Recently, I was asked what I think turns out to be a pretty interesting thought experiment: if Mike Trout was released by the Angels and became a free agent, but decided he did not want to sign long term with any other team and simply preferred to go year to year instead, where would the bidding war for a single year of Trout’s services end up?
This question gets at a lot of different points, many of them kind of fascinating. What percentage of a team’s total payroll can be allocated to one player while still leaving enough flexibility to put a contender around a superstar? Is a team better off allocating a majority of their available dollars to a few premium assets, then using low-cost filler to round out the roster, or by spreading their money around to multiple players in order to reduce the risk of one injury or a single bad year ruining their entire season? Should a team prefer an +8 WAR player over two +4 WAR players for the same cost?
These are essentially the questions that this thought experiment would force us to answer. By limiting the scope of the contract to just a single year, we remove most of the questions about aging curves, future inflation, expected television revenues, and how much sense it might make to borrow from the future to finance a playoff run in the short term. By limiting the contract length to just one year, the question becomes essentially about the valuation we might place on elite performance.
This question isn’t without historical precedent, actually. In 2007, Roger Clemens signed a one year, $28 million contract with the Yankees, though they actually only paid him about $18.5 million because he didn’t reach the big leagues until June. Still, that was $17.4 million for four months, and this hypothetical would give us a full six months, so the $28 million valuation (in 2007 dollars) is perhaps more informative. Of course, it was also an NYY contract, so the $17.4 million they paid Clemens only represented 8.4% of their total payroll, something of a drop in the bucket for a star player. Even using the full $28 million valuation, Clemens’ salary would have been just 13.5% of NYY’s budget that year.
Clemens wasn’t that great in 2007, though, and we haven’t seen a similar kind of contract since. There have been one year deals for quality players — Hiroki Kuroda is making $15 million on a one year deal this season, for instance — but they’ve generally been for much lower salaries and for players not quite considered premium talents. Hiroki Kuroda’s contract probably doesn’t tell us that much about what Mike Trout would get if he hit the market this winter looking for a one year deal.
What about multi-year deals, though? Are there inferences we can make from contracts longer than one year about what a team might be willing to pay if they didn’t have to take on the risks associated with paying out multiple seasons? Of late, we’ve seen the best players in the game sign for something in the range of $24 to $28 million per season on contracts ranging from five to 10 years in length. The $25 million AAV (or numbers that can round to that) has kind of become the magic number of late, as that’s Ryan Howard, Felix Hernandez, Josh Hamilton, Zack Greinke signed for, and CC Sabathia, Justin Verlander, Prince Fielder, Cole Hamels, and Albert Pujols were all within $1M or so of that $25M AAV figure. Rather than escalating in annual salary, teams have simply convinced these players to sign for something close to that AAV by giving out even longer deals and signing them before players hit free agency.
It’s probably fair to say that if the market pays players like Josh Hamilton at $25 million per year, with all the baggage and risks that surrounded him, there would be a significant premium above that price level to not have the risks that come with aging players and longer term deals. It’s probably safe to say that the bidding for Trout on a one year deal would blow these $25M AAVs out of the water.
But the more interesting question is where the ceiling lies. With the average payroll exceeding $100 million now, a $25M salary for a star free agent often makes up less than 20% of a team’s total payroll, and they still have plenty of room to work with to fill out their roster. It wouldn’t be hard to argue that Trout is easily twice as valuable as Hamilton was perceived to be heading into last off-season, but is there a team that can realistically afford to pay $50 million per year to a single player?
The easy answer is the Yankees, because, well, they’re the Yankees. But MLB’s luxury tax penalties are pretty stiff, and the Alex Rodriguez suspension may allow them to escape the large taxes that come with exceeding the $189 million threshold for 2014. In a case where Trout pushed them back over the luxury tax tipping point, they wouldn’t just paying his salary, but also potentially a 50% tax on the overage, so now $50 million in salary might become $60 or even $70 million in actual costs. Mike Trout’s a great player, but would the Yankees voluntarily choose to take on that kind of financial hit?
And is any one player really worth that kind of cost anyway? As good as Trout is — on pace for his second +10 WAR season in a row and still just 21 years old — would a team be better off diversifying the kind of money he’d command to acquire multiple players in order to reduce their odds of getting no value from a massive chunk of their payroll? For instance, the Red Sox spent about $47 million (plus incentives, so probably a bit north of $50M) in 2013 salary during the last off-season, but ended up with Shane Victorino (+4.1 WAR), Koji Uehara (+2.2 WAR), Stephen Drew (+2.0 WAR), Mike Napoli (+1.9 WAR), David Ross (+0.6 WAR), Jonny Gomes (+0.6 WAR, +1 billion bro-hugs), and Joel Hanrahan (+0.0 WAR). Even with Hanrahan being a total zero, they’ve gotten +11.6 WAR from that group this year, a total that not even the most optimistic forecast for Trout could equal.
But that gets back into the question of risk versus value consolidation. If Trout could produce another +10 WAR season for that same ~$50 million in salary, is it better to have the opportunity to then find above replacement level players for minimal costs at the six roster spots you’ve now opened up? After all, if they didn’t have Mike Napoli, they’d have more playing time for Mike Carp, and if they didn’t have Stephen Drew, we probably would have seen Xander Bogaerts in the big leagues much earlier in the season. Smart teams can find decent role players for low cost salaries that would be able to produce above replacement level and not add significantly to the cost of the team’s payroll, so consolidating all of the value from those players into one roster spot could theoretically lead to a higher overall total.
But with that upside comes additional risk. If you went with the Trout-and-scrubs model, and then Trout blew out his knee trying to take an extra base, your season is probably over. The 2013 Dodgers show that it is theoretically possible to just light $50 million on fire and still build a winning team around the ashes of the wasted cash, but it required a $215 million payroll and some pretty great performances from a couple of low paid rookies in order to make it all work. The list of teams that could absorb having $50 million in dead money on the books basically begins with the Yankees and ends with the Dodgers. The other 28 teams would be screwed.
However, there’s no such thing as a risk free purchase in free agency, and it’s not like buying a bunch of mid-tier players always works out as well as it has for Boston this year. There may be heightened risks in consolidating all of your discretionary spending into one single superstar, but perhaps you see the value of getting +10 WAR from one guy as being worth the gamble.
So, I’m not going to write a conclusion. I’m legitimately interested in what FanGraphs readers think about this thought experiment. Instead of trying to convince you of why my number is the right number, I’d much rather see what the results from the crowd. To somewhat counteract the herd mentality of picking the most popular number, I’m going to set this poll up as a Google Doc, so you won’t be able to see what other people are inputting as their number. I’ll publish the results tomorrow, and talk about where I see the value proposition lying on this kind of decision.
For the purpose of this exercise, assume that you’re only getting one year of Mike Trout, and that having him for 2014 won’t give you an advantage in signing him to a long term deal after the season ends. Also, assume that the team you are in charge of has a $120 million budget, and that only $60 million of that is already committed to various players for next season. In its current form, your team projects as an 81-81 club, so your plan for the winter is to add as many wins as you can for $60 million in payroll expenditures in order to make a big playoff push and try to win the World Series.
Of the $60 million you have available to spend this winter, how much of that do you give to Mike Trout on a one year commitment?
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