Albert Pujols’ Contract in NPV

A month ago, Albert Pujols agreed to terms with the Los Angeles Angels of Anaheim. It was a deal that the media and public mostly ignored due to the intense coverage of the trade that sent Nick Schmidt to the Colorado Rockies as the player-to-be-named-later in San Diego’s Huston Street acquisition. Who could  forget what a monumental day that was? Apparently desperate to get back in the limelight, Pujols and the Angels have released final terms on the contract between the two. I now will cede to their wishes and relay that information.

Pujols will be guaranteed $12 million this year, followed by $16 million in 2013 and then $23 million in 2014. That’s followed up with $1 million raises each season, concluding with a $30 million payday in 2021. There’s a bunch of other stuff in there, and that’s probably what took so long to write out and agree upon. But these are the most important figures, totaling $240 million for sure over 10 years.

I wanted to look at how many wins above replacement (WAR) Pujols needs to produce to justify his price tag, but first you have to manipulate the numbers a bit because the market price involved — the amount of money teams spend to purchase one WAR — tends to increase over time. In 10 years time, we can collectively look back and retroactively judge whether Pujols ended up over or under producing based on how the market goes, but the Angels cannot do that. The Angels have to lock in the payments now and guess at the inflation in dollars per win over time.

The evlauations we come up with rely on assumptions that we have to make regarding the inflation rate (of $/WAR) and the current amount of market dollars per WAR. I think the common way is to hold the salaries as they are and inflate the $/WAR over time at some rate so that Pujols makes $12 million this season when teams are paying X per win then $16 million next season when teams pay (likely) X+something per win and so on. However, an equivalent method is to hold that inflation rate at 0% and instead devalue the salaries using the same basic formula (a net present value or standard discount rate equation). I prefer that because I think it gives a cleaner result. Instead of a summation of salaries divided by ever-increasing market rates for wins, I can apply the inflation to the salaries and bring them all into 2012 dollars and then divide by our current amount of market dollars per WAR.

Different people have different opinions on the current and future numbers for $/WAR, so I’ll present a sampling of values for that rate.

Interest Rate ($/WAR) 0% 2% 4% 6% 8% 10%
NPV return ($M) 240.0 217.3 197.6 180.6 165.7 152.7

And you can take the one you like (I prefer 5%, for about $189 million NPV) and divide it by your current estimate of dollars per win (I prefer $4.5 million which, when adding in a 10% discount to the team for long term security, means 47 required WAR). Unexpectedly to me, the back-loading of the deal doesn’t save much money. At 5%, Pujols’ actual contract is worth $188.8 million in today’s dollars and would be worth $194.6 million if it were paid out in equal $24 million-per-year installments. At double the inflation — 10% — the gap widens to almost $10 million and levels off soon after. Even at 20% inflation, there’s only a $14 million difference.

With the figures that I’ve used to check contracts this winter, Pujols needs between 45 WAR and 50 WAR to be worth his deal — not counting his incentives that would push the WAR number higher. That doesn’t seem like a lot for a guy with almost 90 WAR in his first 11 years, but it probably won’t be a picnic to race past.

If Pujols declines at 0.5 WAR per year, then he needs to start out at 7.0 WAR next season to reach the 45-50 WAR level after 10 years (finishing up at 2.5 WAR still, which might be generous for someone of that age). He could have a higher baseline, for sure, but any of a faster decline — say, a switch to DH in the future or the switch to the AL having a negative impact — could make 45-50 WAR a struggle.

Ultimately, I think the Angels overpaid for Pujols’ production. But if a team is going to do that I, as a fan, wouldn’t have much of problem overpaying for a player like this one though it clearly carries a lot of risk.




Print This Post



Matthew Carruth is a software engineer who has been fascinated with baseball statistics since age five. When not dissecting baseball, he is watching hockey or playing soccer.


56 Responses to “Albert Pujols’ Contract in NPV”

You can follow any responses to this entry through the RSS 2.0 feed.
  1. cable fixer says:

    you should consider including real world inflation as well–at the current inflation rate (3%), a dollar today will be worth 77cents in 2012.

