Felix Hernandez, Superstars, and Frictional Costs

I was going to do my list of the 10 worst off-season transactions today, but I’m going to push it back to next week, since I have some things to say about yesterday’s news.

The Mariners are apparently set to sign Felix Hernandez to the largest contract ever given to a Major League pitcher. The total commitment is $175 million over seven years. It’s a staggering amount for a guy who wasn’t eligible for free agency until after the 2014 season, and in many ways, this contract is the continuation of the trend that we saw begin last year with Joey Votto‘s deal with the Reds. Here’s what I wrote a year ago when that deal was announced:

So, at this point, we have a couple of options – we can continue to be shocked and amazed at the growing rate of contracts that guarantee big money to players from 2018 and beyond, or we can adjust our expectations for what premium players are going to be able to command going forward. With the promise of new money flowing into many organizations over the next three to five years, I’d imagine we’ll see more and more teams being aggressive in trying to lock up their young stars before they get to free agency and have to bid against whichever franchise just happened to renegotiate their television contract a few months prior.

For the Reds, the equation was pretty simple – keep Votto and contend during the run-up to the expiration of their television deal, or trade him away, rebuild, and come to the table asking for more money after a couple of years of going young and probably taking their lumps. Given those options, giving Votto a couple of extra years at the back end to increase their bargaining position doesn’t look quite so crazy.

This deal is going to have lasting repercussions on the sport. Not only does it suggest that the Reds are going to remain competitive in the NL Central going forward, but it also resets the price expectations for every pre-free agent player in the sport. Congratulations, players, all of your expected prices just went up. Way up.

Felix’s deal with the Mariners is the pitcher’s version of Votto’s deal with the Reds. It’s a free agent price for a pitcher who wasn’t a free agent, and in that sense, there’s a pretty good argument to be made that it’s too much money. The Mariners are taking on significant additional risk by guaranteeing him his 2015-2019 salaries now, and like with Votto, that risk wasn’t offset by getting a below market price on the deal. Given the history of pitcher attrition, there’s a significant chance that this deal will go south for the Mariners, and they’ll end up with an expensive and overpaid former ace. Most good young pitchers don’t turn into good old pitchers, and the Mariners have just made a huge bet on Felix being the exception rather than the rule.

So, there’s reasons to believe that this contract might end up looking like a mistake. For instance, Ken Rosenthal used the news of the extension to once again dust off his “the Mariners should have traded Felix” argument:

The commitment by both the player and team is admirable, as is the passion of the fans. But get back to me in a few years, and tell me if everyone still holds the same romantic view.

I’m sorry, the risk of trading Felix — even when factoring in the possibility that the return might have been disappointing — was less than the risk of signing him for $175 million.

Rosenthal has been beating this drum for a few years now, repeatedly arguing that the Mariners should trade Felix for a haul of young prospects, since they didn’t have the supporting cast around him to put a contender on the field. And, models that we use, measuring a player’s total surplus value — the difference between his actual performance and what you’d expect to get by spending that money on other players – support the notion that the team could have done better by trading Felix than by signing him to a market-value extension. After all, if the Mariners had $175 million to spend, couldn’t they have turned Felix into an amazing group of young talent and then simply reallocated that $175 million to other Major League free agents in order to replace his lost value?

On some level, yes, they could have. But, when looking at what their $175 million might have bought them and when it might have brought real returns, we need to account for the frictional costs of making that kind of series of moves, and recognize that those costs can be so high that a team ends up worse off than they’d have been otherwise.

A frictional cost is the extra price that has to be made to complete a series of transactions. Sales tax is the easiest example of a frictional cost, as the government takes between 7-10% of the total sales price of an item whenever you go to the store to buy something. We generally just factor sales tax into the price of an item, and go about our days, since that tax can’t easily be avoided. But, there are other times where frictional costs play a large role in the decision to buy or sell; the housing market is actually a great example.

If you’ve ever sold bought or sold a house, you know that there are substantial costs associated with the transaction. Real estate agents generally earn 6% of the sale price in commission, so on a $500,000 home, the seller would lose $30,000 simply by hiring a realtor to help them list the property. Meanwhile, the buyer is responsible for closing costs, as fees associated with securing a mortgage — appraisal, title insurance, loan origination, etc… — average around $4,000 per transaction. Add in the costs of repairs to the home you’re selling before you close along with moving expenses, and even if you’re making a lateral move between one $500,000 house and another $500,000 house, the external costs will likely be over $40,000 by the time you’ve relocated.

Frictional costs might not be quite so obvious in Major League Baseball, since no one is applying a set tax on each transaction. However, I do think we can look through history and see that there is evidence of additional costs associated with constant roster turnover, especially the kind of turnover that involves continually shipping out your best players for low cost minor leaguers.

Dan Farnsworth did a great piece in the Community Blog a month ago about the revenue ramifications of entering into a long term rebuilding project. You should read the whole thing, but pay specific attention to the table that lists the total change in revenues for losing teams that either cut payroll or increased payroll at that point. His calculations returned a $15 million revenue loss for a .500ish team that cut payroll, versus a $20 million revenue gain for a .500ish team that increased payroll. It’s just one study, and I wouldn’t quote those numbers as gospel, but there is evidence that teams that regularly cut payroll by trading away their best players when they get expensive can enter into a never-ending cycle of payroll slashing and revenue degradation.

For instance, let’s take the Cleveland Indians as an example. From 1995-2001, they made the playoffs in six of seven seasons, ranking 1st or 2nd in the AL in attendance every season except 2001, when they ranked 3rd. Their payroll was consistently in the top five in Major League Baseball, topping out at $92 million in 2001. However, as their winning core got older and had to be broken up, the Indians decided to go into a full-scale rebuild, shipping out most of their recognizable stars and starting from scratch with new young talent.

After spending $92 million in 2001, they spent $78 million on a losing team in 2002, then really went with a house cleaning in 2003, spending just $48 million on their Major League team. Within two years, they went from having the fifth highest payroll to having the fifth lowest payroll in baseball.

Here’s where the Indians have rated among the 14 AL teams in attendance since that 2003 season: 12th, 12th, 12th, 11th, 9th (team wins 96 games and makes ALCS), 9th, 13th, 14th, 9th, 13th. Not coincidentally, the Indians have had some of the lowest payrolls in baseball ever since, never getting higher again than 16th in total team salary (following their 2007 division title), and more regularly sitting in the bottom 5-10 teams in overall spending. Even when the Indians won, they topped out at 2.3 million fans, a 25% decrease over their total attendance in 2001. There’s no question that the new park bonus related to Jacobs Field’s opening in 1994 — combined with the team’s run of success immediately afterwards — pushed attendance and revenues to their maximum potential, and some regression was inevitable simply based on the market size and any franchise’s inability to contend every single season.

But, the Indians have essentially lost half of the fan base that they had at their peak, and even developing new stars like CC Sabathia, Grady Sizemore, Victor Martinez, Travis Hafner, and Cliff Lee didn’t bring those fans back. From 2005 to 2007, the Indians averaged 89 wins per season, using their restocked farm system to build another good young core. Attendance barely moved at all. Revenues didn’t grow fast enough, and so the team traded away the new stars they’d developed, beginning the cycle all over again. Last year, the Indians drew 1.6 million fans.

We simply can’t ignore the costs of rebuilding, and assume that constantly shipping out franchise players has no impact on an organization’s ability to generate revenue. We probably can’t determine the exact revenue implications of retaining Felix Hernandez — after all, the Mariners have had him since 2006, and their attendance has been in a downward spiral the entire time — but we can say with some certainty that perpetual rebuilding cycles have a significant negative impact on a franchise. It doesn’t take too much digging to see the handful of teams that have been rebuilding for the past couple of decades, and have essentially turned themselves into feeder systems for higher revenue franchises in the process.

Major League Baseball’s overall profitability and the sport’s investment in revenue sharing have given teams a way out of this cycle. The lowest overall team payroll in 2012 belonged to the Padres, checking in at $55 million, a 52% increase over the lowest payroll of 2011. While there will always be a separation between franchises in their ability to spend, baseball has done a pretty terrific job of funneling money to lower revenue clubs, and those clubs are taking that money and giving it to their best players. Troy Tulowitzki in Colorado. Ryan Braun in Milwaukee. Joey Votto in Cincinnati. And now Felix Hernandez in Seattle.

