may have learned its lesson. Frazier was highly popular coming off the HR Derby but the Reds saw his entertainment value would not be worth the money he wanted so they moved him on and secured the services of Peraza who appears may be both entertaining and a production value over the next few years. The Reds kept Chapman longer than they should have for entertainment reasons. Jay Bruce fits here too. Billy Hamilton will be next line for a contract that will be bigger than his actual production deserves. He has big entertainment value due to speed and defense which will earn him more than his AVG. OBP, and RBI stats merit. Why they gave Homer Bailey $100 million is a mystery to me.

  17. Did some checking with 2010….just to see if the Reds could’ve afforded Matt Holliday who got 7 year $120 mil (Jan/2010) from the Cards. Jocketty was too busy paying these guys:

    Coco Cordero 12 million
    Harang 12.5 mil
    Ramon Hernandez 3.8 mil
    Mike Lincoln 2.5 mil….lol. Who?
    Orlando Cabrera 2 mil

    I had forgotten about Cabrera. What was it with all the old guys with Jocketty? It seemed like Cordero blew atleast 6-7 saves a year. Was he even a top 10 closer at the time? Harang was very consistent for a few years so I get his salary but the rest are ridiculous! We could’ve atleast made the WS with just a decent GM!

    • Ramon Hernandez was worth every penny in 2010 and honestly in 2011 too.

      Harang at that point was a shadow of his former self. He had his worst season as a Red.

      Lincoln and Cabrera? Yeah, not good deals there at all.

      Cordero was signed after the Reds had a horrible bullpen in 2006 and 2007. I understand why they did it and he was a good (not great) closer. $12-million for any bullpen piece, especially for a small market team, is not a good idea though.

  18. Jason, great analysis.

    I do disagree with the concept of “percentage of team payroll for a player contract” does not matter. For small market teams, it absolutely matters. The margin of error to make mistakes on contracts just is not there, as Indy Redman and others note.

    This year’s Cleveland Indians top salary is Carlos Santana at $8.5M. The Royals’ highest paid player in 2014 was James Shields (13.5M), In 2015, it was Alex Gordon (14M).

    The common denominator for Cleveland and Kansas City was to lock up young players prior to free agency and even arbitration, and avoid being stuck with high-priced veterans in their declining years, as the Reds will be doing with Votto.

    Even so, the Royals are expecting an exodus of players coming up, and any Indians chat board will show worries about being able to re-sign Mike Napoli, who is only earning 5M this season.

    Before long, I expect to see a related type article on this site, “Who Should the Reds Lock Up Long Term?”

    • The Reds were trying to follow that model with Mesoraco. So far, it hasn’t worked out but I think one can understand what they were trying to do.

  19. I agree with your analysis and feel this issue has been run into the ground and then run over by a tank. To me JOEY–my fave–and BRANDON are the face of the Reds. Hoping Homer comes along SOON. And may I add Cozy who is underpaid but now that knee, etc issue and so many days off ewww. Billy Bullet and the rest of the team I love them!!! But, if Joey, by some freakin reason, is gone and then Brandon and Cozy I’m not quite sure if I can be the same everyday game fan I am now. You lose something when they are gone. And, I’m still upset about Jay 😞

  20. You also have to consider, for example, in BP’s case, we had no plan B. We had no one to take over for BP when we extended him. It was either him or an overpriced FA. We chose BP.

    Also, you wouldn’t be able to consider that, if we had let BP go, maybe we possibly put that toward someone who was a better player as a FA. For instance, if we could have traded BP away have was able to get Zobrist from the Rays in 2015, Zobrist would have been a much better deal for us.

    BP has slowed down some. But, he still proves to be worth his contract. But, now that we have a plan B for BP, I should let him go when this contract is done.

    Votto’s contract was worth it, just tough to take, to put that much money out for one player.

    Homer’s contract was simply stupid, especially with how many starting pitchers we have. If anyone, Leake deserved that money. He didn’t complain about the FO moves. He wasn’t injured nearly as much. He could pinch hit, pinch run, even probably play some emergency SS if needed. And, he’s had a lot more annual success than Homer has.

  21. Schumaker’s numbers may tell you he wasn’t worth his contract, but the Grit he brought to this team day in and day out was invaluable!!

    Ha, what a joke…

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