    Vote -1 Vote +1

    • jcxy says:

      i think you mean 2022?

      Vote -1 Vote +1

    • Alexander Hamilton says:

      I thought we were already in 2012.

      Vote -1 Vote +1

    • You can take the average of 2% and 4% and get an extremely close approx to 3% inflation

      Vote -1 Vote +1

      • Eons ago, when we derived the series expression that supports NPV, I remember the caveat on using it is that the calculation is applicable only if the series is monotonic, otherwise it doesn’t converge. How is NPV applicable if Pujols performance oscillates or the he experiences a year like the first half of 2011. Just curious if easy access to an Excel button might not be an oversimplification.

        Vote -1 Vote +1

    • Michael F says:

      The thing with inflation in NPV is that interest rates inflate along with dollar rates, so, the (1 + pi)^t on the top cancels with the (1+pi)^t on the bottom.

      Plus I’d argue that your interest rate/wACC/whatever already captures inflation in it anyway.

      In any case, thank you for making this post. I had been meaning to bust out Excel and work out a DCF for this.

      Vote -1 Vote +1

      • Nick44 says:

        I thought people conversant in statistics would be preaching the virtues of R. I mean, excel isn’t for research anymore, is it?

        Vote -1 Vote +1

  2. Jason says:

    I don’t think that the inflation rate is the appropriate rate to use in a present value calculation. You should use a rate that reflects the rate of return that could be obtained from an alternative investment (US Treasuries, Stocks, etc.). Preferably the discount rate refers to an investment with a similar term (10 years in this case) and risk.

    Vote -1 Vote +1

    • I could have been more clear, but the inflation rate I’m referring to is the inflation of market cost per WAR, not general US inflation, and I think that is the appropriate discount rate to use

      Vote -1 Vote +1

    • Joe says:

      Jason,you have it right…. a discount rate should be used (not an inflation rate or even a WAR inflation rate). That rate should represent the expected (or projected) return on the money in that timeframe.

      The problem in simply using a inflation rate assumes the money is earning an effective (non inflationary) 0% interest or 0% non-inflationary return where ever it is being invested. Using a WAR inflation model is no different unless you think the investment return just so happens to match the WAR inflation (which would be random chance as there is no direct tie between the two)

      Very few financial analysts would do NPV based on an inflation model. (though that might impact the discount rate assumptions they use). The net present value is what the money would get elsewhere.
      .
      Perhaps an easier way to look at this if you are using an inflationary model: If there was 0% inflation assumption there would be no apparent benefit backloading a contract using the model described here? However that is obviously not the case as the money saved can be invested prior to it being spent.

      This article is more of a net present cost (not sure if even that’s the right term) analysis than a net present value and those are very different things.

      Vote -1 Vote +1

      • You’re right that it’s more coming from a cost origin than a traditional “value”, but I don’t agree that’s a very different thing. Perhaps more people are used to it being framed by altering the $/WAR figures rather than the de-valuing the salary itself that’s throwing this off? Because the concept seems straightforward to me.

        A win on the free market costs X, say $4.5M, at this moment. The Angels will pay Pujols at least $240M. Sticking with linear evaluation for the example, do the Angels need 240/4.5 WAR from Pujols to break even? Of course not, because the repayment of the Angels’ investment isn’t in one time period, all at cost X. It’s over several periods during which the free market cost will likely rise. So there’s a discount rate applied corresponding to what we think the market cost of wins will be. That’s all this is.

        Vote -1 Vote +1

      • Joe says:

        Matt you can’t simply exchange cost and value; it’s not a question of it’s more of a cost than a “traditional” (as opposed I guess to non-traditional?) value; it’s pretty cut and dry … if I ask how much Pujols cost last year and what his value was those are obviously two entirely different thing.

        When you say Pujols has an “NPV” of 189mil you are saying the value the net value is 189mil when that clearly is not the case.

        You also refer to “breakeven” and once again you are using this term incorrectly when people evaluate contracts like this site often does, they are basically looking at the cost side. Contrary to popular belief 4.5mil/WAR is not a value figure – it is simply the cost/WAR on the free agent market… so all these ROI and “breakeven”analysis are not financial analysis and people are using these terms as some sort of (bad) shorthand.

