The Danger of Upside

Last year’s free agent market had a surplus of one thing – talented starting pitchers with health concerns. The market was flooded with guys who had previous success but were battling questions about the conditions of their arms, and were going to settle for one year deals because of it. And, pretty much without fail, they’ve all been busts.

Ben Sheets, Rich Harden, Justin Duchscherer, Chien-Ming Wang, and Erik Bedard were given a total of $25 million in guaranteed money as free agents. They have produced a grand total of +0.3 wins of value as a group, so they’re on pace to have bilked their teams out of $20 million over the course of the season. Now, things could change, and maybe Bedard or Wang will pitch well down the stretch or Sheets will have a great finish to the year, but so far, they’ve essentially been a waste of cash. It gets even worse if you include Brandon Webb‘s $8 million option that the Diamondbacks exercised to keep him from hitting the market.

I think most of us thought that these deals were, by and large, good risk/reward propositions. Sheets got a bit more money than expected, but still, his contract wasn’t seen as too far out of line with what he could produce. And yet, the whole group has basically been a failure. It makes me wonder if most of us are overvaluing perceived upside in pitcher valuations.

After all, arm injuries don’t just sideline players, but they also diminish velocity and command, leading to lower levels of effectiveness. Even though Sheets has avoided the DL, he’s still not what he used to be. Harden lost enough off his fastball that he can’t really challenge hitters anymore, leading his always problematic walk rate even higher. And the rest of the group has spent nearly the entire season on the DL.

Upside is a tricky thing. It is the perception of what a guy could be, not necessarily a realistic expectation of what he will be. So far, in 2010, teams who spent on upside have been burned by doing so. I would imagine the money won’t flow so freely for guys with health concerns this winter, and perhaps that reaction is the correct one.

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

31 Responses to “The Danger of Upside”

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  1. Mike Green says:

    I wouldn’t put Harden in the same category as the rest. He had pitched well enough in 2009, albeit nowhere near his career best. The Rangers were effectively not paying for “upside”, but rather for what he had been able to produce every year of his career including 2009.

    It seems that the biggest change between 2009 and 2010 has been a loss of effectiveness for his change-up, with the result that opponent’s contact rates are way up. His ball-to-strike ratio is at about his career norms, but it appears that more 2 strike pitches are being fouled off.

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    • oompaloopma says:

      What are you looking at his 2/3 year stats at roughly 140 innings? His upside is not his stats, its will he may pitch an entire season.

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  2. Ed Nelson says:

    We also go way overboard in trying to devalue those without upside in addition to overvaluing those with it. Carlos Silva has been everyone’s whipping boy for years but this year he’s provided a 2+ WAR this year and we’re only at the break. Despite that he’s still only owned in 89% of ESPN fantasy leagues and that’s typically a 10 team BL league because people just can’t believe that he’s just having a good year. You see he just doesn’t have that “upside” that Rich Harden has.

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    • philosofool says:

      Carlos Silva was fucking terrible last season. He’s completely different pitcher this year, and no one with sense would have predicted his improvement. I’m not trying to take away from what he’s done. But it was completely unpredictable.

      (Also, fantasy ownership isn’t a good metric. 89% is very large ownership in fantasy leagues for a starting pitcher. Gavin Floyd, much better in real life and fantasy, is owned in 88% of leagues. Stephen Strasburg is owned in 95% of leagues–only 6% more than Silva.)

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  3. lincolndude says:

    Couple of minor counter-examples: Brett Myers and Scott Olsen. Those guys signed for $6 million total and have provided 2.5 wins so far.

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    • Souldrummer says:

      I guess. Scott Olsen has barely pitched this year for the Nats. I don’t think he’s really going to be back this season. Maybe he gave them a win or two early, but I don’t know if he was the best investment for the money. Hoping that I’m wrong and he bounces back.

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  4. MikeS says:

    Small sample and selection bias. Freddy Garcia and others have been bargains. It’s this sort of observation that will cause fits for the same type of pitcher on the market next year. A few will take bargain absement one year deals rather than retire. Enough will outperform those deals and the year after a bunch of pitchers with issues but upside will fail. And the cycle will begin again.

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  5. Steven Ellingson says:

    Carl Pavano?

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  6. Matt says:

    Best upside play of the year was the Jays acquiring Brandon Morrow, in my opinion.

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  7. pounded clown says:

    Justin Duchscherer was sidelined with a hip injury. Another fantasy team DL casuality.

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  8. Dr. Strangelove says:

    Dave, any number crunching on whether pitchers that have had elite performance prior to their injury are more likely to be overpaid for? Its certainly the case this past off season but hard to make a conclusion just based on this years results.

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  9. vivaelpujols says:

    This is also a very small sample size from which to make this claim. Have you looked at the high risk/high reward pitchers in previous years?

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    • Franco says:

      I’m having trouble of thinking of similar case that’s really worked out in recent years. Prior, Penny, Smoltz, Mulder, Hampton all turned into big busts. Those are the recent ones that I can think of. I’m sure I’m missing some (busts or worked out)

      Taking a chance on relievers seems to work out pretty well. Guys like Wagner and Putz are doing well this year.

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      • vivaelpujols says:

        Penny this year has worked out. 1.1 WAR so far, although he’s on the DL.

        Dave is essentially claiming that you can’t trust projections for players coming off of injuries, or that they should be heavily regressed. While none of these guys above were projected to hit their upside, they were all projected well above replacement level, so this years .3 WAR is still very surprising.

        I think that Dave’s claim is a pretty strong one to make, and though it sounds good on the surface and seems to have payed out somewhat this year, it is also a very small sample size and doesn’t really prove anything.