I don’t think it’s a coincidence that these teams are now more willing to make large, long term commitments to keep their superstars around. The costs of these contracts are extremely high, but the actual outcomes for teams that have perpetually traded away their best players shows that the frictional costs of such a transaction are higher than has been recognized. It is not as simple as taking the $175 million that the Mariners gave to Felix and giving it to someone else in free agency. Players of this caliber rarely make it to free agency anymore, and when they do, they’re not signing with mid-market clubs that have spent years rebuilding their rosters from the ground up.

Over the last decade, we’ve gotten pretty good at counting the costs of bad contracts. There’s no getting around the fact that Felix’s extension may very well turn into a bad contract. In fact, the history of pitchers breaking down suggests it may even be the most likely outcome. But, if we want to evaluate the sign-or-trade decision, we have to evaluate the costs of both options, and for too long, we’ve overlooked the costs associated with perpetual rebuilding. Those costs exist, and they have to be factored into the discussion.

If a fair extension for Felix this far out from free agency was something closer to 7/150 as I guessed a few weeks ago, then the extension he’s getting might be termed a $25 million overpay. But, if the frictional costs of shipping Felix out are as high as Farnsworth’s estimates suggest that they are, then it may very well be in the Mariners best interests to overpay Felix in salary rather than try to make due with depressed revenues in the future. Paying a pitcher this much money is risky, but so is perpetually rebuilding. We can’t focus solely on the costs of one without recognizing the costs of the other.




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Dave is a co-founder of USSMariner.com and contributes to the Wall Street Journal.


128 Responses to “Felix Hernandez, Superstars, and Frictional Costs”

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  1. Lloyd Dobbler says:

    I don’t want to sell anything, buy anything, or process anything as a career. I don’t want to sell anything bought or processed, or buy anything sold or processed, or process anything sold, bought, or processed, or repair anything sold, bought, or processed. You know, as a career, I don’t want to do that.

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  2. suicide squeeze says:

    The problem with the Cleveland analogy is that the Cleveland metro has been in a downturn over the last 10 years, second only to Detroit. And of course, Cleveland wasn’t as big as Detroit to start out with. Currently, only 2 MSAs with MLB teams are smaller (KC and Milwaukee).

    Add that all up along with what you mentioned Dave, and I would say that Cleveland’s massive attendance numbers were extremely unsustainable.

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    • Dave Cameron says:

      The analysis is absolutely more complicated that I laid out in this post, but I think the fact that Detroit’s revenues, payrolls, and attendance have all trended upwards while the city has been falling apart suggest that are still positive ROIs to be had from investing in a product even when the city is in economic hardship.

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      • suicide squeeze says:

        Oh yeah, I definitely agree with you. Still, the Detroit metro is twice the size of Cleveland. And their owner is an old guy who wants a title at all costs.

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      • Tim A says:

        Dave, the thing I was also wondering about in all this, is the Felix effect. I wanted to know the M’s attendance avg. without FH, and then the avg. attendance to his starts. I think this would be a significant bump.

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        • Oh, Beepy says:

          Except before Felix it was Ichiro and before that they had this guy you may have heard of who hit all the homeruns with one of the better looking swings in history..

          That stat would have to be gleaned from an alternate reality where Seattle wasn’t ‘that team that always has one good player, but he’s almost enough anyway he’s so good.’

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        • Nathaniel Dawson says:

          Go for it, Tim. Baseball-Reference has attendance figures for every game, and you’ll see the starting pitcher as well. Not difficult to do an average of games Felix started and those where he didn’t, even if it’s longhand and not by database crunching.

          You could take a more rigorous approach, and factor in day of the week, time of the year, opponent, weather, anything else that might affect game attendance, but you know what? If you do even a few years of Mariner’s games, most of that would probably wash out, and I’m pretty sure you’ll see a significant attendance boost when Felix starts. How much of a boost? Go and tell us.

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        • Dave Cameron says:

          Looking at it that way actually doesn’t work, because people could very well be choosing which game to attend based on the day’s starting pitcher, not choosing whether or not to attend. What you care about is measuring how many additional fans came because of Felix, not now many were redistributed to his starts in lieu of attending other games because of Felix.

          You care about the size of the pie, not the size of the slice.

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        • Pete L. says:

          Last year, the Mariners drew 1,171,920 (an average of 21,258 over 81 games). In 18 home starts by Felix, the Mariners drew 436,515 (an average of 24,251 per game). However, Felix’s impact isn’t measured by the difference in those two averages, because Felix was a big part of why the overall attendance per game average was as high as it was. If you subtract the attendance in games pitched by Felix, the Mariners drew 735,405 over 63 games – an average of only 11,673 per game. Basically, on average, attendance DOUBLED in 2012 when Felix pitched.

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        • Pete L. says:

          Oops, math error there because of a misread on the overall attendance number, which was 1,721,920, not 1,171,920 (though I did report the overall attendance per game correctly: 21,258). So the attendance with Felix (24,251) is about 19% higher than the attendance without Felix (20,403).

          I thought those numbers looked funny. :)

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      • Spit Ball says:

        Investing in a winning product that is. Is that what is happening here. I’m sure that is the goal, I’m not sure if it’s the right way to go about it.

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      • Baltar says:

        Your arguments in this article were really awful, Dave. First, your cherry-picked example of Cleveland does not even resemble Seattle. Cleveland had a run of very good teams and very good attendance and then decided to rebuild, while Seattle has not been good in some time.
        Second, you set up a straw man of a team perpetually rebuilding, which no one advocates for Seattle.
        Third, you define frictional costs and nowhere do you show what the frictional costs are for trading a player. I think they must be very small relative to $175M.
        Fourth, you then slyly change the argument from frictional costs to revenue costs from attendance declines, which is obviously not the same thing.
        These are only some examples of the sloppiness in your arguments.
        We expect, and normally get, better from you.

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  3. John says:

    It seems the difference between a deal and an overpay here is around $30m? Seem like the goodwill is worth it vs the backlash of not doing it.

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  4. philosofool says:

    Can you clarify the difference between a friction cost and a transaction cost? Is the former a subspecies of the later? Are they synonyms? I’ve always thought of transaction cost as any cost associated with an economic transaction besides loss of the thing traded. If you’re a farmer taking carrots to market, the time and energy associated with moving the carrots to market are part of your transaction costs; if you live an barter economy, time to haggle a price is a transaction cost; advertising, stalls in the market, etc. etc. are all transaction costs. (Manufacturing costs are actually all sunk…) This sounds a lot like what you called a friction cost above.

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  5. MakeitRayn says:

    Moves like this keep a team in the middle.

    There was 3 options; extend, live out the deal (try to resign), or trade. Finishing the current deal and attempting to resign Felix would have been the best course.
    If you consider Felix to be a 13 WAR player over the next 2 years, there was already 25.5 million in surplus value + draft comp (5 mil in surplus) if he doesn’t resign.

    Under the new contract, give him WAR of 13 for first two years, then 6 , 5.5, 5, 4.5, and 4 (38 WAR).
    That’s worth approximately 190 million for 175 million, for only 15 million surplus + 35 million swing fractional cost swing (this is highly questionable for Seattle considering they manage to hover around league average attendance despite being less competitive). There is a possibility this deal gains the team 20 million ( a lot of this value comes from the “frictional cost” over the previous deal. A lot has to go right in order for the new extension to be worth it: King has to stay healthy, there has to be a big frictional cost rebound, and King ages gracefully (38 WAR over 7 years).

    In conclusion, there is a lot of risk for the gains. The team would have been best pocketing the protected surplus and resigning Felix after the deal, or another FA.

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    • MakeitRayn says:

      *Projected not “protected” in last sentence.

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      • Antonio bananas says:

        You’re assuming a static cost/WAR. Another thing to consider is the ease of building a team around him. Looking at the mariner”s farm, they should be able to build a good, cheap team around him. If their farm was bad, them trade him or wait and see.

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        • Spit Ball says:

          He also gave him pretty healthy WAR totals goin forward. I’d say that would cancel out the satic WAR issue.

