NFL playoffs are right around the corner, but ’tis the season for a jolt of baseball excitement too, as teams sign new players. The contracts are getting bigger and bigger, supported by growing MLB revenues. Some of the major signings under the tree this year (more here):
- Zack Greinke, 6 yrs, $147 million (Dodgers)
- Josh Hamilton, 5 yrs, $125 million (Angels)
- B.J. Upton, 5 yrs, $75 million (Rays)
- Anibal Sanchez, 5 yrs, $80 million (Tigers)
But before you start thinking playoffs, remember that many big deals don’t work out. Who will be nice and who will be naughty this year?
The Old Lumps of Coal
From the list above, Greinke is 29 years old, Hamilton is 31, Upton is 28, and Sanchez is 28. Not many young players are available through free agency, but are these 4 to 6 year deals for 28 to 31 year olds a good idea? I tackled this question with my friend Jeff Phillips for ESPN the Magazine in early October.
Specifically, we wondered if long deals for 30 year olds made more sense during the steroid era, when players could recover, train, and maintain more easily. There are two sides of the coin: (1) how has older player performance changed, and (2) has older player compensation evolved appropriately. We focused on players in the top quarter of the salary distribution, since that’s where the big money is spent. To measure performance, we examined average Wins Above Replacement Player (WARP)* by age during and after the steroid era:
Uh oh. Although performance for all highly paid players has gone down, older “stars” have turned out to be coal indeed. Looking year by year highlights the post-PED age decline. Average WARP for older and younger stars was remarkably similar through the steroid era, but older player WARP has declined by 38% since the publication of the Mitchell Report in 2007, while younger player WARP has only dipped slightly:
However, GMs have not adjusted to the shift. The average salary gap between older and younger stars has actually widened from $5.2 million per year in 2007 to $5.8 million in 2012:
The result? Those lumps of coal are getting more and more expensive every year. Total salary paid per WARP generated by older stars has jumped from under $6 million in 2007 to over $10 million, while younger stars’ salary per WARP increased very little. Older guys may have some leadership value, but the gap has expanded massively:
But Santa, Did You Bring Me Coal Again This Year?
The most ready explanation for these findings is that older players benefit greatly from steroid use and that teams should expect worse performance from older stars going forward. However, this need not be the case. First, coming off PEDs may affect older players (who have presumably used them longer) more than younger players. Second, some older players today may be corner cutters that aren’t representative of future generations of Major Leaguers.
Still, the sharp decline in performance for older players is worrisome for the latest round of contracts. Teams like my Tigers (Sanchez at $16 million/year through age 33, Torii Hunter at $13 million/year through age 38, Prince Fielder at $23.8 million/year through age 36), the Angels (Hamilton at $25 million/year through age 36, Albert Pujols at $24 million/year through age 41), and the Red Sox (too many old guys making 8 figures to count) may have a shot to win now, but they could pay for it big time down the road. We used the trends above and individual player performance to estimate which past contracts will be the worst value (the contracts get worse moving to the left and up in the chart):
A playoff caliber roster usually combines for 60 to 80 WARP, so most teams would like to spend an average of $1 to 2 million per WARP. Players with a good track record carry a premium, since they presumably have more predictable performance, but paying more than $10 million/WARP for individual players adds up fast.
Finally, we did some simple projections to determine what Santa should have spent on your gifts this year:
For reference, the black dots show what these guys were making last year. Almost every single player on this list was signed in the red zone or higher this offseason (Michael Bourn and Nick Swisher haven’t signed yet, and Angel Pagan looks like a deal at $10 million/year if he can keep up his recent production; B.J. Upton just missed the cut with a projected range lower than Peavy’s).** It’s not really a good counterargument to say that the market has changed as revenues have grown. Indeed, the market price for an older player with strong statistics has gone up, but the alternative — younger players — hasn’t changed much. If recent age patterns hold true, a few teams focusing on older free agents may be unhappy with their December haul.
* Regular readers know that I don’t really like WARP (or WAR) as a performance measure, but for this application, the differences are stark enough to stick with the easily available, generally accepted statistics.
** The Red Sox may have saved themselves by signing Napoli and Victorino to three year deals, but this is little consolation for $13 million/year contracts for a 30 year old catcher and a 31 year old who depends on his speed.