        What theses “breakeven” analysis are doing is simply asking the question: Did the team pay the “market” price for free agent WAR… this has nothing to do with breaking even and people are just using that term as shorthand. Paying market price doesn’t mean you “broke even”, it means you paid market price…The problem is the value of 1WAR is not 4.5mil; it is just people using cost and value interchangeably again..

        If you are going to use financial terms, you should use them correctly; I’m frankly stunned to hear cost and value are not very different things. The concept is indeed very straight forward…. you are trying to figure out a net cost of the contract in today’s dollars and like many internet financial analysts, the term NPV dresses it up, makes it sound more official and like many you don’t realize the mistake they are making. And again discount rate…. WAR inflation is not a “discount rate”‘. It may make your analysis sound more official but you are using the financial phrase incorrectly.

        If you are going to toss out all these financial terms, don’t you actually care as a writer if you are using them correctly?

        Vote -1 Vote +1

      • Did I give an indication that I don’t care? If so, I didn’t intend to. I do care, otherwise I wouldn’t bother reading and responding to comments, wouldn’t you think? And I don’t appreciate the insinuation that I randomly toss in phrases just to dress up an article and make it “sound more official”. That’s a pretty personal insult that you’re leveling and I find it incredibly offensive that you’d just assume my motive so flippantly.

        Yes, there’s shorthand. I tend to write in what I think the larger audience would grasp, but I’d prefer to be accurate in my terminology above all (because I do care). So what would you prefer all that shorthand be replaced with? That’s not a sarcastic question.

        The figures at stake are all open knowledge. There’s nothing preventing you from writing your own analysis. Why not do that and point out where people are tending to go wrong? Show what’s right. Teach.

        Vote -1 Vote +1

      • Wally says:

        Joe,

        I believe at least to some extent you’re arguing to argue. Certainly the exact finical/economic terminology could be more percise, but this isn’t the Journal of Monetary Economics here. Meaning, I agree, you have a point with value vs cost here, but instead of participating in thoughtful discussion, you come off as though you have an axe to grind and a need to sound like the smartest guy in the room.

        Plus, it is going to be an impossible task to actually calculate the market VALUE of Pujols for the next ten years, yet a reasonable and quick approximation could be his expected WAR. Since, after all, teams make money mostly thanks to winning games. Sure each marginal WAR is probably worth more in LA than in Oakland, for example, but for a quick and dirty approximation of value, WAR is about all we have. You could probably spend a week trying to come up with a better estimation of value over the next 10 years and not do significantly better than a simple WAR estimation * $4.5M in PDV.

        So, how about we break though the semantics? Do you have a better idea?

        Vote -1 Vote +1

  3. awy says:

    confusing present value of money with NPV

    Vote -1 Vote +1

  4. JWO says:

    Maybe I just missed it in your analysis, but wouldn’t there be some depreciation in the value of WAR ten years from now? I would think in 2021, one WAR might cost more like $6M, not $4.5M. Any community thoughts on this?

    Vote -1 Vote +1

  5. Antonio Bananas says:

    Again, instead of using the market average for what teams pay for a Win, how about we look at say the Yankees, Mets, Cubs, Sox, and Dodgers for the case with the Angels (largest markets). It still doesn’t make any sense at all to me to use one average when the disparity is so great. 5 million dollars/WAR means a small market team of say 50M payroll should expect to never gain above 10WAR total. Just a ridiculous assumption. If I open a lemonade stand in New York City, I can afford to spend more on my product because I’ll have more people. If I’m on a street in East Jesus, Iowa, I’m gonna want to penny pinch a little more.

    Vote -1 Vote +1

    • The Ancient Mariner says:

      What the largest markets pay for a win in free agency and what the smallest markets pay turns out to be . . . roughly the same, as it all averages out. Amazing, that.