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    • MakeitRayn says:

      Wouldn’t the frictional cost be neglected if Seattle just used this money in 2015 to sign a different free agent? If they can spend now and get this frictional cost bonus, what is keeping them from receiving the same benefits in the future.

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    • Bip says:

      “or another FA.”

      This is a really big uncertainty. Who is comparable to Felix and heading for free agency after 2014? The chances that either Verlander or Kershaw become free agents is approximately (approximately) -100%. No other starter compares in that class.

      So that leaves them with a position player. So Seattle has a choice between locking up one of the most popular players in the game or trying to compete with the Dodgers, Angels, Rangers and whoever else to try to convince a position player to come to Safeco. At the rate at which contracts are inflated, I expect the top free agent position players will be making of 30M a year on the open market during the 2014-15 offseason.

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      • MakeitRayn says:

        ” His calculations returned a $15 million revenue loss for a .500ish team that cut payroll, versus a $20 million revenue gain for a .500ish team that increased payroll.”

        According to the study, they just have to increase their payroll in order to gain that frictional cost. Could spend it on FAs, or a friendlier extension on another player,or a trade and extend. I am saying the frictional cost benefits are not exclusively linked to signing Felix; and that the Mariners sacrificed his current project 25ish million in surplus for no project surplus gain (value through contract) and increased risk.

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    • kurt says:

      Just remember he’s entering his peak years, bet on 8 WAR seasons for the next 4 years and then start doing your regression of 7.5, 7.0, 6.5, 6.0. He’s been almost as good as Verlander when Felix was early 20s and Verlander was in his peak, now it’s Felix’s turn to be in his peak, which means a 1-2 WAR uptick in value for the next 4 years.

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      • Jason B says:

        “Bet on 8 WAR seasons for the next four years”

        Can I take the under? I would welcome the opportunity to wager as much money as I can get my hands on :)

        Yes, Felix is an ace. One of the best in the game. But you’re underestimating the risk of injury, ineffectiveness, general regression, etc. Vastly underestimating.

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      • commenter #1 says:

        “bet on 8 WAR seasons”

        you may want to calm down a little

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      • Ian R. says:

        Not to pile on, but Felix has averaged right around 6 fWAR over the last four seasons. I suppose you could expect a little bit of an improvement as he hits his theoretical peak (though I think what we’ve seen from him is already his peak value), but 8 WAR? Really?

        He might capable of reaching that in a career year, but don’t count on it year-in and year-out.

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  6. jpg says:

    I see DC’s point but in this case I can’t agree. I think context is important. If the trade makes sense, fans while surely upset, will get over it. If it’s just to dump salary, fans will revolt. The Mets traded Seaver because they were too cheap to pay him. That will alienate the fan base. When they put together a winning team in the 80s the fans got over it. What Loria has done in Florida is another example. Despite his history, Loria was able to corral fans back by opening a new stadium and bringing in an exciting free agent class. Guess what? After his latest tear down the fans were alienated again. Odds are when the team puts a good team together, they’ll come back. The Mets used to outdraw the Yankees considerably in the 80s because Steinbrenner alienated everybody. Look at the two teams now… Fans don’t get enough credit for loyalty and are frankly smarter on a whole than they are given credit for as well. Fans in Seattle will be heartbroken but they’ll get over it if the ends justify the means. In this case they do. You have great pitcher with a ton of mileage on his arm and diminished velocity on a bad team in a loaded division. His value this off season was as high as it’ll ever be. Trading him was justifiable.

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  7. tylersnotes says:

    this could be a dumb question, but is it possible that the trends toward high cost, long term extensions (perhaps coupled with the impact of the CBA on team’s valuation of type A free agents) could mean that the cost of a win according to WAR is due for an update?

    I might be overestimating the scope of these trends against type A free agents without taking into account type b/other FA values, but it appears at least anecdotally possible that as teams pay market value for extensions and this data is left out of the WAR valuation calculation, the $ value put on a win by WAR could be artificially deflated.

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    • Bip says:

      How is $/WAR currently calculated? I actually don’t know really, I’ve always sensed people just sort of glance over the offseason deals and sort of guess.

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      • Nathaniel Dawson says:

        Typically, it’s calculated by looking at what free agents sign for in the offseason. There is one issue with that; most players aren’t paid free agent money, they’re either paid within the whim of the club they’re playing for, for the first two or three years, then paid an escalating amount (but still below free market value) through the arbitration system for the next 3 or 4 years, or have signed a long term below market contract before they hit free agency. So while the free agent price for players is somewhere around $5MM/WAR right now, the “average” player gets paid something like $3MM/WAR.

        So there’s another way of looking at cost per win, you don’t have to compare all players against the cost of a free agent win.

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    • Dave Cameron says:

      There’s no question that the price of wins is going up. We attempt to adjust for the new price each winter.

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      • tylersnotes says:

        I know the price is going up, I just wonder whether this type of extension, which seems more and more prevalent, is accounted for in the cost of a win in WAR and, if not, if these extensions could be widespread enough to be impacting how a win is valued.

        I can see a scenario where, if this extension trend continues and the tv bubble bursts, there are fairly extreme ramifications on the way WAR arrives at player value

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        • tylersnotes says:

          I mean win value, not player value

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        • Jason B says:

          Win value depends where a team is on the competition curve. A marginal win that takes a 66-win team to a 67-win team is not particularly worthwhile. One that takes a team from 92 to 93? Worth considerably more.

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  8. Jonathan says:

    What has to be considered is how this deal is structured. As it turns out, this isn’t an entirely new contract as initially reported, but an extension starting two years from now where his incumbent deal would have expired, meaning the large increase in salary coincides with what will likely be a lucrative television deal for the club. In this way, Seattle’s maintained some flexibility until then and when the new deal is struck, they’ll have the means to take the financial hit. It’s a smaller additional benefit relative to the overall risk, but it shouldn’t be ignored.

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  9. Richie says:

    Signing another $175 mill FA’s not an option, as Dave explains. Nor is signing a still-effective Felix then for that price.

    Either you trade and rebuild, or gamble you get good quick such that Felix will resign with you.

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  10. Jonathan says:

    Also, we don’t yet know all of the terms of this contract as it hasn’t been finalized. There could be money deferred, incentives, etc.

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  11. d_i says:

    If there’s only one kind of rebuilding = perpetual, yes I agree with the general sentiment, but I think recent history has shown that shrewd moved/good drafting can make rebuilds better than the Indians: see Expos/Nats, Rays, Marlins (yes I said it) at least in terms of on field performance (attendance/revenue likely lags a bit longer)

    Of the teams that have let stars walk recently (Pujols, Crawford, Fielder, Hamilton), I think their decisions are looking good thus far (granted some selection bias).

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    • d_i says:

      I can’t help but think of what the Twins’ outlook would currently be if they had given Johan the contract he got from the Mets instead of basically giving him away for what turned out to be nothing. They would be hamstrung (not that they’re spending it now but they have the flexibility to supplement the next round of talent that they wouldn’t have otherwise).

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      • Ivan Grushenko says:

        I’m not sure about now, but they might have won the division in 2008. I also don’t see how they’re “hamstrung” now. They have more money than players to spend it on.

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        • d_i says:

          They’d be trying to deal him just like the Mets are and having to eat salary to do so. I said that they “would be” hamstrung if they had extended him not that they are. Twins fans just hope they’re banking these payroll savings for 2015ish when they need to supplement a team ready to contend again.

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    • Dave Cameron says:

      The Rays have significant revenue/attendance issues. I don’t think they’re an example of how losing and roster turnover has no lasting effect on a fan base.

      The Nationals changed cities. They’re not a comparable situation.

      The Marlins have not been able to attract people back to the ballpark without opening a new ballpark, which is a known attendance booster. You can’t open a new ballpark every year.

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      • d_i says:

        Understood. You’re talking revenue. I’m talking wins.

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      • billy says:

        The Rays play in downtown St. Petersburg in arguably the least inviting/enjoyable ballpark in the country. They also have the smallest population within a 30 minute drive of their ballpark in baseball. Florida fans (and pro sports fans in the south in general) don’t attend games at the same rate at other cities (see the jaguars, bucs, marlins, all the hockey teams, and even the heat have plenty of empty seats). I think you are overstating the effect of tampa’s prolonged rebuilding on their current revenue/attendance issues.

