Is Justin Masterson Actually Being Benevolent?

Justin Masterson is scheduled to be a free agent at the end of the 2014 season, but over the last few days, he’s made it clear that he hopes he never gets there. He wants to re-sign with the Indians, and in fact, he’s made them an offer, and one that seems pretty generous on the surface, to be honest.

According to the Cleveland Plain-Dealer, Masterson has asked the Indians for a three or four year extension in the range of $40 to $60 million. I think we can safely assume that a three year deal would be closer to the $40 million figure and a four year deal would be closer to $60 million. Just to make the math easy, let’s say that his offer is $40 million for three years with a $5 million buyout on the fourth year, making it either 3/$45M or 4/$60M, depending on if the option is picked up. That’s the kind of structure that would make sense given the range of numbers being tossed around.

And of course those numbers pale in comparison to what the Reds just gave Homer Bailey a few weeks ago. Bailey, also set to be a free agent at the end of the year, got $90 million for five years with a $5 million buyout on a sixth year option, so the Reds either paid 5/$95M or 6/$115M to keep Bailey in Cincinnati for the long term. Even the low end of Bailey’s total guarantee is 50% higher than the high end of Masterson’s reported asking price, making this seem like an obvious no-brainer for the Indians.

I even said as much on Twitter yesterday after reading the report on his request. But the more I look at it, the less sure I am that Masterson’s offer does represent a significant discount to the Indians. I think that instead, the Bailey deal may have skewed our perceptions for what a reasonable price point looks like for this situation.

There’s actually a name for this cognitive bias: anchoring. Our minds often turn an initial price for an item into an anchor that all future prices become relative to. This is basically how discount stores and outlet malls attract shoppers, marketing items as 50-60% off rather than focusing on the fact that they’re selling second quality merchandise that isn’t actually worth the MSRP. Our minds anchor the initial price as the market value of the item, and we become convinced that we’re getting a good deal, even if what we’re paying is the real market value for an item in lower demand.

Bailey getting $95 million for five free agent years can easily become an anchor for Masterson’s expected price because they are pretty similar pitchers in terms of value. Here’s their 2011-2013 data:

Homer Bailey 549.0 6% 21% 44% 11% 73% 0.290 97 96 95 7.5 7.2
Justin Masterson 615.1 9% 20% 56% 9% 71% 0.299 99 92 92 9.5 8.1

Bailey’s a little better by ERA, Masterson’s a little better by FIP/xFIP, but the margins are pretty small. Both have been very good pitchers in two of these last three years, with each having one mediocre season in the mix. For Bailey, that came in 2011, while it was 2012 for Masterson. If you prefer to heavily weight more recent performances, maybe you have a slight preference for Bailey, especially because he is a year younger. If you care more about established track record, though, Masterson wins pretty clearly, as his pre-2011 performance blows Bailey’s out of the water.

They’re not the same pitcher, but each have pros and cons that essentially balance out. In terms of future expected value, there’s no reason to be significantly more bullish on one than the other. They both project as roughly +3 WAR pitchers for 2014, and neither is at the point in their career that imminent decline should be expected. So Bailey makes sense as an anchor for Masterson’s price.

Except that anchoring is a cognitive bias. It’s an issue to be aware of and attempt to avoid, not one to accept as a good pricing system. Especially in baseball, it is much better to base pricing models based on expected future performance and opportunity cost rather than simply looking at one comparable player and deciding his contract “sets the market”. Sometimes, that market setting contract is a wild overpay, and I’ve already argued that the Reds probably paid too much for Bailey.

So, instead of simply noting that Masterson’s deal is a bargain relative to Bailey’s deal, let’s look at it through the prism of the market as a whole. On Tuesday, I showed that the median price of a win this past off-season was in the range of $6 million. For above average players, it was a little higher than that, but the non-Tanaka starters all came in around that figure: Ubaldo Jimenez got $5.5M per win, Ricky Nolasco got $5.9M per win, and Matt Garza got $6.6 million per win. The 2014 forecasts put Masterson’s value squarely in this class of pitchers, but his longer health track record and 2013 excellence might bump him up a bit in the eyes of the market.

Still, even with inflation, Masterson probably shouldn’t expect to get more than $7 million per win if he hits the free agent market next off-season. And since he turns 30 before the 2015 season, he won’t be a particularly young free agent. What would we reasonably expect a 30 year old Masterson to get as a free agent next winter? The standard half-WAR decrease aging curve would peg him at +7 WAR from 2015 through 2018, but maybe that’s too harsh; the 85% aging curve for players in their 30s that I used for the $/WAR post would suggest +8.6 WAR over those same four years. The specific number doesn’t matter so much, but it’s safe to say that his forecast production over four free agent years is somewhere in the range of +7 to +9 WAR.

Even at $7 million per win, assuming some inflation and that Masterson continues to pitch at an above average level in 2014, that’s $49 to $63 million over four years. Or almost exactly what he’s rumored to be asking for.

The value to the Indians here probably isn’t the total cost, but instead, the chance to get that fourth year on a team option. Even if Masterson simply agreed to sign for 3/$45M with no option, it’s not clear that this is a large enough discount for a mid-revenue team like the Indians to take the risk of doing the deal a year ahead of time. After all, the Indians aren’t a team that can afford to buy a ton of market priced wins, and so to take on the risk of his 2014 health and performance, they should get a real discount over what Masterson would be expected to get as a free agent.

In looking at Masterson’s actual expected production and the market price of wins in free agency, Masterson’s asking price seems entirely reasonable. Fair, even. He’s made the Indians a solid offer at a price that makes sense for him and probably makes sense for them as well. But it seems like the “massive bargain” reaction that I had, and many others seem to be having, might be more of a result of the Bailey overpay than anything else.

If we allow Bailey’s deal to “set the market” for good-not-great pitchers, then we’re tacitly acknowledging that this particular type of pitcher should be drastically overpaid relative to buying other types of wins on the market. Bailey’s deal shouldn’t be the anchor for a fair Masterson price. Bailey’s deal was too high, and the Indians are right to not want to to go anywhere near that price.

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Dave is the Managing Editor of FanGraphs.

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