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The Dollar Value Of A Win
Posted By Dave Cameron On December 4, 2009 @ 1:36 pm In Daily Graphings | 53 Comments
Recently, there’s been some misunderstanding over the application of how to use the dollar valuation we place on players here on the site. I take the confusion as a sign that we haven’t adequately explained what the valuation means, so that’s what I’m going to do this afternoon.
The biggest misconception about the dollar valuation seems to revolve around its purpose. It is not a salary predictor, or in way a projection of what a player is going to get when he becomes a free agent. It is a backward looking value statistic that quantifies the replacement cost of a certain level of production based upon the market price for that value. In terms of function, it is much more of a price than a value. In other words, the best description of the question that the valuation is answering is “how much would you expect to have to pay to replace this performance in free agency if you knew that you were going to get this level of value exactly?”
Once a performance is in the past, there is no uncertainty related to it. We know what happened. When a player signs a contract, of course, that performance is not known. Uncertainty adds risk, and risk drives down price, so we would not expect a team to actually pay a salary equal to the value listed on the players page. This is one of the main reasons why the value is not a predictor of what a player will earn in his next contract.
So, if that’s how you’re using the metric, you will undoubtedly be frustrated by the numbers, and probably conclude that they are worthless. They’re just not attempting to answer the question that you are asking, however.
Here is an example of how you should use the valuation. We have Chone Figgins’ 2009 value at $27.4 million, based on his +6.1 win season. No one is going to pay Figgins that much this winter, of course, nor should they. However, we can say that if the Angels wanted to replace what Figgins gave them last season, they should expect it to cost them about $27 million in free agent spending. Figgins produced at a very high level in 2009, creating a large surplus value for the Angels. The dollar to win valuation quantifies that surplus value, showing how much that performance would have cost if they could have expected to receive it and had to pay the going market rate for that performance.
That’s why we write that he was “worth” $27 million. It does not mean that we think the Angels should have paid him $27 million, or that they should pay him $27 million now, but he produced at a level equal to what you would expect if you had spent $27 million in free agency a year ago.
Obviously, most players are going to earn significantly less than their market value, because only a fraction of the population become free agents in any given season. Players with less than six years of service time have their contracts held down by the nature of the CBA, and none of those players should earn their fair market wage, given the structure of the system. Because the presence of these players who produce at a wage below their market rate, the overal value of a win is less than the market price – in general, it’s about $2.5 million per win, significantly less than the going rate for wins in free agency. However, a large portion of these players are generally not available, so they don’t affect the cost of a win, since they are not in the supply of available talent when teams go shopping. To use an example, the price of John Lackey is not affected by the presence of Zach Greinke, since the teams trying to sign Lackey do not have the option to alternately trade for Greinke, as KC would simply hang up the phone.
Hopefully this is somewhat helpful. There are a lot more issues surrounding the dollar to win conversion that we’ll get into, but the most important point in understanding the metric is to get what it is trying to quantify.
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