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  12. jdbolick says:

    Seattle was 26th in attendance last season with a healthy and productive Felix. Exactly how much lost revenue could you reasonably project from flipping him for prospects? It’s not as if this was a baseball-mad town with a rabid, supportive fanbase that was at risk of being turned off by such a move. I get that you’re trying a different angle since everyone else is going to write ad nauseum about the conventional risks, but I believe you’re shoe-horning a story where it doesn’t really fit. Kudos for the effort, though.

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    • Andrew says:

      With Sounders attendance growing, UW opening their remodeled stadium next year, the Sonics probably coming back (and soon to have a shiny new arena), the Seahawks building something big going forward, and the possibility of an NHL team moving in; the front office has to be petrified of attendance cratering even more. More important is TV ratings. They must absolutely keep the ratings strong to justify a lucrative TV deal after the 2015 season.

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    • Dave Cameron says:

      It’s not just the lost revenue, it’s the opportunity cost of the revenue gains not made. You can’t just look at how many fewer fans will come without Felix without also looking at the reduced negotiating power when the TV contract comes up for renegotiation.

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      • jdbolick says:

        The TV numbers will depend on perceived interest in the team, which Seattle’s already terrible attendance with Felix would certainly affect. Note that Seattle isn’t only 26th overall in attendance, but actually dead last in terms of percentage of their stadium filled at 44.4% (only nine teams are below 60% – SEA, HOU, and CLE are the ones below 50%). Furthermore, if we’re looking at TV money then obviously a hitter who is expected to appear every game would be far more appealing than a starting pitcher who you know will appear only a fifth as often. So it’s hard to imagine that having Felix gives any kind of increased negotiating power at all. There is no obvious opportunity cost here, since it would appear that TV money and attendance would be about the same whether Felix is on the team or not.

        I’d actually be interested to see numbers comparing attendance (maybe TV money, but that’s more fixed so it might not yield interesting results) with winning percentage and identifying the strength of the correlation. I suspect that attendance has relatively little to do with success on the field and almost everything to do with the market along with the handful of other significant factors like a new park. For instance, before the Marlins’ new stadium they tended to draw about the same numbers as the Rays despite Tampa Bay being vastly more successful.

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    • BJsWorld says:

      This ^^^

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    • Dan says:

      Maybe, I missed the point of the article, but I agree with jdbolick. Trading Felix completely depends on the deal available. If you can go from a crappy team last year to a better team in the future, you do it. Win, and the fans will show up. Lose, and they might show up every 5th day to watch Felix, but only if he stays healthy and awesome.

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  13. Spit Ball says:

    I’m not really buying it. Not after you have written article after article about individual players having nothing to do with attendance figures. Even if their is some truth to the Cleveland situation of 15-20 years ago, that was a team they knew they were not gonna be able to keep together. Regardless of the attendance figures the Indians were basically borrowing from the future when they had that 95 million dollar payroll. They knew they were gonna have to blow it up when Ramirez, Thome etc. hit freee agency. Ironically I remember another late ninetees team who along with the Indians and Yankees were one of the best teams. The Mariners had a pretty good team from 1995-2000 as well. We know the decisions they made in 98,99 and 2000. Remember, they dealt Johnson in 98, Griffey after 99 and lost Rodriguez after the 2000 seasons. All of those deals had a positive impact on a Mariners team that was excellent between 2001-2003. Do they luck out with Ichiro if Rodriguez would have re-signed? The Mariners also not suprisingly also had their three highest attendace records ever from 2001-2003. If anything you could point to what the Indians did and think they were trying to mimmick the Mariners. It just went poorly for them. We can find a case study for anything can’t we.

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    • Ivan Grushenko says:

      Oakland is an example of a team that became more or less irrelevant to non-diehard fans after losing its star players in the mid-2000s. True their record also became worse, but the teams were competitive more or less every year other than 2009 and 2011. Being able to keep your star players would have mattered in that instance. It seems to matter less if the team is either really good, like the Cardinals post-Pujols, or really bad, like the Mariners post-2003.

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      • MajorDanby says:

        I dont think the A’s were competitive in 2007 or 2008. So, since their ALCS run in 2006, they’ve been bad 4 of 6 years, average 1 year and really good one year.

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    • Dave Cameron says:

      Evidence shows that importing new players from other teams doesn’t have a large positive increase in attendance. That is not the same thing as saying that deporting current players does not have a large negative decrease on attendance. It’s two different issues.

      The Mariners opened Safeco Field in July of 1999. Their attendance records were heavily influenced by the large new park boost.

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      • Spit Ball says:

        It was inluencesd even moreso by puting extremely good teams on the field post AROD who played a season and a half at SAefco.

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  14. Joncarlos says:

    ” His calculations returned a $15 million revenue loss for a .500ish team that cut payroll, versus a $20 million revenue gain for a .500ish team that increased payroll.”

    Is that backwards? It seems to be saying that when you cut payroll you lose $15mil, but when you bring it back up you get back $20mil. That sounds like you’re making MORE profit by rebuilding.

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    • Andrew says:

      Profit isn’t discussed at all. If a team had $100 million in revenue and won 75 games or so, and then the next year cut payroll. They would be expected to have $85 million in revenue that year. If they raised payroll they would expect to have $120 million in revenue.

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  15. Mike says:

    Dave – haven’t you argued over and over again that attendance is driven by winning, and not by individual players? It seems to me that the Mariners should have tried to maximize wins, both in the short term in long term, and I just don’t see how this deal does that for them. It’s all a guessing game without knowing what they could have gotten for Felix, but assuming they could have gotten a very good return – for instance, Kansas City would have given them the package they gave the Rays for Shields, plus at least one more very attractive piece – I think they would have been better off both in the short term and long term by trading him. Rebuilding around a talented package of young players, while having something in the neighborhood of $27m per year to spend on free agents like Michael Bourn/Edwin Jackson, that together would bring back the lost wins from Felix. Plus, this strategy eliminates a huge portion of the long term risk that a team like Seattle can’t afford.

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    • Dave Cameron says:

      Think about the variables necessary to make all those beliefs true:

      A. For Felix to have a large amount of trade value, there must be demand from teams willing to give up significant talent in order to acquire him.

      B. For Felix’s talent to be easily replaceable, there would have be $27 million worth of players worth signing.

      If both A and B are true, then the teams making significant offers for Felix are stupid, because they could simply take the money they’d have to pay him and sign the players that the Mariners should be signing to replace Felix. It’s an argument for a massive inefficiency, where buyers of superstars are squandering young talent needlessly when all they really need to do is buy similar value in free agency.

      If there’s demand for Felix at this price, then that means that there’s not a ready supply of similar value easily purchased without surrendering top prospects in the process. Felix can’t both have a huge amount of trade value and also be simultaneously easily replaced.

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      • Oscar says:

        Better teams have fewer places to upgrade. Felix would be a stupendous upgrade for every team in baseball, since he’d replace the 5th starter. That’s his trade value. The Mariners could then allocate his money to a couple 2-3 WAR players almost anywhere on the diamond and get the full impact of those upgrades, while the same players might be lateral moves for a very good (and therefore contending) team.

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        • Mike says:

          Right, and this was my point. Sure 6 WAR in one player is worth more than 6 WAR in two players or 3 players, because of scarcity of roster spots. But for a team in the Mariners current and expected future position, they are not exactly filling out the roster with 3 win players, so there is room to upgrade other areas, keep the team roughly as good today while loading up on future talent to make the team better down the line. Obviously there is risk there as well, but I would argue not as significant a risk as putting $25m a year into one pitcher.

          Saying that a player has value does not mean he is impossible to replace. Teams trade from positions of surplus all the time, and replace the lost wins in areas of weakness, while maintaining the same payroll. That is akin to what we are talking about – you can build rosters around a few great players or a lot of good players, and it tends to be less risky for small market teams to do the latter.

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  16. GoodToBeKingFelix says:

    This may or may not have entered into it, but the options for Felix and the M’s were not in a vacuum outside of the rest of the team’s deadlings and non-dealings this off-season. This appears to have been their fourth best option of the winter, having made serious overtures toward and having been rebuffed by J.Upton, J.Hamilton, and I think another hitter too.

