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 a co-founder of and contributes to the Wall Street Journal.

44 Responses to “Is Justin Masterson Actually Being Benevolent?”

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  1. tz says:

    Great article. I think part of Scott Boras’s success is his relentless use of the most advantageous “anchor” for salary negotiations, and his hammering that point often enough for folks to believe that, say, Mark Teixeira for $22m per year is a valid point of reference.

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    • pft says:

      Yeah, but you can’t have it both ways. You think teams don’t jump on players who sign deals at lower than expected as a point of reference?

      In arbitration all comps are taken as a point of reference. Tex was an elite 1Bman at the time he signed, and the Red Sox had made a comparable offer so it was not like the Yankees were just giving money away for no reason.

      If that house next door sells for 100K more than it’s assessed value, your market based assessed value is going to go up soon (and vice versa), and your taxes, even if you think the buyer stupidly overpaid

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      • David says:

        except that large differences between perceived and actual value create bubbles, which eventually pop. There are two reasons why an actor in a limited market such as baseball would want to be the first to pop the bubble. The first is that when bubbles pop, they create shockwaves that imbalance the rest of the market, since all of the actors within baseball have a collective interest in maintaining the marketplaces stability, they all want to keep bubbles as small as possible so as to limit the deleterious effects of the pop. The second reason is that the first actors to pop a bubble stand to profit a great deal due to the nature of markets to overreact to fundamental changes.

        Therefore, every team should always be trying to sign players at a reset value for the market, both to promote their own interests, as well as the collective interest of the league. In your housing market example, I want to be the first guy to buy a house after the market has realized its mistake, and conversely, me convincing a current owner to forego his market value and sell at true value could cause the market to reexamine its valuation, popping the bubble. Analogizing to Baseball, every team should always be trying to sign players at the “old” market rate, and particularly right after deals that drastically reset the market. Not only does this mean that they don’t have to continue to overpay, but they also might get a discount due to inflation not yet being properly factored. I will even go so far as to predict that teams will attempt to push back on the deals the Braves just signed, when extending young players (bold, I know).

        Do I win the prize for most uses of the word “pop” in a fangraphs post?

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  2. Mr Punch says:

    We’ve got to do something to prevent small-market teams like the Reds from driving salaries to unsustainable levels.

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  3. Basil Ganglia says:

    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. Upon reading this I immediately thought of the contract that Bill Bavasi gave to Carlos Silva. Bavasi commented to the effect that Silva was the best remaining free agent market starter, he wanted the best starter on the market, and so he was just meeting the market.

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  4. Johnhavok says:

    I wonder how the QO process is weighing into Masterson’s efforts.

    Maybe he doesn’t want to end up in the same situation as Ervin Santana is right now, after having declined a QO. Even though Masterson is most certainly a better pitcher and teams may be more willing to give up the pick for him, maybe it’s something he’s legitimately concerned about and really wants to avoid.

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    • Billy says:

      This is a very interesting point. I’m not sure if anyone can confirm or deny that for certain, but it definitely seems like a reasonable idea to me.

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  5. Gary says:

    I think the age difference and the pedigree can’t be ignored either. Masterson is more than a year older and was never really projected to be a top-flight starter.

    Homer Bailey has ace-level ceiling and is younger.

    I know it’s not the most saber-friendly answer, but just like with the Profar deal, The Reds are paying for some potential breakout that the projection systems can’t detect. I also don’t think I’m alone here as well because every fantasy draft has Bailey significantly higher than Masterson, keeper or not.

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    • Za says:

      Homer Bailey has ace-level ceiling? Is that right? I see him as a solid #2 at best.

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      • Yes, Za.

        Bailey certainly has “Ace” pedigree. He has excellent control, elite velocity, and has overcome his bizarre reverse platoon split against RHH. Masterson, on the other hand, still has a horrible platoon split against LHH and is essentially a 1 pitch pitcher. In my mind, Homer Bailey is a cut above Masterson talent wise, and a safer bet to maintain, if not improve upon his last two seasons.

