Reactions to the Cliff Lee Contract

While Lee’s deal is certainly large, when it was first announced, it slightly surprised me that it wasn’t a lot larger. Given the lack of other elite pitching talent this offseason, the seller’s market so far and the known interest from the Yankees and the recently flush Rangers, Cliff Lee getting a record-setting contract for a pitcher would not have surprised me. The reports of Lee leaving $50 million on the table made Philadelphia’s offer seem almost small though.

Lee’s guaranteed average annual value, $24 million, is a new high for a pitcher, narrowly edging out CC Sabathia’s $23M per year. Sabathia’s contract however is two years longer and 100% guaranteed. Lee only has five secured years with a vesting option for an additional season. In fact, if that option vests, it will decrease Lee’s average annual payout to under Sabathia’s $23 million.

Sabathia was four years younger when he signed his mega deal with New York and Barry Zito was similarly under 30 when San Francisco called with their seven-year (plus option) deal. Did Cliff Lee’s advanced age play a factor in the two shorter years? If it did, it was a small role. The sixth year vests with 200 innings pitched in 2015 or 400 total over 2014-5. That’s not a slam dunk, but it’s not unfathomable either. Lee has eclipsed 200 innings in five of his previous six seasons.

In addition, the offers from Texas and New York both were for six years with a vesting option for a seventh. We do not know what those vesting requirements would have been, but it does show that at least three teams were willing to go to six years with Lee and a couple to seven. Lee’s age didn’t deter everyone from making a long term commitment.

Maybe it should have though. As pitcher’s age, the trend is for strikeouts and walks to decline. Lee’s walks don’t really have room to decline however. And his low 90’s velocity is already not that special. That could pose a problem in the later years of his contract. Lucky for him, he raised his strikeouts to near a career high in 2010 and his walks, while unlikely to drop any further, are so low that he can afford quite a bit of regression and still maintain a good ratio.

Curiously, it’s actually better for the Phillies if Lee’s option vests. It indicates Lee’s still valuable and because of the buyout price ($12.5 million) for the sixth year, the added cost to Philadelphia at that point is just $15 million. Given the expected inflation in dollars per win five seasons from now, Lee would likely need only about three wins of performance to justify a one-year, $15 million outlay.

That’s a much better bet for Philadelphia than the roughly six WAR that Lee will need to produce annually to justify the $24 million per year that they owe him the first five seasons. Lee’s averaged seven WAR the last three seasons combined, but that doesn’t give him a lot of comfort room as he ages. The Phillies may end up needing that sixth year to vest to recoup their entire investment.




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Matthew Carruth is a software engineer who has been fascinated with baseball statistics since age five. When not dissecting baseball, he is watching hockey or playing soccer.


39 Responses to “Reactions to the Cliff Lee Contract”

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  1. John says:

    I’m not quite following. Lee makes 24 million a year. He has a vesting option on the 6th year for what I thought was 27.5 million. How does that decrease the average annual payout? Wouldn’t that make it go up a little?

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    • Lee makes $24 million a year because $12.5 million of his option is guaranteed. In terms of guaranteed vs non-guaranteed money, Lee’s contract breaks down as:

      5 years for $120 million with a 6th year that, should it vest, costs Philadelphia $15 million

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      • John says:

        Alright cool. Thanks for the explanation.

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      • Greg says:

        Wouldn’t it be 132.5mm guarnateed (5+buyout) with another 15mm should it vest? Philly is out 147.5mm if the option vests.

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      • Azmanz says:

        No, it’s 120 mil guaranteed with it moving to 135 mil if the option vests

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      • sverlyn says:

        According to Cotts, the deal is for 5/120 plus either the buyout or option being picked up

        The guaranteed money is 120 + 12.5 = 132.5 unless you ahve info on the breakdown of the contract that we don’t

        Can you provide a link?

        thanks

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      • Cot’s, and everybody, always reports the full guaranteed amount. That includes mandatory minimums on buyouts and the like. The $120 million figure includes the $12.5 million buyout for year six.

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      • Azmanz says:

        I don’t have a link, I just said that because either way, he’s guaranteed to get at least 12.5 mil in that 6th year. So by logic, when they say 120 mil guaranteed, I assume they include the 12.5 mil

        When Zito got 126 mil guaranteed, that included his 7 mil buyout in 2014.

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    • Nik says:

      I dont really get why the structure contracts this way. Why not just make it a straight 5/120 contract with a vesting 6th year at 15mil. Why do they need to include a ‘guaranteed buyout’ which in reality is just added to the 5/107.5 guaranteed contract?

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      • John says:

        It allows the Phillies more flexibility in the first year of the deal, and essentially defers the money to the end of the deal. It’s not genius by any stretch, but it’s pretty tricky and allows them to retain a good bullpen arm like Durbin or add a bench bat.