    Maybe if they had ended up committed some of that big money to a free agent hitter, they’d have been in better position to stand firmer on a lucrative but reasonable long term offer for their ace, plus retain the alternative option of trading him.

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    • Dave Cameron says:

      This isn’t an either/or situation. The Mariners have been talking to Felix about an extension for a while, and this was going to happen no matter what else happened this winter.

      If Felix would have taken significantly less money had the team signed Josh Hamilton, he had every opportunity to tell them that. He could have simply said “Give Hamilton an extra $25 million and take it out of whatever offer you’re going to make me.” He didn’t say that. I don’t see much of a reason to assume that he would have taken a smaller contract had the team signed Hamilton.

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  17. thethirddan says:

    Dave, can you address at some point the insurance policies teams put on the large contracts?

    does this mitigate to some extent the risk of felix’s arm falling off tomorrow?

    How screwed exactly would Seattle be if this happened?

    I’ve been wondering about this side of things for a while.

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    • d_i says:

      I’m curious about the extent of this as well, but one thing is sure: the insurance companies are not underwriting these deals at losses. The premiums of the pool of insured are high enough to cover the exposure to his arm falling off.

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      • thethirddan says:

        I assumed that these weren’t cheap, as insurance companies don’t like to lose money. I just know nothing about how these work at all.

        For instance will they cover if felix just turns into an average pitcher? How detailed and complex are they? Do teams not want to talk about them, so they can play the poor owner card, we just lost a pitcher for a year, we are so broke card?

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    • Nathaniel Dawson says:

      I’d like to know the same thing, too. Although I think that specifics on how those policies between teams and insurance companies are written are pretty hard to come by. I know that most of these polices aren’t paid until a player misses significant time (a half a year, probably, at least), and in recent years, fewer insurance companies are willing to fully insure very long-term contracts for players, particularly pitchers.

      How much do these policies cost? How much of a players salary do they insure? How many years and how much risk will these companies take on?

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      • thethirddan says:

        Exactly, I figured that someone way smarter/more knowledgeable than I would have some interesting insight on the subject. I wish I could facebook/twitter tag Dave into this conversation

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    • Baltar says:

      Insurance does not compensate a team for a player’s poor performance, only injury. And there are a lot of qualifications even then.
      Basically, all insurance is an extremely bad deal unless you are insuring yourself against a risk that you cannot afford.

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  18. PrinceOfBeers says:

    The Marlins dump superstars for prospects all the time.

    World Championships

    Marlins (2)
    Mariners (0)

    Seattle, are you even trying?

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    • Ian R. says:

      It’s worth noting, though, that those two Marlins squads were the only clubs in team history to even crack 90 wins, and they were two of only 6 winning seasons in the 20 years they’ve been in the league.

      The Mariners have admittedly been pretty crappy through most of their history, but they at least had a run of sustained success in the early 2000s, headlined, of course, by a historically great team in 2001. True, they didn’t win the Series that year, but the playoffs are a crap shoot.

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      • Tanned Tom says:

        Hah, crapshoot indeed. Replay that series 100 times and the Yankees will win it 65 times. Face it, they lost to the better team. Plus they beat up on a weak division and they had Boone using steroids. A better argument is they were lucky to do as well in the regular season as they did.

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  19. Bobby Ayala says:

    Comparing Votto and Felix’s contracts is apples and oranges- Votto was 2 years older and got a 10 year extension taking him through his age 41 year. Felix is now signed through his age 33 year, just about the probable end of his prime. Tulowitzki and Braun both signed deals very unlike Felix’s deal, comparing them to Felix is either bad research or a bad attempt at forcing facts to your theory.

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    • big red machine says:

      I keep thinking of the deal Miguel Cabrera got from the Tigers, at around 26. Both contracts pay for the player’s prime years more than the decline years (very much unlike Votto’s deal)

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  20. kid says:

    The reality is that the team – neither through current management or prior – has stupendously failed to build anything else resembling a competent roster around Felix. They have been blessed with this holy grail of starting pitching for 8 years, and have squandered almost every season. Year after year, the franchise decides to make its highlight acquisitions be the likes of Miguel Olivo, Milton Bradley, Brendan Ryan, Jason Bay and Raul Ibanez. I refuse to say that the Mariners didn’t have a plan, or that their plan was poor. But what I will say is that the plan has utterly failed. The team is just as devoid of MLB-ready talent as ever, and the farm system, while promising, is still incredibly heavy on pitching and frighteningly light on bats. Thus there is little hope on the horizon in the form of the Ms’ current MLB/MiLB players.

    The team HAS to trade Felix. Plenty of teams would pay dearly for his services, and the Mariners need it. You can talk about hidden costs of this and that, or the impact on the fan base, but in the end – as it always does – it comes down to the on-field product. And there’s simply no hope of the Ms fielding an above-average on-field product so long as they continue to devote such a ridiculous chunk of their salary to one player.

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    • Jason B says:

      “The team HAS to trade Felix.”

      But if their talent evaluation has landed them Bay, Bradley, etc. in the past, then that may lead them to trading a dollar for three dimes, a nickel, and two pennies.

      If the process (talent evaluation model) hasn’t changed, they better hang onto the talent they have, because their track record of identifying and acquiring talent in recent years is spotty at best.

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  21. Scott says:

    When ticket prices for a Mariners game have almost doubled in 2 or 3 seasons and the team is producing the same results on the field its hard for the average family to shell out the extra money for a lame duck product.

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  22. El Vigilante says:

    “There is evidence that teams that regularly cut payroll by trading away their best players when they get expensive can enter into a never-ending cycle of payroll slashing and revenue degradation.”

    Never-ending? There is absolutely no such evidence. I would like to think this is just poor word choice, but you later mention “perpetually rebuilding”. To frame this discussion with economics and then only talk of rebuilding as if it is an infinite state is misleading.

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  23. jpg says:

    The problem I see is that Dave’s narrative doesn’t fit Seattle’s current situation. If this article was written say three years from now and subject was the potential fallout of, say, Pittsburgh dumping Cutch, then this article would fit. The Mariners aren’t in a perpetual rebuilding state like Pittsburgh or KC. They don’t have a history of fielding teams with middling payrolls. Lastly they don’t have a history of alienating fans like Florida because of a miserly owner. So trading Felix isn’t about “Small Market Team X trading away a star they can’t afford”. This is about whether trading Felix is the right move for Seattle from a baseball standpoint. As I stated above, fans will eventually accept trading away an icon if it’s for the long term benefit organization. As I also stated above we’re talking about a great pitcher with a ton of mileage on his arm and diminishing velocity. His market value is ostensibly at it’s peak. He’s on a bad, poorly constructed team that’s stuck in a loaded division. Seattle fans, I have to believe, would eventually come to grips with trading Felix for a commensurate package.

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    • kid says:

      Very well said. Agree 100%.

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    • dnc says:

      The Mariners traded away Randy Johnson, Ken Griffey Jr and Alex Rodriguez. Yes, they were each over 15 years ago, but you’d be amazed how many Mariner fans act like it was yesterday. There’s always been a sense of impending dread with Felix that “they’re going to deal him just like they did Griffey/ARod/Unit”.

      In reality, you are right, the M’s haven’t been in perpetual rebuilding. But in perception, they haven’t been any good for a decade and when they were good they were too cheap to hold onto monumental talent.

      I know there’s a lot of risk here, but I think the fanbase was ready to completely crater if they moved Felix. Especially given the spector of the Sonics return and the probably NHL franchise.

      The M’s couldn’t risk that.

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      • jpg says:

        That’s not really true. They offered Griffey the highest contract in history at the time but he turned it down and forced a trade to Cincinnati so that he could go home and play for his dad’s team. And if you remember, he immediately signed a team friendly deal once got there. The Unit was a pending free agent who also wanted out and had pitched poorly (by his standards) before being dealt to Houston at the deadline, and then promptly destroyed the NL. A-Rod wasn’t traded away and signed a $252MM deal that nobody was coming within $50MM of matching. Now to be fair, you might be right about the perception of those deals from an M’s fan standpoint. But the reality is that Seattle wasn’t really at fault for Griffey being dealt or A-Rod leaving.

