The Early Deals and Inflation

We are one day into baseball’s offseason, but teams and players have been making decisions on the expected market valuations of the winter for a couple of weeks now. It’s early, but we’ve got some interesting data points to look at when trying to ascertain what MLB clubs think salary inflation will be like this winter, after several years of deflation or stagnation.

The decisions that look like they may give some insights into the expectations of what players will cost this winter.

Dodgers sign Ted Lilly to a 3-year, $33 million contract.
Reds exercise Bronson Arroyo‘s $11 million option.
Tigers sign Brandon Inge to a 2-year, $11.5 million contract.
Twins exercise Jason Kubel‘s $5.25 million option.

These four moves are the most significant that we’ve seen to date, and they all point in a similar direction – these four teams all seem to believe that we’re in for some inflation this winter.

Ted Lilly is pretty comparable to Randy Wolf, in that both are soft-tossing lefties who pitched well in Los Angeles. After wisely deciding to let Wolf leave, however, the Dodgers ponied up for Lilly, paying a bit of a premium to keep him over what Wolf got from Milwaukee last winter.

Bronson Arroyo is a useful innings eater, but it would be hard to argue that he’s appreciably better than Joel Pineiro, who got just $16 million over two years as a free agent last winter. While the commitment is shorter in term, the difference in per-season salary is significant.

Inge doesn’t have a great comparison from last winter’s class, but overall, last year’s market price for a starting infielder seemed to be around $6 million per year. Placido Polanco, Marco Scutaro, Mark DeRosa, Freddy Sanchez, and Miguel Tejada all signed deals in that range. Inge, coming off a worse season than almost everyone in that group, got essentially the same number for two years with a team option for a third.

And finally, there’s the Kubel decision, which is probably the most curious of the bunch. Despite wanting to retain the services of Jim Thome, the Twins were willing to pay $5 million to keep Kubel on the roster, despite a down season and no obvious starting position on the 2011 team. Given how the market for designated hitters cratered last winter, with good players having to settle for $5 to $7 million on a one-year deal, the Twins decision to give Kubel a similar amount is either a miscalculation of his value or the priced-in expectation of coming inflation.

Until we see teams start to bid openly for players, we won’t really know what the going rate for talent is this winter. Early returns, however, suggest that we may be in for a pricing increase.

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

19 Responses to “The Early Deals and Inflation”

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  1. Andross says:

    I agree the deals on 3 of those players seemed high, but are you considering that Arroyo had a 2 million dollar buyout? Essentially, it was a 9 million 1 year deal, which is remarkably similar to that of your comp.

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    • Monroe says:

      By most accounts, the deal for Arroyo includes a $2 million bonus for innings pitched (which he is believed to achieved with 436 innings pitched over the last two seasons). That would make his contract worth $13 million for 2011, but since there was that $2 million buyout, it is theoretically an $11 million commitment by the Reds for 2011.

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  2. John says:

    That Lilly deal is a disaster. Kubel could be a little bit of an overpay but at least it’s a 1 year deal. Also, Thome has a history of back problems so they’re looking at him as DH insurance IMO.

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  3. Danmay says:

    Dave – Just wanted to say that you really do a ton of writing on this site and I appreciate that a lot as this is my of my favorite sites.

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  4. Ian says:

    If the Twins declined Kubels option, as I understand it, they couldn’t offer him arbitration and get the draft picks for him (he’s a type A). By exercising the option, they’ll likely get a pick or two next year along with one more year of service from Kubel. That should probably be calculated into his value.

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    • Paul Thomas says:

      Nothing prevents a team from declining an option and then offering arbitration unless the contract says so. They’re two totally different transactions.

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  5. chuckb says:

    As a Cards’ fan, the Lilly deal in particular worries me in terms of thinking about what Mozeliak is going to give Jake Westbrook. His value increased probably by 10-20% when Lilly signed his deal and Mozeliak, as evidenced by the Lohse contract, is prone to overpaying for mediocre “innings eaters” anyway.

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  6. Disco says:

    So far its looking like the value per Win is going to hover around $5mil, quite an increase from the past season.

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  7. Lloyd mclendon says:

    Rick porcello will be the cy young next year…CHonE can’t account for his work ethic!

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  8. Bill says:

    Your comparison of Lilly to Wolf is feeble and lazy.

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  9. philosofool says:

    I’m not predicting any significant inflation. If there is some, it’s because teams feel that they over-estimated the effects of the economy on their revenues. Otherwise, slow growth in the world’s economy is going to be reflected in baseball salaries.

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  10. Hank says:

    Dave, don’t you have to factor in the 2mil buyout for Arroyo? The real variable cost to the Reds is 9 mil, no? And this is more or less in line with the 2yr/8mil per that Pinero got (especially when you consider it’s 1 year less and he’s younger)

    I’m not sure you should look at it as an 11mil deal when 2 mil of that is a sunk cost – the Reds are paying 9mil for Arroyo to pitch (and giving him 2mil whether he pitches for them or not)

    As such I’m not sure you can consider a 2 year/ 8mil per contract significantly different than a 1yr/9mil contract or any sort of indicator of inflation.

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  11. Steve says:

    Interesting piece. I was wondering when someone was going to talk about the Lilly deal. It was very much under the radar, but I think Lilly got WAAAAY more than I would have predicted at the end of the season. Not sure if it is an indicator or just another feather in Colletti’s awesome hat, but I was shocked when I saw the numbers.

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  12. Derek says:

    I would counter with deals signed Immediately Pre-Free Agency are typically overpays, and are thus not reflective of the market as a whole. While you can compare the Lilly deal to Wolf, I would say a more accurate comparison would be the Kyle Lohse extension given the time it was signed.

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  14. enemyoftheworld says:

    Jason Kubel started 95 games in the OF this year, up from 53 in ’09. I don’t think the Twins are valuing him as a DH-only guy. He’s definitely not outstanding defensively, but after leaving the concrete floors at the Metrodome, I’m pretty sure his knees will allow a similar role going forward. Even if they do bring Thome back they would only want him to play ~120 games (and would actually count on him for fewer than that) and this allows Kubel to be the 4th OF and part-time DH, which provides flexibility if only because they are comfortable playing Cuddyer at 3B occasionally and 1B when necessary. All told, I wouldn’t call $5.25M for Kubel more curious than $30M+ deal for Lilly. When they re-sign Pavano for a similar deal to Lilly … “curiosity” will not be my primary adjective.

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