Market Rates

Dave · November 13, 2007 at 12:12 pm · Filed Under Mariners 

As requested, here’s a pseudo update to the post I did three years ago on the concept of market value. The same basic concepts I wrote in that post are still true, but the numbers have changed a bit, and obviously, not all of you have been reading the blog for three years.

Free agency begins today, as teams can begin negotiating and signing players from other clubs. As always, most of the contracts signed by free agents this winter will be bad deals for the clubs, as they compete against each other for limited talent in a market that doesn’t correctly value actual on field contribution. Today’s big free agent signing is more likely to be tomorrow’s immovable albatross than franchise savior – this is just how the Winner’s Curse works.

So, how do you tell which free agent signings are better or worse than others? And what is market value now? Well, we won’t know for sure until the winter has played out, but based on previous signings, I think we can make some educated guesses.

According to the USA Today Salary Database, MLB teams spent just under $2.5 billion in player salaries last year. Obviously, some teams spent more than others, but that was the overall payout from teams to players for their performance last year. History has shown us that a team of league minimum players and Triple-A castoffs can win about 50 games a year, so what teams are actually paying for is every win above 50. We often call these marginal wins, and refer to those players as replacement level.

To be a true contender, a team needs to add about 45 marginal wins in any given season, and every dollar they spend above $12 million or so goes towards that effort. If a team that is trying to contend has a $100 million payroll, they are essentially trying to spend $88 million on about 45 marginal wins – that works out to just under $2 million per win.

So, pretty much any contract that is returning value at a cost of around $2 million per win is helping the team reach their goal of contending for a playoff spot. The further from $2 million per win you get, the more the contract is a bad deal for either the player or the team.

Now, because MLB has a non-free market setup for a huge population of the players, where their salaries are either determined by the team (if they have less than 3 years of service time) or by an arbitrator (if they have 3-5 years of service time), teams have a built in advantage with younger players where they can get strong returns for minimal costs. Thanks to research by Dave Studenmund on how teams spent last winter, we know that the average pre-arbitration player only makes about $500,000 per win, arbitration eligible players make about $2 million per win, and free agents make about $4 million per win. Obviously, having talented players under team control is a huge benefit, as their cost per win is eight times lower than comparable free agents.

This is why the smart teams mostly eschew free agency in roster construction, instead building through player development and trades. Unless you can turn a proftit with a payroll north of $150 million, you’re just not going to be able to build a competitive team using free agents as a core building block. The cost is just too prohibitive. With inflation, we should expect the cost per win this winter to be more in the $4.5 to $5 million range, driving salaries even further away from the ideal $2 to $2.5 million per win that teams should be aiming to spend.

Now, that’s not to say that every contract needs to be valued at $2 million per win or less. If a team has a significant amount of cost controlled talent on the roster, to the point where they’re getting 30 to 35 marginal wins for $50 million in payroll and they have a $100 million budget, that gives them somewhere in the $50 million range to buy another 10-15 wins. At that point, they could justify spending $3-5 million per win on a couple of free agents to round out their roster and make a real run at a championship.

Free agency is best served to find role players to fill a short term hole or to get the final piece to the puzzle. It is, without a doubt, the least efficient way to add talent to an organization, and in many cases the cost more than offsets the value the player adds. We’ve certainly seen the Mariners run into this problem – their spending on mediocrities such as Richie Sexson, Jose Vidro, and Jarrod Washburn are eating up enough payroll space to keep them from being players for true all-star talents while not returning enough performance to make this team a legitimate contender.

This is why we advocate a roster building philosophy that focuses on paying premium dollars to premium players (Ichiro’s extension is a perfect example of this), ignoring the overpaid middle class, and surrounding your stars with young players who haven’t had their salaries determined by free agency. It simply doesn’t work to try to fill out a roster with good-but-not-great players in free agency.

So, when someone argues that if you want to improve the team this winter, you have to pay what the market will bear, just ignore them – the free agent market is just one (not very good) way of adding talent, and the smart teams will usually ignore it entirely. Let other people throw big money at mediocre players hoping for a quick fix – market value isn’t actual value, and competing with other GMs who are spending money like fools is a great way to end up with a high payroll and a .500 team.


192 Responses to “Market Rates”

  1. Alaskan on November 15th, 2007 12:46 pm

    148, I would suggest again (as 133 did), that it’s still too early to be deciding who made the better pick based on results. And the fact that Morrow wasted a year in the bullpen doesn’t say anything about the quality of the choice, because as 149 points out, they were just as likely to do that with the others. So why don’t we give it another year and see where we are?

