CC Sabathia signs with Yankees
According to the always reliable New York Post, CC Sabathia has signed with the Yankees. The rumored offer of 6/140 apparently turned into 7/160.
We looked at CC’s value a month ago and determined that he was a +5.5 win pitcher for 2009. That means the Yankees are paying $4.15 million per win for Sabathia – significantly less than our projected $5 million per win, which was based on an assumption of salary inflation. It’s less than what teams were paying per win last year, when a win was going for about $4.4 million on the open market. His contract is basically the same as Johan Santana’s, but Johan wasn’t a free agent.
This deal makes the Yankees a better team, yada yada yada. You’ll hear all kinds of people talk about how this deal impacts New York. For me, the more interesting development stemming from this contract is that it cements the fact that we’re going to have an off-season of salary deflation, in terms of cost per win, for the first time in a long time. If ever there was a case where we could have expected an overpay in terms of dollars per win, it’d be with the premier free agent pitcher on the market and the Yankees in the bidding.
So, now, this offseason, we’ve seen the following signings:
Francisco Rodriguez: +2 wins, $12 million per year – $6 million per win
Edgar Renteria +2 wins, $9 million per year – $4.5 million per win
Ryan Dempster: +3 wins, $13 million per year – $4.3 million per win
CC Sabathia: +5.5 wins, $23 million per year – $4.2 million per win
Jeremy Affeldt: +1 win, $4 million per year – $4 million per win
Casey Blake: +1.7 wins, $6 million per year – $3.5 million per win
Bob Howry: +1 win, $3 million per year – $3 million per win
Mike Hampton: +1 win, $2 million per year – $2 million per win
Adam Everett: +1 win, $1 million per year – $1 million per win
Last year’s rate was $4.4 million per win. Renteria got something close to that, as did Sabathia. K-Rod got a bit more. Everyone else has signed for less.
The assumption of inflation has to be thrown out the window. This is a stagnant market at best – teams just aren’t paying $5 million per win this year. Assuming the economy rebounds somewhat in the next 12 months, I have a feeling that 2008 will be viewed much like 2003, when Vladimir Guerrero got $75 million for five years and everyone instantly asked themselves how the Angels got such a steal.
2008 looks to be the year of the buyer.
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ESPN is reporting 7 years and 160 million
2009-2011 should be worth it, but I worry about after that.
Shouldn’t length of contract be figured into this analysis as well? After all, the Yankees aren’t just paying for those 5.5 wins next season; there’s a substantial difference between 7/$160 and 4/$92, but to your method, those contracts look identical (actually, the latter would look a trifle richer, since I rounded up).
Dave,
Great stuff I have a kind of request about CC I was wondering if you guys could tackle. I think one can make a good argument that he has been the best SP over the last two seasons. Howeve how far do you think he will slide given that he is moving into a tougher division and more importantly playing infront of an awful defense now. Will he lose a hlaf win value? a whole win? etc. Thanks if you or someone else can break down how this will affect him and his percived worth. Either way keep up the good work.
That’s one of the weird things about MLB – they don’t really do discounting for longer term deals. Essentially, MLB teams figure out how much they think a player is worth right now, pay something within the ballpark of the dollars per win for that figure, and contract length is determined by the quality of the player.
Superstars can demand 5-7 year deals. Good players can demand 3-4 year deals. Role players can get 2-3 year deals. Scrubs get 1 year deals.
They all get something in the same range of dollar per win rates, but the length of contract is where the stars get their extra money.
So the index of “quality” is how long teams believe that a player’s current performance can last. Everyone takes the current year’s figure as “given,” and then gambles (or declines to) on its longevity.
I think it’s more driven by the players than the teams. The players would rather haggle over more security/potential 10-5 rights down the line than a few million extra bucks up front.
If I were the Yankees I’d front load the s*** out of CC’s contract. Pay him Alex money now and decrease it every year. With Pavano and Giambi and Abreu off the books it’s there to spend. That way when the economy does pick up in a year or two (and NY’s payroll with it) there’ll be extra room down the line. He’s going to worth at least what they’re paying him this year (as Dave has already shown), so why not over pay a bit now so CC’s salary is more in line with his expected decrease in performance down the road. Am I totally off base here?
Dave how do you calculate the +Wins?
“Am I totally off base here?”
From a financial perspective, yes. One of the advantages to paying later is the time value of money. You never pay your taxes years before you have to, because a) you need to pay in today’s dollars, rather than taking advantage of inflation and b) you lose the ability to make investments on that cash now and have it “earning” money for you.
Same thing applies for MLB contracts.
I’m glad everyone thinks the economy is going to pick up in a year or two… I could use the work, money, and peace of mind… However, I think salary deflation will continue for more than just this year. 2003 is nothing compared to this year, and the economy didn’t even seem to start really souring (if not actually, then psychologically) until near the end of the season. Attendance is certainly going to dramatically drop off next year (can you see yourself spending $30 on a random night just to see a ballgame?), corporate sponsorship and spending will decline, and since these things tend to have a lag, I am willing to bet we’re going to see an even steeper salary deflation next year.
Since players that bring 5 or more marginal wins to a team are very rare, do you think it’s fair to price those wins at the same rate as everyone else? Adam Everett, for example only got 1 million for the lone win he will net his team, but it is not so hard to find a +1 win player.
What it all adds up to is that the deal is even better for the Yanks than you make it look because anything over +4 wins should have an extra premium on it (uber-marginal wins?).
Yakker,
I understand that part of it. From the player’s angle I’d imagine they’d rather have as much as possible up front for the same reasons. Still though, it’d certainly help with payroll flexibility if you mixed front loaded and back loaded deals.
“According to the always reliable New York Post”
hahahahahhahahah
Here’s another way to look at the seeming constant rate that teams pay players per WAR. It is possible to fairly reliably project a players performance one year out. So when a mediocre player signs a one year deal, the team pretty much knows what it is getting and the injury risk is low. However, it is much more difficult to project a player’s performance seven years out into the future. So many things can happen like (in CC’s case) and arm injury or excessive weight gain or loss of effectiveness. It is unrealistic for the Yankees to assume that CC will continue to be a +5.5 player for the entire duration of the deal. They have to account for the very real possibility that he will be injured or ineffective for a substantial part of the back end of the deal. Just look at the other huge contracts given to pitchers: Mike Hampton, Barry Zito and Kevin Brown. I don’t know exactly how much the accuracy of projections decrease as time increases but I do know that they decrease and that someone could assign numerical certainty value to the projection. Something like saying the first year projection is 90% accurate, the second year projection is 80% accurate etc. I’m sure someone has done this work already. The point is that the Yankees are not paying CC for +5.5 WAR times seven years, they are discounting the expected 5.5 WAR by the certainty of their projection for him, which in year seven, is very uncertain.
I saw the news this morning on the Japanese morning shows, and they said 14.7 billion Japanese yen. Doing my quick calculations (divide by a hundred and round up) I figured he had made around 150 million dollars.
This exchange rate nonsense is getting silly. 160 million? That can’t be right.