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      • Spit Ball says:

        The Mariners would have loved to keep those three guys but they knew they were going to lose them in free agency. They turned Johnson/Griffey into Mike Cameron, Brett Tomko, Freddy Garcia, Carlos Guillen and John Halama all guys who made the team better a couple years later. Saefco field opened in the summer of 1999. The very largest crowds the Mariners ever drew were in the seasons between 2001-2003, years 3 through 5 of Saefco. Further proof that winning teams put “fannies in the seats.” Look I do not doubt that their is a frictional cost to letting the face of your franchise go. Let’s not pretend that their is not one for signing said star, watching his arm fall off and having 30 percent of your payroll wrapped up in a has been or even league average player.

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  24. It’s an incredibly interesting debate. While this may or may not be a “frictional” cost it seems another thing that must be considered is the “buzz” factor with a new guy coming to a new team.

    Felix is a big name, but in a way, he isn’t. I don’t feel like Felix brings people to the ballpark in the way that Orioles fans would clamor to get a glimpse of Cal Ripken.

    I realize many of those players will not be showing up in free agency, and that they are few and far between. Does Michael Bourn boost attendance? I can see it in the sense that more people would attend thinking the club will field a better team………..yet……….do they come because of that, or because they “really” want to see Micheal Bourn in the new uniform?

    I get the idea and the mindset here, but it just seems like an overpay in a sense. Felix Hernandez is very good, but doesn’t stand out like a guy like Michael Jordan from a marketing and star power standpoint initially.

    I bring that up due to the fact that there is much more to these contracts than just the ability of the player on the field. (Marketing, promotional deals, endorsements, etc)

    I get the Mariners thinking and Dave explains it well. I hope it works out for them and for Felix.

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  25. Dayton Moore says:

    “It doesn’t take too much digging to see the handful of teams that have been rebuilding for the past couple of decades, and have essentially turned themselves into feeder systems for higher revenue franchises in the process.”

    Damn, someone discovered my process.

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  26. Spit Ball says:

    I’ve read this article over and over again. I read the Farnsworth blog thoroughly. I also read these comments over and over again with Dave’s rebuttals. It just does not add up. Dave you have cherry picked to many arguments here. You are great at what you do and have a wonderful, analytical sabermetric mind as well as good writing skills. I’m gonna say it like it is though; for a scientific method guy you have let your heart or other feelings get in the way of what the truth may be. You wanna be sold on this so bad that you are looking for any reason to like this deal because like most of us you don’t know what to think.

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    • kid says:

      I think you are right…

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    • Dave Cameron says:

      Legitimate question: do you think I was emotionally invested in the Joey Votto deal with the Reds last year? I wrote 2,000 words on that deal saying many of the same things, long before this contract was ever conceived. Do you think I wrote the piece about why I’m not a fan of losing on purpose a few months ago as a preamble to defending Felix’s future overpaid contract?

      I think what I wrote in this post is consistent with what I’ve written in other posts over the last year. A few years ago, I jumped on the Rockies for re-signing Tulo three years before he was due for free agency, then criticized the Brewers for re-signing Braun with five years left on his deal, and finally stated that I thought the Dodgers probably overreached when they re-signed Matt Kemp at a free agent price before he reached free agency. All those opinions look awfully silly in retrospect. I’ve tried to learn from those mistakes.

      I think, in general, the evidence points to it being more harmful for a team to continually ship out its best players than it is for a team to give legitimate superstars market value contracts before they reach free agency. I just think we’ve overreacted to small overpays for great players, focusing too much on the fact that the contracts might not be perfect and missing the fact that they’re still good ideas.

      In reality, if the M’s had signed Felix for 5/110 (so total would be 7/150), no one would be blinking an eye here. The magnitude of the overpay being discussed is in the range of $25 million over five years. $5 million today buys you a broken down fifth starter or a solid middle reliever. Think of what $5 million will buy in 2015, 2016, 2017, 2018, and 2019. We’re talking about a difference that might prevent the Mariners from buying a slightly better backup catcher in three years. If $22 million per year is fair, then $25 million per year isn’t so far beyond the pale that the better alternative is to just tear the whole thing down and commit to a few more seasons of being awful. It’s just not worth it. The costs of being awful are higher than the difference that could be described as an overpay.

      I honestly don’t think this is a Felix/Mariners thing. I think this is just a continuation of a disagreement I’ve been having with the commonly accepted idea of whether bad teams should invest in their big league rosters or not. I don’t buy into the notion that any team that is projected for less than 80 wins should tear their team apart and build for the future. Going from bad to good is more like climbing a ladder than getting shot out of a cannon.

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      • jpg says:

        I disagree Dave. For a lot of people it’s a question of what will make the team better long term. The overpay doesn’t bother me at all. They are rewarding an icon. I have no issue there. My issue is whether or not he should have been extended in the first place and whether or not Seattle would be better off in the long run trading him. It’s all about the philosophical questions surrounding the ways to effectively build a team. You have a stated aversion to bad teams trading great players because it alienates the fans and because the damage done by losing on purpose far outweighs its benefits. In a vacuum that may be true but in context it’s not. Sometimes it is prudent, if not downright necessary, to take one or two steps back in the near term in order to set yourself up to take ten steps forward in the long term. Look at Texas, specifically when they traded Tex to Atlanta. He was the best player on a bad team. He was still pretty young and had two years left on his deal going into the year. The fans had endured the A-Rod saga, terrible pitching, and getting pasted by the Yankees the few times they were good enough to make the playoffs in the decade prior.

        How is that situation all that much different? I understand that the Rangers ownership was broke and largely a disaster during that time frame and there were so financial variables at play. But still it’s fair to say Texas did pretty well in that deal and a case could be made that that deal laid the ground work for their current run of success. The results were good. I think the process was good but based on everything you’ve written, it leads to believe that it wasn’t a good process in your mind. I think that is the root of my disagreement and that of many others as well with you on the subject.

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        • jdm says:

          If your taking the situation in context then you have to consider the two possible routes the front office can go: throw the towel in for the next couple of years and continue rebuilding or hope the development of their farm system makes them a contender in a few years. If you try and trade Felix, all the criticisms of signing him to a long term deal (declining velocity, poor aging curves for great young pitchers, etc) are embodied in his trade value. But if you resign Felix, the Mariners are giving themselves a window of opportunity to try and develop their farm system. With Felix as their ace for the next 7 years (if injury and aging curves permit), this gives them a window of opportunity to develop Montero, Hultzen, Walker, Paxton, and Franklin, all who were ranked as top 100 prospects in Baseball America’s 2012 list.

          Also granted the term of the contract, age 27-33 (but really 29-33 given his existing contract), the Mariners are able to keep Felix through his prime and right into a critical age where they can reassess his value as a pitcher. 7 year $175MM might seem like an overpay, but based on research for FA $/WAR from 2002-2008 the CAGR was roughly 9.5%. I am unaware of where to find the data necessary to empirically update the marginal value of a WAR in FA for 2013, but extrapolating the valuation of $4.5MM/WAR in 2008 leads to a figure just over $7MM/WAR in 2013. Now given the state of the depressed economy since then it might be a little bit lower but it may be counteracted by new media deals cut by these franchises. But you can use a more conservative $6MM/WAR to be conservative.

          With the assumption it is somewhere between 6-7MM/WAR, you can approximate the amount of WAR that needs to be generated over the course of his contract to ‘justify’ the value and terms granted so long you discount the future wins back to a present value. Since it is difficult to project the way that $/WAR will trend, I think it might be safer to analyze the present value of this deal. So I have read research that typically uses an 8% figure to discount wins, so I used that figure. Given this, the minimum WAR to justify the contract falls between 24-29WAR over the course of his contract.

          Using Verlander’s 27-29 age seasons as a comp for Felix’s next three years(as Dave used him as a comp as well and given Kershaw isn’t old enough to use as an age curve comp), it suggests Felix could generate about 5.5WAR/year which would be a little over 15WAR at present value which would account for somewhere between 52 and 62% of his minimum value required in only 42% of his time with the deal. If you want to venture into even more uncertain grounds, assume in year 4 (age 30 season) he posts 4.5WAR and depreciates .5WAR/season after that and so in his final year, he posts 3WAR for his 33 year-old season. Even at this rate, the club would break even assuming a conservative $6WAR.