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    • chuckb says:

      So we’re now using fantasy drafts to help us determine actual player value?

      Player evaluation by fantasy draft? Not a great strategy.

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      • David says:

        Um, I think you mean the only strategy. After all, what is a contract if not an auction value with an enormous budget? Besides, all real world value is accurately portrayed in 5×5 stats…thats what WAR is right?

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  6. gareth says:

    Two words. Terry francona.

    Justin also has ties to ohio and his family is settled here.

    As an indians fan, this is fantastic. Its so refreshing to have players wanting to stay in Cleveland.

    Masterson actually said recently that part of the reasoning behind committing himself to the Indians was that it would signify that players want to stay in Cleveland because good things are happening there. It ultimately makes it a more desirable and stable location for future players, wether they be free agents of draftees.

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    • ian says:

      This probably gets said a lot about a lot of players, but I can only really speak to Masteson’s case and other people have verified it: Masterson is just about one of the nicest people on the planet. He is just an absurdly likable guy, and I hope he does well.

      In my proprietary stat that judges the quality of a baseball player’s soul, Masterson scores 10.1 NYCE points which equates to like a billion dollars or something.

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  7. Cool Lester Smooth says:

    The difference is, of course, that Bailey is younger than Masterson and has much better stuff.

    These last two years have been Bailey turning into the pitcher he was always supposed to be. Masterson pretty much alternates good and bad years, and there’s no reason to expect that to change going forward.

    Masterson’s a 3/4, Bailey’s a 3 who might be turning into a 2.

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  8. Mike says:

    Cameron is always conservative with how much he thinks players deserve to get paid. Salaries are going to skyrocket because the revenue is going up. The players have been underpaid for years, that’s why the really good players get seemingly way more money than they “deserve”, because the tightwad owners only shell out the bucks when they feel like it.

    A Dave Cameron team would have a bunch of mediocre players making low wages, but it wouldn’t be a good one. When you are stuck with only 25 roster spots, a 3.5 win guy is worth way more than a 3 win guy and a second 0.5 win guy, because roster spots are limited. Cameron doesn’t seem to get this, and it keeps infecting his work.

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    • Aaron says:

      I think that’s a bit of an oversimplification. Most teams do not have a large enough revenue base to afford more than 1 really good ballplayer, forcing many teams to come up with more creative solutions, like splitting playing time between 2 less WAR players, but ensuring that each player is used in the best possible match-ups. The number of available spots in the starting lineup is already a bigger constraint than the number of roster spots, so a roster containing 25 +3 WAR guys doesn’t matter much when only 9 of them can play at any given time (10 if DH).

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      • pft says:

        Revenue sharing addresses the revenue imbalance to some extent. Many of the biggest revenue sharing recipients spend only 20-30 % of their own revenue on payroll, well below the 47% average.

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        • maguro says:

          Of course the lower revenue teams spend a much smaller percentage of their revenue on MLB payroll, non-payroll expenses are basically fixed.

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  9. pft says:

    MLB teams are in collective salary suppression mode for non-elite free agent players. This offseason will have significant impact on future salaries unless Clark starts blowing steam and gets off his “I am A nice guy I wanna be friends” kick. MLB will walk all over that.

    With a QO and the collective stance by MLB teams, Masterson will be lucky to get 4/50, and he will get significantly less if he has an off season.

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    • Travis L says:

      What is the collective stance taken by teams? This offseason, all I’ve seen are teams acting in rational, not-obviously-coordinated self-interest by not wanting to give up a draft pick for older, mid-tier free agents who needs to be slightly fortunate (in health and skills) to earn their free agent salaries.

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  10. pft says:

    Before we buy into what poor Clevelnad can afford. Looking at 2013 I see they got 30 million in revenue sharing and spent only 33% of their own revenue on payroll. Their payroll has not increased at all this offseason. They could afford another 27 million in payroll and still be at the MLB average of 47% payroll/revenue.

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    • gareth says:

      Most of these guys are Millionaires – They throw a ball or hit ball with a stick for a living.