  2. terry on November 15th, 2007 1:18 pm

    My guess is both Lincecum and Miller would’ve been in the rotation for the Ms this season.

  3. Jeff Nye on November 15th, 2007 2:36 pm

    All that that means, though, is that either of them would’ve been better than Ho-Ram.

    Which I don’t think is a particularly controversial point.

  4. bermanator on November 15th, 2007 2:38 pm

    All that that means, though, is that either of them would’ve been better than Ho-Ram.

    It also means that management would have treated them differently than they did Morrow, and I’m not sure if I buy that or not (esp. Lincecum — my guess is if Seattle had drafted him, they would have used him the same way they used Morrow).

  5. joser on November 15th, 2007 2:58 pm

    so, if the Yanks pay Alex 27M, Posada 13M and Rivera 15M, just how enormous is the payroll this season?

    Not that much more, at least not yet. It’s a little hard to figure with ARod, but the Yanks seem to have paid him about $20M in ’07 (plus 7M from Texas); Posada got $12M, and Rivera $10.5M. So from the Yankees’ perspective that’s just a bump of ~13M, or 7% — which is completely in line with overall MLB payroll growth over the past 7 years (and, setting aside years when their year-over-year payroll shrank, is actually very modest growth by Yankee standards). Of course the offseason is still young, and they’re going to have to pay the luxury tax in the end, but the elephant doesn’t look much bigger (yet).

  6. msb on November 15th, 2007 3:03 pm

    and if they add Mike Lowell at 1st 🙂

  7. Alaskan on November 15th, 2007 3:10 pm

    152: So, is your argument that they chose to draft someone only capable of 7th inning relief this year, and passed over two guys they thought were ready for the big leagues? Or was their valuation of Miller and Lincecum going to change between the draft and opening day if they signed them?

  8. terry on November 15th, 2007 3:37 pm

    My argument is that given what they did with Morrow, their decision to pass on Miller and Lincecum was even dumber. Of course the Ms would’ve treated Lincecum and Miller differently than how they treated Morrow. It’s not a stretch to suggest Morrow would’ve started if the Ms thought he was capable. Last season, Lincecum was ready and the Ms would’ve put him in their rotation just as the Giants did. Miller was probably rushed but the Ms were more desperate than the Tigers…..

    Concerning the Ms first round, Miller was all about money and Lincecum was about being conservative which rings hollow given the Ms risky approach to Morrow’s development.

  9. Jeff Nye on November 15th, 2007 3:56 pm

    At the time of the draft, there wasn’t anything to indicate that Brandon Morrow would not perform capably as a starter. I’d argue that there still isn’t.

    Now, the Mariners may know something we (or I) don’t, but I’ve seen them make too many missteps in player evaluation over the last few years to take them putting Morrow into the bullpen as an indication of anything authoritative about his future prospects.

  10. SequimRealEstate on November 15th, 2007 4:00 pm

    [ot, if the authors want to start a post on it they will do so, this is not that post]

  11. galaxieboi on November 15th, 2007 4:09 pm

    If Bavasi is thinking of re-signing Jose Guillen I sure hope he takes a peak at this.

    Look 2nd from the bottom for team RF range on the 1st chart and then 5th from the bottom for Mr. Guillen’s personal range.

  12. Alaskan on November 15th, 2007 4:44 pm

    158, uh, okay. Let’s keep in mind that, as you poinsted out, skipping Miller had nothing to do with talent evaluation, and everything to do with politics, as was well explained at the time at this very blog. So let’s just remove him from the conversation. As for Lincecum, as well as he’s doing in AAAA, there’s a strong possibility that Morrow’s ceiling is higher, and until both guys have reached their ceilings, this conversation isn’t worth having.

    There are hundreds of verified mistakes made by the M’s FO, but you’ll just have to be a little more patient before you can add this one to the list. Just because Lincy spent a few months handling the worst offenses in the league doesn’t mean he’s won the title of best draft pick.

  13. terry on November 15th, 2007 4:47 pm

    I’m not arguing Morrow is a bust. I’m suggesting he wasn’t an enlightened choice given their options and the apparent time table they needed him to be on….

  14. Alaskan on November 15th, 2007 5:00 pm

    Option. Miller wasn’t a real option, in keeping with Bud’s wishes (which are dismissed less than 2% of the time – it’s not as though the M’s are the only ones following party lines).

