The Price of Free Agents Hasn’t Really Increased

Today I was looking over the early free agent signings, trying to get an idea of how much free agents were getting paid per win this off-season. In the past, free agents usually received $4-5 M per win, with the $5 M total coming in recent years. The idea floating around is that free agent prices will be going up this off-season with the new National TV revenue kicking in. My theory before looking at the free agents who have signed was that they would be getting more than $5 M per win. After looking over all of the numbers, I was surprised to see that players are still getting close to $5 M per win. It just comes with a catch for each player, which I detail below. If you want to skip over the part where I show my work, and get right to the summary, that’s below.

Tim Lincecum (2 years, $35 M)

Lincecum didn’t hit the open market, but the Giants gave him a two-year, $35 M deal. In the last two years, he’s been worth a total of 2.5 WAR combined. I’m sure the Giants were thinking he’d bounce back to his pre-2012 numbers. In 2011 he had a 3.6 WAR, which was his lowest total from 2008-2011. If he returns to that 3.6 WAR level, then the $17.5 M annual salary would equal about $5 M per win. That looks like a big “if” from the outside, but it seems like the Giants were willing to take the gamble.

Jason Vargas (4 years, $32 M)

He just got a four-year deal at $8 M per year. Last year Vargas put up a 1.5 WAR, which is worth $7.5 M at $5 M per win. From 2010-2012 he averaged a 1.9 WAR per season. At $5 M per win, that would be worth up to $9.5 M per year. I don’t think Vargas is over-paid in the short-term. Whether he can maintain this level 3-4 years from now is another question.

Carlos Ruiz (3 years, $26 M)

He had a down year last year, but he wasn’t that bad. He had a 1.4 WAR, which is about $7.5 M per season at $5 M per win. Ruiz got $8.5 M per year, plus a $500 K buyout in 2017. If he remains in the 1.5 WAR area, then the Phillies would be paying a little more than $5 M per win. If he bounces back to his pre-2013 levels, they could be getting a huge bargain. I don’t think he’ll bounce back in the way that Russell Martin bounced back, but I could see him worth the money they’re giving him.

Tim Hudson (2 years, $23 M)

He received $11.5 M per year, coming off a season that was shortened by an ankle injury. He still put up a 1.7 WAR in the shortened season. In 2012 he had a 2.1 WAR, which is worth $10.5 M per year at $5 M. I think you could make an argument that Hudson is getting more than $5 M per win, but not more than $6 M. I think the Giants are also hoping that he stays healthy. If he does, then he’s still good enough that he could be worth his salary at $5-6 M per win.

Marlon Byrd Pittsburgh Pirates

Marlon Byrd received $8 M per year as a free agent. (Photo Credit: David Hague)

Marlon Byrd (2 years, $16 M)

I don’t think anyone expects Byrd to repeat his 2013 season, where he posted a 4.1 WAR. The question is, how far will he fall from that number? He’s getting $8 M per year, so he’s being paid like a 1.5 WAR player at around $5 M per year. That’s close to his average over the last three years, so it seems reasonable that he received $8 M per year. There’s just the age risk, and the question of how far he will decline from his career year in 2013.

David Murphy (2 years, $12 M)

He had a down year at the plate last year, and was worth 0.4 wins above replacement. In 2012 he had a career year, with a 3.9 WAR. Prior to that he was a 1.3 WAR player per year from 2008-2011. If he just returns to those levels, then he will be worth the $6 M per year he’s getting with the Indians. There are the usual question marks about his hitting outside of Texas, although he hit pretty well on the road in most years, so he’s not a product of Arlington.

Josh Johnson (1 year, $8 M)

Johnson had a 0.5 WAR last year in a down year. He’s a bounce back candidate, and his value entirely depends on how much he bounces back. At $8 M (plus an additional $1.25 M if he makes 26 starts), he’d have to be a 1.5-2.0 WAR player to justify his salary. If he does bounce back to his pre-2013 numbers, that should be no problem.

Chris Young (1 year, $7.25 M)

He signed today with the Mets, following a down year where he posted an 0.5 WAR. In 2012 he had a 2.5 WAR, and he was a four win player in 2010-11. I don’t think he’ll return to being a four win player, but he just needs to be a 1.5 WAR player to justify his salary. He’s also 30 years old, so I wouldn’t assume he will repeat his 2013 season.

High Risk, High Reward Free Agents

The catch with all of the free agents who have signed is that all of them have question marks. A lot of them are being paid for their former production, with hopes that they will return to those levels. For some, they’re just coming off a down year, or a year with injuries, or both. For Lincecum, the production he would need is two years removed. Then there’s Vargas, who is getting $8 M, which is an amount you’d expect for a pitcher like Vargas in free agency.

I’ve seen the $7 M per win number floating around several places. That number would be correct if you’re using the 2013 season to determine value. However, I don’t think any of the above players were signed for their 2013 season (with the exception of Byrd, and in that case I don’t think anyone thinks the 2013 season is legit). The teams who signed the above players are paying those players for what they did before the 2013 season, with the hopes that those players bounce back to their production. The common trend is that there’s risk involved with each of the early signings, since no player is guaranteed to bounce back to a former level of performance. That said, it’s easy to see how players are still worth $5 M per win if you base the contracts on what they did before the 2013 season, rather than just looking at their most recent year.