      Vote -1 Vote +1

      • And large market teams are the principle drivers of the average $ per WAR since they’re typically the teams spending the majority in free agency

        Vote -1 Vote +1

      • Antonio Bananas says:

        If large market teams pay for most of the free agents, wouldn’t that indicate that small market teams don’t actually spend as much? What’s the data you use? Just free agent signings? If mostly large market teams sign free agents (which is what seems to happen, at least high dollar amounts) then it sort of proves my point that if say St. Louis resigns Pujols for the exact same amount as Los Angeles did, then it would require more of a return for St. Louis than for LA.

        Vote -1 Vote +1

      • noseeum says:

        @Antonio, I’m not sure what your point is. It really doesn’t matter which team ends up signing a free agent, whether it be large or small market team. It’s the only truly open market in baseball and baseball is a closed system. A player has the right to sign with any team, and every team has a right to negotiate with that player.

        You’re correct in that some small market teams never bother getting into the conversation with star free agents, but that doesn’t impact the $/WAR calculation. The $4.5m/win estimate is based on actual transactions that have occurred. That includes mid level free agents signed by smaller market teams.

        Sure, you can argue that the Yankees should be willing to pay more for each win than other teams, but the reality is they generally don’t. The only exceptions to this have been Arod and Jeter. Both of those contracts were ridiculed pretty much the moment they were inked. CC’s extension is below market rate, for example.

        The estimate means “If you want to sign free agent X, you should expect to pay Y,” based on his expected WAR. That applies to every team.

        If a team can’t afford that $/WAR, they have other choices to improve. Those choices are drafting wisely, hitting the international market, and finding reclamation projects you believe your coaching can perhaps extract “unexpected” WAR from. What they cannot expect to do is choose to pay a different free agent a lower $/WAR figure. The market is the market, with rare exceptions.

        None of that means that the Cardinals would have to pay Pujols less in order for it to be worth it to them. The market is the market. Either you can buy, or you can’t.

        Vote -1 Vote +1

  6. Joe says:

    Does the backloading of the contract save the Angels ANY money?

    In theory it does, but in all likelihood the Angels are operating on a fixed (or roughly fixed) payroll budget and if that’s the case they really aren’t saving any money just changing how it is distributed. For example if we knew the Angels were pocketing the 12mil this year (24mil AAV -12mil salary this year) and investing it than they are saving money… because the 12mil they have to spend later will be have been earning interest, invested in T-bills, etc…however this is unlikely the case.

    If they are just using that 12 mil to acquire other players and pay raises to stay within their payroll budget (which I think is likely the case) than it has minimal impact to the team financially. Though I guess you could start going into a complex analysis like improved playoff odds, playoff revenue, etc

    The only thing a contract like this typically does in reality is affect the player and change a teams payroll flexibility over time. It would be the same thing with a front loaded contract… technically it has a higher cost but if a team is operating on a relatively fixed budget it really has no impact (but the player gains as he is getting more up front money)

    Vote -1 Vote +1

  7. Big Oil says:

    At double the inflation — 10% — the gap widens to almost $10 million and levels off soon after.

    I’m missing something. What numbers does the gap refer to?

    Vote -1 Vote +1

  8. kab21 says:

    Did this kind of math work for Todd Helton’s long contract?

    Vote -1 Vote +1

  9. MikeB22 says:

    I’m an avid fan of the site and enjoy Matthew’s articles, but isn’t this simply repeating everything we already know? If a contract is back-loaded, there will be savings in some capacity depending on the assumptions of the models. I’m just so sick of the linear (e)valuations. I’m fine with the assumption of WAR cost as supply/demand of the market itself dictate what an individual team pays. But the value to the teams themselves is what varies so incredibly much. i.e. The Angels gaining say 4 extra WAR is valued a lot differently than the Royals. The cost to each team is generally the same in the end, but value is the key here.

    Another thing I always hope to see is the context of value outside of game production. I’m talking about the souvenirs, tickets, jerseys, etc (let’s call it “extra”). I don’t fully understand how it all breaks down (who gets what in terms of revenue stream/profit), but the team benefits somewhere. And you can fill a 140 million payroll team, for instance, with good players but if the best of the bunch is Melky Cabrera (assuming you think he is “good”), then there is a severe difference in “extra” revenue than with a team that has Albert Pujols.