          Given the implications that Dave cited earlier in terms of revenue and trading away the face of a franchise, I don’t think this is a bad deal. While it could potentially turn out to be a bad deal, I think it has upside to afford the Mariners a chance at turning around their franchise and anchoring around their staff around Felix. So while it might seem ideal to go into complete rebuilding mode, if Walker and Hultzen emerge as top SPs, the Mariners could follow the model that the Giants have used to win 2 word series in the last 3 years. Neither in a vacuum or in context is the deal that poor of a decision.

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        • jpg says:

          I never said that the signing was bad in context or in a vacuum. I think it’s a solid move. I even said I had no issue with the amount of money he received . All I was saying is that a strong case can be made for trading him. My contention with DC is that he feels bad teams should never trade away their star players. I disagree. I feel there is a difference between losing on purpose, which is dumb, and losing with a purpose, so to speak.

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      • jdbolick says:

        Holy cow. Saying “In reality, if the M’s had signed Felix for 5/110 (so total would be 7/150), no one would be blinking an eye here.” only hammers home Spit Ball’s point about you being out of touch on this one, Dave. The most common comments have been about the decision not to trade Felix, not about the specific amount he was paid.

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  27. NATS Fan says:

    I agree with Dave totally. Looks at the Pirates by constantly rebuilding and watching what they spend. I believe that process has prevented them from winning. Had they resigned Bonds in the 90s then they likely would have a much stronger fan base today. Had they kept the team together that last won 79 games, then they would have a stronger base today. Getting back to the attendance figures of the 90s will likely require several years in a row of consecutive playoffs. Not likely to happen if they do not spend for free agents any time soon,.

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    • jdbolick says:

      Losing teams stay losers because of mismanagement. It doesn’t matter if you trade players or sign a huge payroll if you don’t know the players to target. Similarly, you can trade stars and rebuild successfully or keep stars and build around them if the front office knows what it’s doing.

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  28. NATS Fan says:

    Moreover, Seattle is not that bad a team. They added through subtraction this last winter. Anyone heard of a gut named Chone? They have a solid and improving core. The offense should be much improved from last season and the ERA should be similar. When I look at their roster I do not see to many stars, but I do not see any gaping holes either (Morse in LF maybe). Bullpen lacks a star closer, but it is still a fairly deep bullpen. They have a few prospects that are very highly touted that could turn into stars in the next few years (such as Zunino, Hultzen). Zunino is likely to be up in June. It is not that hard a leap to say they could play around .500 this season and possibly be a 90 win team around 2015 or so.

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    • jpg says:

      Seattle has fielded teams with payrolls well north of $100MM and have the financial wherewithal to sign marquee players. Pittsburgh doesn’t. They had no shot at bringing back Bonds, they couldn’t afford to bring back Bobby Bonilla the year before either. Their situations couldn’t be any more different.

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  29. maqman says:

    Felix has already created 38.3 WAR for the M’s worth $191.5MM based on $5MM per WAR (It’s current value is probably a little higher and will be even more so when gets paid the first dollar on his extension.) So far the team has paid him about $60MM so he has already earned about $130MM in surplus value. There is a very low probability that Felix will not more than earn every dollar he will have been paid in his career by the M’s.

    Additionally, as with the Yankees and A-Rod the M’s will most likely buy insurance against any medical reason ending his ability to pitch for them.
    Lloyd’s of London will insure anything, including Felix’s health preventing him from pitching for over a year. I believe I once saw that the cost was about 5% of the insured figure, that may be wrong. The team can lose but not catastrophically unless he ceases to be be effective for a non-medical or accidental reason.

    According to Wendy Thurm the M’s current regional TV deal is worth $45MM a season. Their viewing market covers all of Washington, northern Oregon, most of Idaho and Alaska and western Montana. They along with all 29 other teams will start getting an additional $25MM in revenue from the new MLB national rights sales next year, taking that up to about $50MM a season. That total of $95MM a year next year will about cover their current payroll, including Felix’s. When they renegotiate their regional deal in 2015 (if not before) their media revenues should be close to Texas but not at the level of the NY or LA teams.

    Texas signed their media deal two years before the Dodgers took regional TV money to a whole new level. Their deal was big then, not so much now and will be even less when the M’s set their new deal up. Fox, Time-Warner and Comcast are bidding these huge sums because they will profit from them and they want cost certainty.

    The M’s have put their money where their mouth was so the snarks can now zip theirs. Just think of it, years and years of no trade Felix threads! He’s ours and you can’t have him. The M’s will win 82 to 88 games this year, live with it!

    Vote -1 Vote +1

    • Baltar says:

      Even having the Astros to feed on now won’t improve Seattle’s record this year by that much. You are a typical fan: cockeyed optimist.

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      • MT says:

        A 7 game improvement isn’t THAT ridiculous. I don’t expect it but it’s not like it’s completely out of the realm of possibilities.

        A ~75 win team just needs a few over-excelling players and some luck to reach .500 ball.

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    • commenter #1 says:

      where are those wins going to come from?

      Vote -1 Vote +1

  30. Jaybo Shaw says:

    Good analysis.

    However, this is a very stark departure from the standard fangraphs-type deductive reasoning that goes something like this:

    Comment Submitter: ” is why overpaid according to fWAR anaylsis, and that will lead to increased revenue that fWAR analysis does not account for. So, doesn’t that justify this transaction?”
    Fangraphs Writer: “No significant correlation between and increased revenue has been identified. Studies have shown that winning leads to increased revenue. Teams increase revenue by making decisions that maximize their future win expectancy (and correspondingly, their wins). Efficient spending that optimizes $ spent/win contributes toward maximizing win expectancy. was an inefficient investment in future wins and the team would have been better served by maximizing their future expected wins with a more efficient allocation of resources.”

    Obviously, Cameron does allude to a study, but it seems pretty thin. It also does not seem to apply to the Mariners, as they are not maintaining some high-level of performance/attendance, but rather maintaining below-average performance. It could probably be more easily argued that they are close to bottoming-out in terms of how the quality of their team effects their revenue. In other words, no informed person is going to see the Mariners because they are good or potential contenders.

    Overall, I sort of prefer that fangraphs take a hard-line objective approach, rather than randomly introducing space for subjective reasoning like this. A bad team just assumed a huge long-term risk that is likely to be burdensome in the future. Because they are not at a point on the win curve where they should be sacrificing long-term financial flexible for short term gains (because wins are particularly valuable), this was a bad move.

    I think the value of information that could have been gained over the next year was well worth the wait for the Mariners. This is certainly not the Howard contract as Felix projects to be much better than Howard did when he signed, but many of the same arguments that were used to crush the Howard contract here do apply. Also, the Phillies were actually sustaining a high-level of performance and could borrow from the future based on their increased revenue in the present. To be clear, I think the Howard contract was awful, and the criticism toward it on this site and others was spot on.

    I think the whole “FA hitters won’t sign in Seattle” is a moot point. Do they sign in San Francisco or Tampa Bay? It is just a parameter that the Front office can take into consideration and respond to. Prioritize developing hitters in the minors, invest more in player development, trade for hitting prospects, invest in the type of Free Agent hitters who don’t have a ton of options/work well in your park. The same effect that deters hitters from signing should attract pitchers to sign, so take advantage of that by bringing in veterans on short contracts who are looking to reestablish their value.

    Vote -1 Vote +1

  31. Jaybo Shaw says:

    Good analysis.

    However, this is a very stark departure from the standard fangraphs-type deductive reasoning that goes something like this:

    Comment Submitter: ” is why overpaid according to fWAR anaylsis, and that will lead to increased revenue that fWAR analysis does not account for. So, doesn’t that justify this transaction?”
    Fangraphs Writer: “No significant correlation between and increased revenue has been identified. Studies have shown that winning leads to increased revenue. Teams increase revenue by making decisions that maximize their future win expectancy (and correspondingly, their wins). Efficient spending that optimizes $ spent/win contributes toward maximizing win expectancy. was an inefficient investment in future wins and the team would have been better served by ubcreasing their future expected wins with a more efficient allocation of resources.”