    I, for one, would have a #2 or 3 starter two years from now than a 4 or 5 starter today. (Please just accept the premise that Morrow has the higher ceiling, and let’s stick to arguing the whether having help now is more important than picking the better player)

  15. Bretticus on November 15th, 2007 5:16 pm

    There’s a video of Bavasi up on…

    Here’s a link

    Here’s the basic summary: “We’re thinking we can just get Jones to RF, leave Raul in LF, Sexson at 1B and Vidro at DH….(Ho) Ramirez has to turn himself around, and we think he can”

    Is this posturing, or is the front office really just dumb? Any thoughts, Dave?

  16. Alaskan on November 15th, 2007 5:21 pm

    I just threw up in my mouth a little.

  17. Steve Nelson on November 15th, 2007 5:24 pm

    #162: What time table did they need him to be on? I don’t recall hearing anything that one of the requirements for that pick was that he had to be on the MLB roster as a starting pitcher within any specified time frame?


    More to the point – making draft selections to fill perceived immediate needs on the big league roster would be a tremendously poor drafting strategy. The probability of actual making a selection that filled the need is way too low, plus skewing a draft strategy that way would result in continually taking lower ceiling players for the sake of expediency.

    The fact that the Mariners used Morrow to fill a need in the bullpen is totally irrelevant to consideration of whether he was a proper choice.


    IIRC – the skinny Dave passed on at the time was that the Mariners felt that the difference between Morrow and Miller was sufficiently small to justify bucking Selig and paying the extra money to sign Miller. It’s still way too early to know whether or not that assessment was correct.

  18. galaxieboi on November 15th, 2007 5:31 pm

    Here’s the basic summary: “We’re thinking we can just get Jones to RF, leave Raul in LF, Sexson at 1B and Vidro at DH….(Ho) Ramirez has to turn himself around, and we think he can”

    I’m going to go home and get drunk. You owe me a liver, Bill.

  19. Steve Nelson on November 15th, 2007 5:33 pm

    arghhh .. #166 should be the Mariners felt that the difference between Morrow and Miller was NOTsufficiently small to justify bucking Selig and paying the extra money to sign Miller.

  20. Steve Nelson on November 15th, 2007 5:35 pm

    double arghhhh!!! #166 should be the Mariners felt that the difference between Morrow and Miller was not sufficiently large to justify bucking Selig and paying the extra money to sign Miller

  21. terry on November 15th, 2007 6:05 pm

    #163: Of course Miller was an option. The Ms CHOSE to pass. I know Bud is an irresistible force in the universe. It’s those darn Tigers that don’t get it.

    You’re nuts if you think Morrow has a significantly higher ceiling than Lincecum. You’re double nuts if you think Lincecum is a #5. We can argue about who is likely to have a longer career but I know Lincecum is a legitimate major league starter. We hope Morrow will be one.

  22. Alaskan on November 15th, 2007 6:28 pm

    Well, apparently you’re the expert. I obviously can’t argue with your credentials, since I have no clue what they are. I’m not sure why I should be nuts and/or double nuts to doubt The Great Lincecum, but I’ll just say I’m not the only one.

    I didn’t say either that Morrow has a higher ceiling or that Lincy’s a #5. What I said was I don’t know, neither do you, and we won’t for a few years. I’m sure you’re very smart, but neither you or I know any better than Fontaine what these guys will amount to. If you can’t accept that fact, then I think you’re triple nuts.

  23. terry on November 15th, 2007 6:35 pm

    You could simply try arguing with my argument…

    BTW, I don’t need to be smarter than Fontaine to hope that one day Morrow will be what Lincecum was last season….

  24. msb on November 15th, 2007 6:48 pm

    There’s a video of Bavasi up on…

    isn’t that the same interview from the GM meetings? the one where he (typically) said nothing, other than only one person is ‘untouchable’ on the team?

  25. Jeff Nye on November 15th, 2007 6:52 pm

    Come on, guys, tone check.

    None of us have enough information at this point to definitively evaluate Lincecum vs. Morrow; but you can’t ignore that Morrow’s 2007 was basically a wasted year due to the Mariners deciding to throw him in the bullpen; the Giants, on the other hand, used Lincecum intelligently, so obviously he is going to look better in results-based analysis.

  26. Alaskan on November 15th, 2007 6:53 pm

    [that is a total bullshit thing to say]

  27. Alaskan on November 15th, 2007 6:55 pm

    That last line was overboard. I apologize. I just think you’d be wasting your breath, because at the end of the day, the evidence just isn’t there, one way or the other.