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  2. Greg says:

    If the option vests, isn’t that an additional 27.5mm or do you subtract out the buyout, because no matter what, they’ll have to pay him at least 12.5mm?

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    • John says:

      I think you actually nailed what I said. I believe you’re right about that buyout. If that’s the case, it would make it less.

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      • NEPP says:

        You’re correct. The $120 Million guaranteed includes his potential buyout. He averages $21.5 million over the 5 years of the guaranteed deal with either a $27.5 million vesting option or a $12.5 million “golden parachute” buyout of the option. He’s only getting something like $11 million next year due to the PHillies salary concerns/luxury tax and more the next 3-4 years to make up for that low initial amount.

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  3. NEPP says:

    Did the Phillies get a bargain when they signed Lee? No, they did not.

    Did the Phillies overpay? No, they did not.

    The Phillies basically paid market price for the top free agent pitcher. They minimized as much risk as they could by only guaranteeing 5 years. The vesting option was smart too. If Lee pitches 200 innings in 2015 or 400 combined in 2014/2015, they’ll likely get decent value out of him in that 6th year.

    I sincerely doubt that Lee will be a 7 Win player (his average the last 3 years) but if he ages well and only slowly declines, this is an excellent deal for both sides.

    Say he “averages” 6.5, 6, 5.5, 5, 4.5, 4 Wins on this deal (high both possible)…that’s 31.5 Wins over 6 years. That’d end up being $4.29 million a “Win”. Add in annual inflation, etc and the Phillies stand a decent chance with this deal.

    Granted, he might end up averaging something like 4 wins a year instead of 5.25…but even then, its not a terrible deal.

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    • jwise224 says:

      I agree completely. I was totally surprised at the “fairness” of this deal. After witnessing players like Werth getting $126/7 deals, I fully expected Lee’s deal to be obscene.

      Instead, I think the Phillies got the man they wanted, Lee gets to play for the team he wanted and the deal between the two of them has a relatively good chance at ending up costing a “fair market value.”

      Had the deal kept up his $24 million salary over, say, seven years, then I might feel differently about it. Five guaranteed years, with a sixth option, isn’t unreasonable at all.

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    • Blue says:

      The problem I have with that valuation is that the chances he pitches for five consecutive years without some significant loss of time due to injury are pretty slim. Bound his contract at the high end at, say, 35 wins (two great seasons combined with some injury loss) and at the low end at, say 20 wins (three good years a middling year and a lost year. Cost for the Phillies per win would range from $3.8 million per win to $6.75 per win. There’s certainly territory on the plus side of the distribution for the Phillies…but the greater area under the curve is against them.

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  4. Rod says:

    I just can’t buy valuing the 6th year at $15 just because of the buyout. If it vests, the Phillies will be writing checks that total $27.5M not $15M.

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    • NEPP says:

      Well obviously…but the choice is either pay him $12.5 million NOT to pitch for you or $27.5 million to pitch for you…making it a $15 million decision. Though in this case its a vesting option so the Phillies dont really have a huge say in the matter.

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  5. Phillies Red says:

    I’m a little confused by your closing paragraphs. What’s the cost of 1 WAR this offseason? What’s the inflation rate on that cost over the next 5 year?

    I thought 1 WAR already cost more than $4million, something like $5, or more if you read baseballprospectus. And I’d say a 5%+ inflation rate seems reasonable.

    If you assume something like $5mil / war, a 5% inflation rate, a starting point of 6 WAR, and a decrease in performance of, say, .75 WAR every season, the numbers are almost exactly break even.

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    • NEPP says:

      A 0.75 decrease is pretty sharp.

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      • Phillies Red says:

        Yeah, I agree, I’m just trying to think of a conservative estimate that would result in the phillies needing the option to kick in. The numbers I suggested, wouldn’t really need the option to kick in for it to be a fair deal.

        I think Lee is likely to be 6.5+ this year. I also think 1 WAR is higher than $5mil on the FA market, that salaries will rise by more than 5%/year, and that Lee has a chance to decline gracefully. Those non -conservative estimates make the deal look great.

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    • It was figured to be about exactly $4m/win this past season. It’s clearly risen this winter, but it’s not $5m/win yet

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  6. guest says:

    The buyout is a sunk cost.

    Rod says:
    December 15, 2010 at 2:22 pm

    I just can’t buy valuing the 6th year at $15 just because of the buyout. If it vests, the Phillies will be writing checks that total $27.5M not $15M.

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  7. Erik says:

    Nate Silver posted this 5 years ago, hypothesizing that there significant nonlinearities in $/WARP: http://www.baseballprospectus.com/article.php?articleid=4535

    Is this effect too small to bother dealing with for individual contracts? It haven’t seen it mention, like, at all. Or was it debunked?