If you think about it, the idea that teams would suddenly pay more than $5 M per win because of the new TV revenue is ridiculous. Each team is getting $20-25 M at most, and that number has been refuted with the claim that not every team receives $20 M. Let’s just keep it simple and say that it’s $20 M extra. Let’s also assume every team will be putting all of that money into payroll (they won’t). Then let’s estimate that each team on average has 12 guys who are paid based on their value — basically everyone who is not a league minimum player. I went with 12 because it’s half the roster, giving the final spot to the league minimum side.

It wouldn’t be smart for teams to suddenly start paying $7 M per win — $2 M more than the previous totals — when they’re only getting $20 M. First of all, teams might not be getting the full $20 M. They also might opt to use that money elsewhere, other than MLB payroll. But most importantly, if they start paying $2 M extra, then they eventually have to pay that to everyone. If that means $2 M extra to 12 different players, then you’re talking about an amount that is more than the $20 M each team is reportedly receiving.

I do think there will be a rise in free agent costs, but I think the rise will be gradual. An extra $20 M per team isn’t going to lead to a massive increase in prices, since those increases carry over to all future spending and would amount to more than the extra $20 M teams are receiving. I think the increase that could be seen is a half million. That makes more sense when you consider that teams will be using part of the $20 M elsewhere, while also considering that the increase in $/WAR impacts more than just a few players on each roster.

Tim Williams

Author: Tim Williams

Tim is the owner and editor in chief of Pirates Prospects. He started the site in January 2009, and turned it into his full time job during the 2011 season. Prior to starting Pirates Prospects, Tim worked with AccuScore.com, providing MLB, NHL, and NFL coverage to various national media outlets, including ESPN Insider, USA Today, Yahoo Sports, and the Wall Street Journal. He also writes the annual Prospect Guide, which is sold through the site. Tim lives in Bradenton, where he provides live coverage all year of Spring Training, mini camp, instructs, the Bradenton Marauders, and the GCL Pirates.

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  • jaygray007

    Some reasonable prices, for sure. The Hudson and Johnson deals really give me hope that the Pirates will get a SP (AJ or otherwise) for a decent price.

  • CalipariFan506

    Makes you wonder if signing potential 5+ win players like Cano is actually better value for teams that can afford the $100M contracts.

  • MaineBucs

    I believe teams are paying more; perhaps not in the amount per win, but in the amount of risk that they are assuming by offering deals for more years in which it is likely that the player will be productive. I particularly believe that this is the case with Vargas, Ruiz, and Byrd.

    Byrd on a 1 year deal for $8 mil or so is great, but betting on a 36 year old outfielder to produce even 1.5 WAR for 2 or 3 years (3 years if they play him too much in both 2014 and 2015), particularly one which had a down year in 2012 and a career year in 2013 strikes me as saying that you can not evaluate the deal simply on a per year WAR value.

    Continuing, Vargas for 1 or 2 years at $8 is not bad, but 4 years at $8 mil seems a bit high. And after watching Barajas really struggle as an aging catcher, I would really hesitate to pay Ruiz the amount of coin that the Phils are as he gets even closer to 40.

    And while Lincecum may be somewhat of a special case, and limiting the deal to only 2 years does reduce the risk (further all they risked was money and didn’t have to surrender any talent to acquire him), $17.5 mil per season for his recent production is a real reach.

    While I understand your point, in my opinion, the Vargas signing would not be a good deal if Vargas somehown produces 2.5 or even 3 WAR per year for the first 2 seasons, bu then slumps to .5 or less WAR for the next 2 seasons. If the above scenario occurred, it means that you are carrying dead weight for 2 years, with little option except to relegate him to the back end of the pen or release him. Productivity over the life of a contract can particularly be critical to a smaller market team. While they may have enjoyed the beneift of a player who delivered more value than their contract one year, over the length of the contract, the team takes a real hit.

  • http://www.facebook.com/stephen.brooks.581 Stephen Brooks

    I wonder if the inflation will start to show up at the 3-5 WAR level, but that players at the very top and bottom won’t really see the benefit.

    Even with the added influx from the TV deal, there will still be only a few teams willing to pay Robinson Cano “market value” – and the luxury tax threshold isn’t rising in step with the TV money, so both the scarcity of buyers and the threat of the tax are likely to put a drag on inflation at the high end.

    At the low end, teams like the Pirates and A’s (among others) have shown there are a lot of ways to squeeze 2 WAR out of a position without paying $10M – whether it’s platoons, minor league free agents, or just promoting your Gaby Sanchezes and Jose Tabatas to 550 AB (not that I’m advocating it for the 2014 Bucs). Other than positions of true scarcity – C, SS and maybe SP – there’s really no rationale for paying $10M for a 2-WAR player on the open market. As long as there are a handful of teams that recognize this, it suppresses demand – and therefore the price – for average regulars.

    In the middle tier, however, you still have scarcity of talent, but now suddenly more potential buyers with the new money. We’ll see how it shakes out, but I think that the market is behaving pretty rationally so far – with the caveat that we haven’t seen any impact signings yet.

    If it does prove to be the case that inflation will show up in the middle tier, then the Giants’ strategy may have been pre-emptive, to lock up their 3-3.5 WAR players (Pence has averaged 3.5 over the last 2 and 4 years; Lincecum averaged 3.2 WAR if you throw out his 2012 – which the Giants certainly must have done to arrive at their figure) before the true market rates are revealed.

  • emjayinTN

    Tim: Teams like the Yankees, Dodgers, and Texas, and probably others, see the new TV Revenue as chump change compared to what they are now or will be receiving from their “house” cable TV networks. Are there any numbers as to estimates of this revenue? Do the Pirates have any type of similar revenue?