  28. Steve Nelson on November 15th, 2007 7:03 pm

    So far the essence of Terry’s argument is that Lincecum pitched credibly as a starter with the Giants last year and Morrow didn’t. It seems that from that single point of information he concludes that the Mariners screwed up the draft pick.

    I hope you can grant that might not be the best criterion for evaluating the success of a pick.

    Of course, that’s not to say that Morrow was a better pick than Lincecum. It’s just that if you want to persuade us that the Mariners should have picked Lincecum you need to bring a bit more analysis than that.

  29. terry on November 15th, 2007 7:39 pm

    Actually, not really Steve. Lincecum has better stuff and better command while he’s already giving return on the Giant’s risk in a high leverage role. Morrow has severe command issues and shouldn’t have been on the 25 man roster in ’07. It’s an open question whether he’ll ever be a league average starter in the majors. Reducing the issue of Morrow/Lincecum to a results-based argument ignores a lot of things that have nothing to do with results per se.

  30. Alaskan on November 15th, 2007 8:09 pm

    I’m not arguing that Lincy’s stuff and command aren’t better. I’m arguing that Lincy is basically at his ceiling, and Morrow has more room to grow. He has the potential to be significantly better than Lincy. I am not the first person to say this. You’ve probably even heard it before. If you haven’t, a Google search will bring you several results from people who know more than I do about evaluating pitching prospects. Feel free to look over them in your free time, and then come back and insist that “Lincy is better” is an indisputable fact.

    I am also not arguing that the M’s have not handled Morrow poorly. They obviously have, and no one will argue that point with you. But I think the drafting of Morrow could have been the right decision, even if the handling of him through October has been misguided.

    Yes, Morrow’s future is an open question. And yet, you keep trying to tell us what the answer is. I honestly don’t understand why this conversation has gone on this long. I think I’ve said everything I can think of to say. I will try my best to not respond to what I fear is going to be another retreading of what you’ve been saying all along.

  31. terry on November 15th, 2007 8:24 pm

    Alright, I have to admit to being thoroughly confused. You agree with things I’ve argued but vehemently disagree with some things that I haven’t argued. Because of this I need to seek the opinions of people who are smarter than you?

    I really hope learning how to google won’t be as puzzling.

  32. Alaskan on November 15th, 2007 9:37 pm

    [I’m tired of you]

  33. SCL on November 15th, 2007 10:06 pm

    Well obviously Alaskan is a genius. He’s from the future! Look at his time stamp!

  34. SCL on November 15th, 2007 10:08 pm

    Looks like I’m from the future too. This must be a mountain time time-stamp.

  35. terry on November 16th, 2007 4:06 am

    Alaskan, what you’ve done is invent strawmen while coming at the issue from a position of assumed superiority.

    Once again here’s the argument:

    Given the Ms felt that they needed their draft pick to turn around so quickly as evidenced by how they have handled Morrow’s development, the Ms took the third best option available to them on that draft day (why that argument has been turned into the notion that I’m suggesting Morrow is a bust or that he was a terrible pick, I don’t know). Here’s why I argue that:

    1. Lincecum has better stuff and better command.

    2. Lincecum is doing now what we hope Morrow will be capable of doing preferably sooner than later. Even in the AL, Lincecum would’ve been an above average starter if you adjust his FIP for league. No where have I indicated Morrow’s future is a certainty. In fact, i’ve argued that Morrow’s uncertain future tilts the scales toward Lincecum. Given how volatile pitching prospects are in general, that’s a huge advantage in Lincecum’s favor.

    3. Even on draft day, Lincecum was considered to have a short track to the majors while Morrow was thought to need considerably more time to develop.

    4. Lets not forget that Lincecum is a local boy. The Ms missed their opportunity to dump WFB (that’s almost like getting a free supplemental draft pick).

    So the Ms took the guy most thought would have the slowest trip to the majors and jammed him onto their 25 man roster after a sip of tea in low ball because he’s got a power arm. By choosing him, they saved money in their draft budget but had to give up another legitimate major league power arm in Soriano (I guess that’s the price of being frugal and conservative regarding frame/mechanics though Jeff S’s evaluation of the Soriano trade suggests the Ms really don’t have a lot of credibility when evaluating potential health issues with pitchers). In any event, I’m not really seeing a coherent relationship between player development and their vision at the major league level.

    Clearly Morrow’s mechanics and frame make him projectable but if the goal is infusing your rotation ASAP, frame issues aren’t the only consideration. Concerning the notion that Morrow lost out on a month that would’ve turned him into an above average starter, well, lets just say we can agree to disagree on that.