    Also the “discount rate”, as mentioned in comments, varies depending on the capacity of the info being used. You can discount the contract via the WAR discount rates typically used (5% I believe as Matthew used) or you can look at it contextually/financially. If the team is going to spend the payroll no matter what, as was said in the comments, then there is 0 discount financially because there is no baseline comp of monetary use. If only a portion of the contract is going above the prior expected payroll limit, then only a portion of each year’s salary can be discounted back. And come to think of it, that same line of thinking may be applied to the production discount via WAR as well depending on viewpoint.

    Simply put there are a lot of factors at play with a top signing to a top team (let’s just assume the Angels are considered top and move on). Any number of which can be isolated and dissected to add value to the context already at hand. But the only thing the article did was lend more voice to an already vocal viewpoint in my humble opinion.

    Vote -1 Vote +1

    • I can’t reply to every point, but a few things.

      “But the value to the teams themselves is what varies so incredibly much. i.e. The Angels gaining say 4 extra WAR is valued a lot differently than the Royals.”

      I agree, but that’s pretty limited when looking at a contract that’s ten years in length. What value would you give the Angels in gaining, say, 2 extra WAR in 2017? If the non-linear win values vary, correctly I think, tied to where teams’ expected win totals fall, then at some point you have to regress that back to league average anyways because you can’t state anything about where the Angels will be in future seasons.

      I agree that you could factor that in for 2012 and mayyyyyyybe 2013. But that’ll make little dent in a contract this long and anything beyond 2013 and I think you have to revert to average, linear values.

      “I’m talking about the souvenirs, tickets, jerseys, etc (let’s call it “extra”). I don’t fully understand how it all breaks down (who gets what in terms of revenue stream/profit)”

      I’d like to see that as well and I acknowledged that limitation, but I don’t think that info is anywhere available.

      “If the team is going to spend the payroll no matter what, as was said in the comment”

      I don’t find that a worthwhile assumption to make.

      Vote -1 Vote +1

      • noseeum says:

        All merchandise sales are split equally among the teams, no matter which team’s items are purchased. Yankees merchandise generally accounts for around 1/4 of all sales, but the Yankees still only get 1/30th of it.

        Vote -1 Vote +1

      • MikeB22 says:

        I see your point about regressing the value of WAR to a team to avg long-run. In fact, I’d like to see studies on such things (don’t think they exist). Although possible, I’d say the chance for a team such as the Royals to remain hopeless for the length of the contract is certainly feasible and vice-versa. Also due to the markets they play in, the playoff exposure and added revenues also mean two different things for those ball clubs (Royals/Angels). And the extra WAR gained by the Angels in 2012 and 2013 (after that you’re right about predictability of team success) is levered a certain way vs the way the Royals would. But that is a point that could be argued greatly. And yeah, I don’t know of anywhere we can find that info unless it’s snuffed out one line at a time (not even sure it’s all made public in various capacities).

        I do think it’s a valid assumption to make regarding payroll commitment though. Many times we see clubs set a limit or target. Take the Phillies for example. In 2010, I believe they set a limit of 140m and hit 138m. And in 2011, they set it at $150 or 160 I think…and came in at $166m. They over-committed because of the ability to bring in the SP they had. And now they have a limit at the tax threshold. Anything over that is super-levered WAR to them.

        Vote -1 Vote +1

  10. Brent says:

    I can’t wait to come back to this site ten years from now and laugh at how horrible of a post this is when it comes to you and all the other sites saying how bad of a signing this is. He’s going to prove all the haters/non-believers wrong, with at least 3-4 rings to show (from Anaheim alone), and the HR record.

    -11 Vote -1 Vote +1

    • MikeB22 says:

      Uh, did you read the article. It was essentially a breakdown of what the contract was/means. And at the end, Matthew said, “But if a team is going to do that I, as a fan, wouldn’t have much of problem overpaying for a player like this one though it clearly carries a lot of risk.” I don’t think he, at all, gave the indication that it was a bad signing…he even wouldn’t have a problem with it. He just broke it down and the math (whether correctly used or not) says it was an overpay…even based on his elite production/expectation. And calling it a risk to have Pujols play into the 40s and still be paid twenty-some or thirty million dollars…is…well….cough…a risk!