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  8. neuter_your_dogma says:

    As a fan, if Lee helps in a meaningful way to bring championships, he is “werth” it. No city as thrown a parade because a team is best at underpaying for talent. And with seemingly fat checkbook teams like the Phillies, it is no biggie if a couple of top line players are overpaid.

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    • Azmanz says:

      I agree, kinda of. Barry Zito and his contract blows, but with a sequence of events, including Sabean over paying for him, we won the championship, so I am OK with every deal that Sabean has done prior to 2010.

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      • Nik says:

        Yeah because having Zito/Rowand etc on your payroll in 2011 and beyond is a *good thing* right?

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      • Brad says:

        Every team has bad contracts. Every single one of them.

        A bad contract or two in the high stakes world of MLB Baseball is going to happen and is not the only indicator of a GM’s proficiency. In the end, call it luck, an incredible pitching staff or whatever, but the Giants are champions and the fact that Sabean engineered it will continually irritate those people who hate the guy to no end. I love it!

        I am not a Sabean guy but I think those who act like he is the epitomy of a horrid GM are unbalanced in their logic. and give him no due credit for his good decisions.

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      • Heather says:

        Don’t take it personally. Saying Sabean is a horrible GM is like saying Sabean is like the dumbest physics professor at CalTech. He might not be the smartest guy in the room, but that doesn’t make him dumb by any stretch.

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      • Mike says:

        No I’d rather Zito/Rowand not be on the 2011+ payroll, BUT I would rather have the ring guaranteed, than go back in time, not sign the 2 deals, and risk not winning in 2010 to have a better chance at winning in 09, 10, 11+

        The deals sucked, but since Zito sucked in 07 and 08, we got MadBum in 08, Posey in 09

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  9. Nathaniel Dawson says:

    Where are you getting the $50 MM figure from (what he left on the table)? The report I read on the contract offers were for 138 guaranteed with 161 max from Texas, and 132 guaranteed with 148 max from New York. Philly got him with 120 and 135, within $20 million less than the other offers.

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  10. pft says:

    “Sabathia was four years younger when he signed his mega deal with New York and Barry Zito was similarly under 30 ”

    That explains the years, and Cliff Lee got more in 5 years than Zito in 7 years.
    Lets face it, Lee has had only 3 very good years, asking for 6 years of the same starting from age 32.5 is a bit much.

    “….. roughly six WAR that Lee will need to produce annually to justify the $24 million per year that they owe him the first five seasons. Lee’s averaged seven WAR the last three seasons combined, but that doesn’t give him a lot of comfort room as he ages. The Phillies may end up needing that sixth year to vest to recoup their entire investment.”

    Assuming salary inflation is not rearing it’s ugly head. At the end of 5 years who can say if the cost per WAR has not increased to 6-7 million.

    You missed that investment 101 class where they tell you to cut your losses.
    Even without inflation the 6th year won’t help the previous 5 years if Lee underperformed. If Lee is a bargain at 15 million in year 6, then odds are he did not disappoint too much in the first 5 years. If Lee did not meet expectations in years 1-5, rolling the dice on the 6th year probably won’t yield better results. Phillies likely would hope his option does not vest. I mean, he will be 38 at the end of his 6th year in what is supposed to be the post steroid era where players age quicker.

    Pitching in the NL is far easier than in the AL, which is one reason Lee chose the Phillies, and why Lee may age well. As risky as the deal is for the Phillies, it was far more risky for NY or Texas.

    Of course, thats what I said about Barry Zito.

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    • I didn’t miss Investment 101 and you are misapplying the very principle you’re trying to use. You cut your losses when the future benefits are no longer worth the future cost.

      Lee can miss expectations in years 1-5 but still be expected to better expectations in year 6 because his marginal cost (salary) will be pretty low ($15mm) compared to the expected benefit (cost per win vs projected WAR).

      There’s no reason to trot out a personal attack, especially not when you proceed to make an incorrect attack.

      Furthermore, you have no idea if the NL vs AL was a reason Lee chose the Phillies unless he stated as such. Which to my knowledge he has not.

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  11. Paul says:

    Just to get this clear as I think I have the wrong end of the stick:-

    Does Lee get 120mil over 5 years, then if he makes the incentives the phil can either re-up at 27.5 or buy him out for 12.5?

    Making his contract scenarios:-
    120/5
    132.5/5
    147.5/6

    Or is the buyout guarenteed, and the inventive option only kicks in for a guarenteed 27.5 mil

    Making his contract scenarios:-
    120/5 inc. buyout
    135/6 if Phil re-up Lee on the option

    …looking on the rest of the net, it seems that the second situation is the reality

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