    Obviously, Cameron does allude to a study, but it seems pretty thin. It also does not seem to apply to the Mariners, as they are not maintaining some high-level of performance/attendance, but rather maintaining below-average performance. It could probably be more easily argued that they are close to bottoming-out in terms of how the quality of their team effects their revenue. In other words, no informed person is going to see the Mariners because they are good or potential contenders.

    Overall, I sort of prefer that fangraphs take a hard-line objective approach, rather than randomly introducing space for subjective reasoning like this. A bad team just assumed a huge long-term risk that is likely to be burdensome in the future. Because they are not at a point on the win curve where they should be sacrificing long-term financial flexible for short term gains (because wins are particularly valuable), this was a bad move.

    I think the value of information that could have been gained over the next year was well worth the wait for the Mariners. This is certainly not the Howard contract as Felix projects to be much better than Howard did when he signed, but many of the same arguments that were used to crush the Howard contract here do apply. Also, the Phillies were actually sustaining a high-level of performance and could borrow from the future based on their increased revenue in the present. To be clear, I think the Howard contract was awful, and the criticism toward it on this site and others was spot on.

    I think the whole “FA hitters won’t sign in Seattle” is a moot point. Do they sign in San Francisco or Tampa Bay? It is just a parameter that the Front office can take into consideration and respond to. Prioritize developing hitters in the minors, invest more in player development, trade for hitting prospects, invest in the type of Free Agent hitters who don’t have a ton of options/work well in your park. In a sense, its an advantage because those hitters value will be depressed throughout their arbitration years as their counting stats don’t accurately represent their hitter aptitude. The same effect that deters hitters from signing should attract pitchers to sign, so take advantage of that by bringing in veterans on short contracts who are looking to reestablish their value.

    Vote -1 Vote +1

    • Jaybo Shaw says:

      Ahh HTML. Second paragraph, not screwed up by HTML tags:

      Comment Submitter: “–Insert qualitative reason– is why –insert team X– overpaid –insert player X– according to fWAR anaylsis, and that will lead to increased revenue that fWAR analysis does not account for. So, doesn’t that justify this transaction?”
      Fangraphs Writer: “No significant correlation between –insert qualitative reason– and increased revenue has been identified. Studies have shown that winning leads to increased revenue. Teams increase revenue by making decisions that maximize their future win expectancy (and correspondingly, their wins). Efficient spending that optimizes $ spent/win contributes toward maximizing win expectancy. –Insert transaction in question– was an inefficient investment in future wins and the team would have been better served by increasing their future expected wins with a more efficient allocation of resources.”

      Vote -1 Vote +1

  32. LHomonacionale says:

    Not all teams can approach the same baseball economy the same way. There are extremes of expectations that develop from financial differences. A team like the Yankees doesn’t focus as much on prospect development because their strategy of hefty FA purchases means prospects are liable to end up blocked anyway. A team like Oakland covets its prospects highly because they know there won’t be FA money to fill holes on the field for the long term, and even then are still wary of signing their youth to extensions. And then most of the clubs fall somewhere in the middle, having to find that balance between what they can and can’t do in Free Agency.

    If Felix Hernandez were on the Yankees and had just signed the same contract this deal would seem like a steal, if only because there’d be no question the Yankees could afford it and everybody would agree that Sabathia won’t be around forever, that the Yankees likely didn’t have anybody as good as Felix Harnandez in the farm system. If he were on the Athletics and signed this contract it would seem like a sure overpay as Oakland can’t afford Free Agency rates for elite talent in any case, that it controls plenty of above-average arms with years of team control, etc.

    A team like Seattle is going to be somewhere in the middle. I like the extension because it’s surely less risky to gamble on your own than to go into Free Agency and bid against the Yankees and Dodgers to assume roughly equal risk from another team.

    Vote -1 Vote +1

  33. Bab says:

    I “sold bought” my last house. Was an odd experience.

    Vote -1 Vote +1

  34. rubesandbabes says:

    I would just like the insurance question answered. Does insurance exist anymore for these type of contracts, or not?

    Seems like not, but now the rumor floats that if A-Rod does not take the field in 2013, the Yankees line up for a recovery up to $77mil from A-Rod’s remaining $118mil contract, under some conditions. Is it true? Is it 100% false?

    Vote yes on the King Felix extension as a good baseball move. Detroit might be losing $, but probably the Angels are profitable. To me the big contracts are like a proof that Pujols is really a $45mil a year player.

    Vote -1 Vote +1

    • rubesandbabes says:

      Another assumption is that a Big A@@ Co like the Mariners owners would be ‘self-insured.’ But that still means the $ obligation could be moved away from the ballclub.

      ‘Time Value of $’ calculations will get Felix’s $175mil extension close/r to the $150mil mark…

      Vote -1 Vote +1

    • rubesandbabes says:

      Yeah, see – no one at Fangraphs, readers or whoever can answer this key question about the Yankees’ insurance on A-Rod’s contact, and subsequently King Felix’s contract.

      Conclusion – this article was written in the dark, with no conclusions to be drawn, past the details put out in the press.

      Back to work, Fangraphs, you have no idea about the King Felix contract.

      Vote -1 Vote +1

  35. CK says:

    Star players make for better TV. Better TV means more money from TV deals, and baseball teams are ultimately about making money.

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  36. pft says:

    Pitchers are pretty risky signings though, they can go anytime.

    King Felix supposedly has elbow issues, although TJ surgery tends to have good outcomes. Just tack on a Lackey clause and good to go.

    Vote -1 Vote +1

  37. Steve Z says:

    Dave C. wrote:

    …we can say with some certainty that perpetual rebuilding cycles have a significant negative impact on a franchise. It doesn’t take too much digging to see the handful of teams that have been rebuilding for the past couple of decades, and have essentially turned themselves into feeder systems for higher revenue franchises in the process.

    Being a Pirates fan, I can vouch for the truth of this claim. Savvy Pirates fans know that the current rebuilding effort might and, perhaps, should produce a team which contends for 3-5 years. Once the window for the current generation closes, the organization will need to clean house and begin to build another contender, a process that might take another 5-10 years.

    This sucks, but that’s the way it will be — if we are lucky! If we are unlucky, the Pirates will not contend during this generation.

    We can thank market conditions which distort the distribution of players in the league. Low-revenue organizations like the Pirates must be lucky and good in order to compete for championships. The Pens and the Steelers, on the other hand, need only be good.

    Vote -1 Vote +1

    • Tanned Tom says:

      Market conditions? Only one factor. Front office competence is a another. Otherwise the same top 3 payroll teams would win every year. The sense that a team is going somewhere or knows what it’s doing affects player distribution, as does geography. Most people not touched in the head would prefer to live someplace not in the midwest (not being nasty here, just that when people can live anywhere they want, they tend to leave the midwest), and with teams in places more exciting (NY, DC, SF, etc) or nearer family (this could be anywhere), or with better weather (again could be anywhere, but especially the West Coast) there is no compelling reason to choose Pittsburgh. It’s not “market conditions” that explains why the Pirates suck, it’s front office decisions and payroll management you have to thank. Perhaps the team could begin by realizing they need to invest some of the $60 mil in subsidies they recieve yearly in signing free agent talent.

      Vote -1 Vote +1

  38. Richie says:

    It’s a no-brainer for Jack Z. He’s GMing for his job this year. If Felix doesn’t get it done this year, Jack’s also toast anyway. So do the popular signing, and hope for a bunch of other luck, too.

    Vote -1 Vote +1

  39. Tanned Tom says:

    It seems that this type of signing is highly situation-dependent. IF Seattle uses the Hernandez extension as a building block to attract other quality players via free agency then it was worth it. IF this is the only move, sign Felix and hope for help from the farm system, then it was foolish.
    The real mistake was signing him to the previous deal. They were paying him something too close to market value, thereby reducing his trade value. They should have built around him then, but they didn’t. Clearly the GM has no clue. They acquired, what?, 4 DHs this off season. Bay, Ibanez, Morales and Morse, to go with Montero, and they trade their best hitter and only catcher?! Are you kidding? Want to really improve the Mariners? Start by firing the GM. I hear Pat Gillick is still alive…
    The real question is why did Hernandez sign this deal? Guess he’s going for the guaranteed money and saying screw the playoffs.

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