    Dave might think I’m full of crap and ultimately agree with the point you’re attempting to make but at least his snark would be righteously aimed at my argument (and not my marital relations-BTW, my wife is pregnant with our 4th child so a case could be made for me spending less time with a woman).

  36. msb on November 16th, 2007 10:18 am

    hmm. catcher market rates?

    Jose Posada, 4/$52.4
    Jose Molina 2/$4 million.

    Yorvit Torrealba 3/$14.4 million.

    oh, and Joe Nuxhall has died, and not to sound flip, but I am guessing that means that Neihaus is not winning the Ford Frick award for yet another year.

  37. joser on November 16th, 2007 10:28 am

    At the time, Dave wrote

    The M’s are going to draft a college arm, there’s no doubt about that. The only question is which one. With Miller and Lincoln unlikely to slide to #5, the M’s will probably be picking from the Lincecum/Hochevar/Scherzer/Morrow group. They’ve been tied to Hochevar quite a bit, but no one knows how much of that is real or just a smokescreen.

    While Bavasi has a history of preferring high-reward players, Bob Fontaine is running the draft, and he’s a bit more conservative by nature. Fontaine’s also a big proponant of pitcher’s body types, and Lincecum doesn’t fit the mold of what he generally prefers. I don’t see the M’s going for the UW star, but instead picking between Scherzer or Hochevar, unless Morrow falls.

    Nobody expected Miller to be available, and in a sense he wasn’t to any team willing to abide by the Commish’s signing guidelines. Had somebody grabbed Morrow before the M’s pick, they still might not have picked Lincecum. Even a year after the draft the Morrow vs Lincecum argument wasn’t as clear-cut as some like to think; it was even muddier on draft day. Although I wasn’t among them, a lot of people were worried about Lincecum’s durability (and many still are).

  38. Alaskan on November 16th, 2007 11:24 am

    183, I’m drawing Dave and/ or Derek’s ire, here, so I’ll be brief. I apologized for the woman comment, and I meant it. It was out of line.

    I agree that today, Lincecum is better. If I had a game tomorrow, I would absolutely choose him.

    There’s clearly a serious discrepancy between choosing the “project,” and then sending him up to the majors as if he’s ready. If they thought they were drafting a project, they needed to treat him as such, and not try to use him as a bullpen stop-gap. It doesn’t help him, and in the long term, it doesn’t help the team. For some reason (perhaps the job insecurity Hargrove and Bavasi were facing), they decided that winning today was more important than building to the future. Their decisions didn’t put the future in danger, but it did delay it.

    I guess to an extent we agree – the Mariners took a certain amount of risk with Morrow, and the real debate is whether that risk was worth it. I think if Morrow turns out better, regardless of whether it takes a year or two, then they made the right decision. But I understand why you could disagree.

  39. joser on November 16th, 2007 12:57 pm

    As for the Frick (vote!), I have to agree with this guy — the idea of Ray Fosse getting into the Hall when Pete Rose isn’t seems to hover somewhere between poetic and hilarious.

  40. Wishhiker on November 16th, 2007 8:43 pm

    Any of you might have noticed that the reason I was talking about range is because I was tols the M’s were the 3rd worst at geting to balls in play/turning balls in play into outs. With that true and the fact that the balls they do get to they make outs well on the problem is obviously range. I said earlier I’d use UZR but it’s not out yet for 07′. Read all of the posts before responding to one sentence that was 5 days ago please. I’ve moved on from overall defensive % by at least 5 comments and you’re going to go back there??? I was talking about range because they were the 3rd best at F% and 3rd worst at BABIP. Obviously range is the problem. As I was told earlier. COME ON!

  41. Oil Can Boyd on November 20th, 2007 11:29 pm

    I found it interesting that Lowell signed for 3 years/$37.5M and everybody thinks he gave the Red Sox a hometown discount – spurning the Phillies and the extra year. Does everybody forget that his prior deal at
    # 4 years/$32M (2004-07) was an albatross that the Marlins couldn’t get rid of without packaging with Beckett?

  42. Oil Can Boyd on November 20th, 2007 11:32 pm

    This is an excellent post — and I agree with the conclusion that free agency is a fools market. I would add that the cost to the club is underestimated because it costs the team to manage the farm system. A free agent is cheap and a short term commitment. But the young players need to be invested in and the products of the farm system should consider all the costs of the farm system not just the one player’s salary

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