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      • Wally says:

        Penny’s deal in 2009 wasn’t so bad actually. He accumulated 2.5 WAR worth 11.2M but only had a base pay of 5M.

        Harden’s contract in 2009 also worked out pretty well.

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    • Jack Moore says:

      I really don’t see this post as making a claim as much as floating out an idea. Certainly some research waiting to be done here, yes.

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      • Wally says:

        I agree, and this is clear from Dave’s comment: “It makes me wonder if most of us are overvaluing perceived upside in pitcher valuations.”

        So, he’s looked at a few pitchers’ recent contracts and come up with a hypothesis that would require further testing to determine if it is true or not. That’s basically how the scientific process things works. You look around maybe test a different hypothesis, notice something else, test that hypothesis, notice another, test that….etc.

        As myself and others mention below however, I think this hypothesis is going to be very difficult to test, as the kind of contracts high risk, high reward pitchers might receive is going to depend on several factors (the current market, how much a specific team might value a marginal win are just two big ones) that will be difficult to control for.

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  10. Wally says:

    Something that probably should have been mentioned was how weak the SP class of FA was this year. If this list I’m looking at is right, only 8 multi-year FA contracts where handed out this year, 3 of them where international signings. Basically once you got past Lackey, you were looking at guys not that different from Sheets or Harden. Randy Wolf was the only pitcher other than Lackey to be coming from an MLB team to sign for more than 2 years. And look how that’s working out…

    This was a crappy FA class for pitchers, so it isn’t that surprising that teams shelled out a fair bit of money for these types of pitchers because the supply was so limited.

    So, if we’re going to start suggesting that high upside, high risk pitchers are overvalued, I’d like to see data from more than one year. Plus, this is the kind of thing that is difficult to really quantify. Just how exactly do you define high risk and high upside? And how will the limits you put on that effect your results? Its kind of like trying figure out how something might effect your happiness, as everyone’s definition of happy is different.

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  11. philosofool says:

    Hmmm… It’s hard to say whether these guys are overvalued. I think for many signing teams, upside guys are gambles. If you’re looking at a 77-82 win team in December and can’t afford a top flight free agent, you basically have to think that you need luck to make the play-offs. Suppose everything bounces the right way for that roster, and you’re get 82 wins out of them. In most divisions, that’s not playoffs time, and it’s definitely not wild card time.

    You could sign a known quantity, back of the rotation starter and add 1-2 wins for 4-6 million dollars. That’s still not enough to make the playoffs, most of the time.

    The alternative is one of these upside guys. They have 4 win potential. Some could even go to 5. They cost 7 million dollars base, ask for some performance incentives, and you can usually negotiate an option on a second year. Now, they chance of getting 4 wins is about 25%, which means you only expect 1 win. But there’s not another option that might get you to the playoffs. The known quantity, back of the rotation guy doesn’t have that. He won’t, and we know it. So you gamble, because the difference between 77 and 84 wins is a lot smaller than the difference between 84 and 88.

    Basically, not all wins are created equal. Wins 70-80 are worth less than wins 80-90. Upside guys have the ability to tip the scale in way that mediocre pitchers don’t.

    Another small thing: suppose you buy upside guy and he pitches well up to the all-star break. You got 2 wins out of him. You’re in contention. Now you can think about a reasonably priced free agent to bolster your chances. Even if he gets hurt at this point, he made it worthwhile to make a run for the play offs.

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    • Wally says:

      Or you get 2 wins out of him, but the rest of your roster doesn’t hit the high water mark and you can trade him for a nice prospect or two. Then you really only spent half the cash on a short term gamble and got a cheap, young, long term cost controlled player that may also have a good amount of upside, but now almost no risk.

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  12. Michael Lorri Scioscia says:

    I know that I am a manager of a different team than the Mets but I really wanted to see Escy (Kelvim Escobar) be healthy all season for the Mets. He provided some pretty darn solid production especially in 2007 with Lackey. Well, maybe I can tell Tony(Reagins) to re-sign him this offseason.

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  13. Starkiller says:

    All the starters mentioned in the OP were hurt or hurting in the case of Harden at the end of last year. Anyone who watched Harden pitch knew he was going to break down in any given start. Pavano and Penny (as far as we know) were healthy at the end of last year / when they signed their contracts (and passed their physicals) so despite their injury histories. Escobar was signed to be a reliever / setup guy.

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    • Michael Lorri Scioscia says:

      I agree with your post 100 percent. Only thing is, can I have Pavano? Guy pitches to contact, throws strikes more than my guy, limits his walks and is a solid contributor to anyone’s rotation. (Sorry, forgot to give props to Brad Penny) He is also better than I thought he was a few years ago. He fits the Angels mold or at least the perceived Angels mold.

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  14. this guy says:

    The premise of this article is how little “fans” understand about pitching, economics and human nature.

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  15. It was understood that Erik Bedard would not be back until the second half of the season. It is unfair to put him in that group. That being said, I think he will fail.

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  16. Cidron says:

    and another, hidden out in the midwest having a turnaround from out of nowehere.. Bruce Chen (especially of late).

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  17. Landrew says:

    I’ve been a Phillies fan all my life and aside from the extreme boredom at CBP and total lack of production for Halladay every time he pitches, the Nationals pitcher Scott Olsen was the only reason baseball was of interest to me. He is not well liked here in Philly and that was a red flag for me to check him out (at that time he was on the Marlins). I believe the Phils team is loaded with pre-madonna’s like Howard, Werth and Hamels. Olsen is so competitive and invested in the game but he is always on the DL so this season is a washout.

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