      People who defend ballplayers saying “they’re not getting what they deserve” make me want to hurl.

      If that statement was about teachers or nurses it would have validation.

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      • David says:

        Baseball players make so much money because there is an extremely small pool of humans capable of doing the job. Are you saying you wish nursing and teaching were so hard that only a handful of people could do it, those people then being paid huge amounts of money? or that you wish nursing and teaching were so devoid of any utility other than creating happiness that we could afford to pay to watch nurses and teachers compete at their crafts, thus creating a class system like baseballs in which the vast majority are poorly paid professional failures, and very few are massively paid short term successes?

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        • gareth says:

          Im not denying that baseball is hard or that only a small number of people can do it professionally in MLB.

          I love baseball. But the exhorbitant money involved In professional sports (not just baseball) is quite ridiculous.

          Example: nelson cruz “only” got 8 million.

          Cry me a river!

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        • RC says:

          “I love baseball. But the exhorbitant money involved In professional sports (not just baseball) is quite ridiculous.”

          No, its really not. This is an industry with very few employees that creates a shitload of revenue. They should be paid more than they are.

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        • Valuearb says:

          They only make as much as they do due to at least a half billion a year in government subsidies. They should actually make a bit less.

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      • Travis L says:

        The money either goes to the players, who are the product, or the owners, who own the rights to the product.

        So either the players, who you like to watch, get paid, or billionaires like that guy in Florida take the money.

        It’s not like ticket prices are going down. The money is just going to the owners rather than the players.

        This is one of the most frustrating viewpoints I hear echoed by fans. As if the players are the reason ticket prices go up (hint: they’re not).

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        • Justin says:

          You mentioned the one thing that should be controlled: ticket prices. I cannot justify shelling out hundreds of dollars for tickets and food when I can enjoy the game on TV. I loved playing baseball and love being at a game and seeing the players in person, but I can’t help but feel like I’ve been duped.

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        • Gary says:

          Actually, this is one of the main reasons that I’ve begun taking my nephews to minor league games instead of the MLB. Personally, I love the MLB games; but at the same time, the MiLB games provide a great atmosphere for fans at a way better pricing point. I’m a huge Astros fan, but did the ticket prices go down when payroll plummeted? Heck no. Which is one of the reasons why I don’t feel bad for the ownership in regards to lost revenue on the TV deal.

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      • Simon says:

        Ooh another person who thinks that the best solution is for the owners to get all the money.

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      • mrgee says:

        1) I think most people, when they use “underpaid” or “overpaid” to describe ballplayers aren’t using it in a pejorative, moralizing sense as in “X is underpaid because the Rockies owner is a terrible person!” It’s “X is underpaid because his market value is higher than his salary.” It’s stating a fact…we think this player’s market value is this, and he’s getting paid this instead.

        2) I think you might want to check your statement “Most of these guys are millionaires.” Are you sure about that? Given what most of these guys make in the minors, and the length of most of these guys’ careers, and the minimum salary and years of team control, I don’t think you can safely say that “most of these guys” end up being millionaires. And even if they do manage to amass over $1 million of net worth in their playing days…well, even the best career is unlikely to last more than 10-15 years. Whereas you and I have skills that we can monetize from our 20′s into our sixties (or beyond, if we’re so inclined), athletes have skills they can monetize into their 30′s, if they’re lucky. And since the government won’t just let us put athletes down after they retire (thanks Obama!), they have to continue to be able to live after their playing days. So they make a lot of money because they face retirement 3 decades, or more, sooner than the rest of us.

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  11. Nick O says:

    A couple thing that may depress Masterson’s value:

    1) The QO

    2) His huge L/R splits. It may not show up as much in the regular season, but a guy who’s allowed a .344 wOBA vs LHB in his career won’t fare as well in the playoffs against teams like the A’s and Rays, who will start 7 lefties against you. Possibly for that reason, I believe the Indians were considering using Masterson in the pen for the playoffs last year.

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  12. jerry60555 says:

    Bailey’s deal is overpaid. Everyone knows that.

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