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Contract Retrospective: Lugo in Boston

In the hot news of the weekend, Julio Lugo‘s negotiations for what was probably a minor-league deal with Cleveland have broken down. Things were not always so bleak for Lugo. Lugo had some good seasons with the (then) Devil Rays in the mid-2000s, and after a 2006 in which he was traded to the Dodgers, he was in demand as a free agent middle infielder during the 2006-2007 off-season. The Red Sox were in the market for a shortstop, having let Nomar Garciparra-replacement Orlando Cabrera walk after the historic 2004 World Series victory, and coming off of generally unsatisfying one-year flings with Edgar Renteria and Alex Gonzalez. They settled on Lugo, giving him a four-year, $36 million contract prior to his age-31 season.

While the Red Sox did win another World Championship during Lugo’s first season with the team, on an individual level his tenure in Boston was quite poor. Lugo was traded to the Cardinals during the 2009 season with Boston picking up almost all of Lugo’s remaining salary. When people discuss Theo Epstein’s problems signing free agents during his time in Boston, Lugo is one of the first names that comes up (probably right after J.D. Drew, for most people). However, while it is easy to criticize a contract in hindsight, if we put ourselves back in the Red Sox’ position in 2006-2007, was that an unreasonable contract for a player like Lugo at the time? This is why Contract Retrospectives were born.

What were the Red Sox paying for? This salary chart from the 2006-2007 off-season indicates that given a then-current estimate of $4 million per free agent marginal win, a typical projected rate of decline, and an average annual increase of the price of a free agent marginal win, the contract was based on Lugo’s true talent being somewhere between 2.5 and three wins in 2007. Was that a reasonable assumption for Boston given at the time? Obviously, we do not have access to all of the information available to the team, but we can do a simple reconstruction by looking at the numbers from the time.

A very simple way of looking at things would simply be to average Lugo’s three previous seasons. From 2004-2007 Lugo had averaged 3.3 wins a season, so if even taking half of a win off of that to account for aging, you get something right between 2.5 and three. That would make sense out of the deal from Boston’s perspective, but even in the space of a short blog post, we can be a little bit more exacting and take into account things like weighting recent performance more carefully, aging, and regression to the mean in an estimate of Lugo’s likely true talent given what was known at the time — a “retro-jection.”

Keeping it relatively simple, let’s see what Marcel had to say about Lugo’s hitting. Lugo had been above-average as a hitter for two of the three seasons prior to 2007. Marcel projected him to hit for about a .336 wOBA in 2007, or about three runs above average per 700 plate appearances — good for a shortstop. Fielding is more difficult to measure and thus more difficult to project. While I remember his defensive reputation going back-and-forth during his years in Tampa Bay, it was not always bad — prior to 2006 some metrics have him as above average. Average fielding seems to be a decent assumption (as it usually is when in doubt).

Lugo did have some injury problems with the Red Sox, but unless I missed something, his only trip to the disabled list prior to 2007 was in in May 2006 for an abdominal strain. Prior to the 2006 season, Lugo had played 157 games in 2004 and 158 in 2005, so I do not think he needed to be docked too heavily for expected playing time going into 2007. All together: +3 offense, average fieldling, +7.5 positional adjusment, and +22.5 replacement level all times 85% projected playing time would give us right around 2.5 “retro-jected” wins above replacement for Lugo in 2007.

So it does look as if Boston overpaid, but just by a bit. Moreover, keep in mind that all of the components here are estimates with varying degrees of uncertainty. Being less than half-a-win “off” is not really significant given the multiple levels of uncertainty and the likely differences between this rough retro-jection and the Red Sox’ (hopefully) more sophisticated analytical tools. In addition, given that Boston was in contention and had no in-house alternatives at shortstop (always a difficult position to fill) at the time, spending a bit more for marginal wins could easily be justified. The deal seems close enough to call “fair” given the information on hand and the market at the time.

That is not meant to justify or apologize for either this way of evaluating contracts or this particular contract. Obviously, the Red Sox did not end up doing well on the Lugo deal and ate a large chunk of it. Keep in mind, as well, that when we say that the deal is “market value,” that means is neither particular brilliant nor particularly bad, it is simply average. To put it crudely: an “average” free agent contract it has roughly the same chance of working out well as it does of failing.

If Julio Lugo and his representatives cannot even get a minor-league deal negotiated this off-season, he is probably about done as a major-leaguer. Hopefully he saved some of the $36 million he was paid by the Red Sox (about a third of it to play for other teams). As for a retrospective look after the end of the Epstein Era, while Lugo ended up being as a notable free agent failure, one can at least see how the Red Sox would have seen it as a reasonable deal at the time.