      Vote -1 Vote +1

  11. Cody says:

    Did anyone else read the headline as “Albert Pujols Contracts NPV”?

    Vote -1 Vote +1

  12. JS says:

    While this is fairly interesting, has anyone compared Pujols contract value in STL to Anahiem? I mean cost of living in LA vs STL has to be pretty huge. And I don’t believe Missouri has a state income tax while California probably has one of the highest. I’m just curious if the money amount is really all that significant between the the contracts offered.

    Vote -1 Vote +1

    • gonfalon says:

      I recall one such analysis, and while I don’t remember the details, I think the bottom line was that Pujols’ income tax bill will be about $500k higher per year, mainly due to the differences in state tax rates (MO is 6%, CA is 10.3%).

      of course, Pujols will likely hire an accountant to try to avoid as much tax as possible, so it’s not that straightforward. in addition, road games necessitate the concept of “duty days” for state tax purposes.

      Vote -1 Vote +1

      • JS says:

        Thanks, I was thinking it may be more of a difference on taxes but I also can imagine a 10 million dollar house in STL being a a huge house on 15 acres while 10 million in LA isn’t exactly a rarity.

        Vote -1 Vote +1

      • Playing in LA, Pujols will get to avoid a lot of income tax since he’ll visit Seattle (WA) and eventually two TX teams for many of his away games and neither state has income tax.

        Somebody did do a breakdown of expected income tax levels between CA and MO based on ANA and STL schedules and it came out close to even

        Vote -1 Vote +1

  13. TheRoyalTreatment says:

    As a finance professor, I will say that your rate is too low. From the teams perspective the NPV should be found by discounting using their cost of capital, not inflation. My guess is that they would discount it at between 8 and 10 percent, so according to your chart between 150 and 165 million.

    Vote -1 Vote +1

    • VagabondBansal says:

      This is exactly what I was going to say. The only time it makes sense to base NPV on inflation, is when your discussing personal finance. For corporations, the Discount rate is to equal the cost of capital. As there is a single owner of the Angels, the majority of the capital involved would be assumed to be equity, which would create a much higher Cost of Capital than 5%. On top of that, I would assume Arte Moreno has access to many investments with a higher return than the average investor. Therefore, I would estimate the percentage to be closer to a 15-20% range.

      Vote -1 Vote +1

      • noseeum says:

        I don’t agree. Most teams set their payrolls and then do their best to maximize wins within that budget. There may be a range of +/- $10 million or so, but Moreno didn’t look at signing Pujols and wonder if he was better off shorting gold. He looked at signing Pujols and wondered if it made sense to sign Prince Fielder instead, for example.

        From a baseball analysis standpoint, it’s best to assume that those dollars would have been spent elsewhere on the roster if they weren’t spent on Pujols.

        It’s often argued that a player like Pujols will drive revenue whether wins come or not because he’s such a big name, but the evidence shows that’s not the case. Revenue growth is highly correlated with increased wins and playoff appearances, not with roster names.

        So the question is, “How many more wins will Pujols get us over 10 years, and how much additional revenue might that provide?”

        Matt didn’t get into the revenue side, but that’s a much more difficult exercise.

        Vote -1 Vote +1

    • PDQ says:

      Actually I disagree. The corporate cost of captial is entirely appropriate for cash flows coming into the corporation. But this is not a cash flow to the Angels, this is a cash flow to Pujlos. It is a liability to the Angels. Using WACC would not be appropriate here, any more than you would want to discount a corporation’s bonds at a WACC rate.

      The payments are guaranteed, so something close to the risk free rate of return would be appropriate here. I suppose you could argue for a slight spread to the US Treasury rate because there is a nonzero probability of the Angels going bankrupt. But even then Pujlos would rank as one of their senior creditors, above bondholders, and likely be paid out in something very close to full value. There is no variability associated with the payments, absent the bankruptcy risk. A very low discount rate should be used.

