Several years ago, after Vernon Wells posted a breakout season (worth $21 million, according to FanGraphs), the Toronto Blue Jays offered him a seven-year contract for $126 million, or $18 million per year. That was clearly a mistake.
The $18 million part was only a slight mistake, using my formula below. The real mistake was the seven year part, because few players’ worth can be forecasted over that kind of a time frame. If the contract had been $18 million per year for, say, four years, it would have been a reasonable mistake.
This past year, Jose Bautista had a breakout season even more impressive than Wells’, to the tune of nearly $28 million, making him the American League’s sixth most valuable position player (both according to FanGraphs). Yet the scuttlebutt is that the team will use his final—year arbitration status to lowball him for about $7 million, or one—fourth of last year’s production.
What could such a player be worth as a free agent? I’m using a formula that regresses his value to half the difference between his peak value and his former baseline value. Bautista was worth about $8.4 million in 2009, or about a league average value, despite playing only two—thirds the time. (His production “rate” (per game) was above league average.)
The average of $28 million in 2010 and $8 million in 2009 is $18 million. Hence, one can say that Bautista would be worth at least $15 million a year as a free agent and still have a “margin of safety” (relative to the hypothetical $18 million). That’s why I’d be willing to offer him a three or four year contract for up to $40 million or $55 million respectively, basically $15 million per year, minus an arbitration—year discount next year.
What would Wells have been worth as a free agent? In 2005, the year before his 2006 breakout, he was worth $11 million. The average of this was $16 million. Hence, I would have been willing to offer him a contract of up to four years for $64 million, or $16 million per. (Wells was actually worth that $16 million in 2010, after injuries in the three previous years held him below that, which is the luck of the draw.)
A payment of $18 million per year for four years, or $72 million total, would have been an overpayment, but not an egregious one. It was the three extra years, bringing the total to $126 million, that was the killer.
If the Blue Jays offer Bautista only $7 million or so for 2011, and he produces another year with 30+ (not 50+) home runs, they’ll have an awful time re-signing him, since he’ll be “established,” and a free agent. The time to sign him long—term is NOW, when everyone knows what he can do but is not sure he will.
One commenter cited his mediocrity up to 2009 (2008, actually, 2009 was quite good). But look at it this way: Imagine a class with three hourly exams and a final. The final counts for 50 percent of the grade, but also replaces every hourly grade lower than itself (so the hourly’s can help you, but not hurt you).
Bautista clearly “aced” the final (to the tune of $15-$18 million a year, not $28 million). Yes, if you average in his low “hourly’s” he has a “B” average. But in assessing his potential, I prefer to use the “final.”
There is a saying of “once bitten, twice wary.” But a better saying might be that it’s just as bad to underpay as to overpay.
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