      Vote -1 Vote +1

  14. Jesse says:

    Since you didn’t spell it (I think) i’m not quite sure if you account for the fact that the value(and revenue) pujols provides them now is preferable to the value he gives them later. You do of course discuss that the contract is backloaded, and that pujols’s value is front loaded, but I think you’re missing a substantial part of the financial improvement associated with that.

    If pujols was the only player on the team, having just received this 250 mil contract, would they rather have him produce 45 win front loaded, back loaded or consistently? From a non baseball prospective the answer is front loaded for sure.

    Of course thats more relevant to a valuation of pujols rather than the npv of his contract payments.

    Vote -1 Vote +1

    • The Real Neal says:

      Not sure I get your conclusion there. Why is having Pujols have 10 WAR years in 2013 and 2012 the best result from a non-baseball perspective? The Angels are sold out in 2012, their TV contract and local revenue deals are largely finalized. From a non-baseball perspective, Pujols’s production this year probably has very little effect whatsoever on marginal revenue.

      Vote -1 Vote +1

      • Jesse says:

        Of course there are problems with my analysis stemming from ignoring the reality of operating a baseball team, but they’re just simplified assumptions. If we just assume that war=revenue straight up, or even on the nate silver win curve, this still holds true. The assumption of this article was that there is a linear value to war, and I use the same assumption. The same revenue predictions could hold based on the angels making or not making the playoffs based on pujols performance.
        My point was that if you’re looking at cash flows, i.e. pujols’ surplus beyond what he gets paid over the life of the contract, you’d rather have the surplus at the beginning where it accumulates interest, rather than at the end. Any early deficits, say in a front loaded contract for a rookie, must collect compounded interest.

        Vote -1 Vote +1

  15. Baltar says:

    This was a nice little analysis for those of us who don’t give a damn about technical accounting terms.

    Vote -1 Vote +1

  16. CTK says:

    I don’t agree with using WAR to judge free agent contracts, though.

    For example, Ryan Howard accumulated 1.6 WAR last year. Yet, his market value, even at last years’ production, or a similar players production, will be much higher than Cliff Pennington’s. Using WAR to judge contracts, would assume that Howard’s value last year, is the same as Pennington’s.

    Also, just a general question from me: When WAR is calculated, is defense for a 1B weighed the same as a SS? Seems silly if it is to me. Using the same example of Howard and Pennington, WAR assumes that finding a player who’ll hit .835 OPS, has the same value as one that hits .687 OPS, yet his defense at SS, makes up for Howard’s lack of defense at 1B. This is predicated on defense being weighed the same by WAR at each position.

    Vote -1 Vote +1

    • If you don’t understand how WAR is calculated, how can you form a worthwhile opinion on its uses? That’s fundamentally poor thinking.

      There’s a position adjustment accounted for in WAR that adjusts for where a player plays in the field.

      Vote -1 Vote +1

  17. jwmann2 says:

    Did I see something about Albert getting his own personal suite for all road games? Things like that are in a player’s contract?

    Vote -1 Vote +1

  18. Check out what our resident Angels expert thinks about Albert’s Contract, the short and long term ramifications of it, and why he think it is a great thing for the angels. This Is The Year

    Vote -1 Vote +1

  19. blowry12 says:

    Matthew,

    I enjoyed your article. Comparing Pujol’s NPV$/WAR to $/WAR of other players is intuitively a good way to evaluate a player. You do mention you believe the Angels have overvalued Pujols though. I have two thoughts in how your analysis may undervalue pujols.

    1. The expected growth rate of MLB (especially in the LA region; e.g age/population/ race demographics) should be evaluated when projecting whether Pujols was appropriately paid.

    2. The increasing returns to WARS should also be evaluated. Once wins reach a certain point for a team they becoming increasingly valuable. E.G. each WAR for a player on the yankees/ phillies brings greater dollar returns (playoff wins/ tv revenue/ increased jersey sales).

    Anyone else have any thoughts on this?

    Vote -1 Vote +1

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Current ye@r *