An Extension for Bedard?
As part of the never-ending rumor mill surrounding Bedard and the trade, there are now reports that Baltimore is considering offering him a long term contract, and will only go ahead with the trade if he turns it down. The Baltimore Sun threw out 7 years and $100 million as a possible figure. Since many people assume that the M’s would want to work out a contract extension with Bedard after acquiring him, I figured we should answer the question of what Bedard’s worth in terms of a long term deal.
Figuring out what a players worth is simply combining several calculations – how many wins will that player add to the roster and how much are those wins worth? Due to a lot of hard work by guys like Tango and others, these questions are actually pretty easy to answer.
If we assume Bedard stays healthy, then for 2008, he’s worth about 5 wins above what you could expect to get out of the Baek/Morrow/Ramirez/Rowland-Smith crop of pitchers – in other words, he’s a +5 win player when compared to replacement level. That’s his 2008 marginal win value.
How much is a marginal win actually worth in 2008? Approximately $2.5 million. Major League Teams are going to spend about $2.7 billion on their payrolls next year, when they would only spend about $360 million if everyone paid the league minimum to every player. So, they’re spending that extra $2.34 billion to try to win more games than their opponents. Since we know that a team full of replacement level, minimum salary guys could win about 50 games, the amount of wins a team buys beyond that 50 win mark are the marginal wins. So, there are approximately 930 wins in MLB to be bought, and teams will spend $2.34 billion to try to buy as many of those 930 wins as they can. $2.34 billion divided by 930 = $2.5 million. This has been the dollar value of a win for several years now – it hasn’t changed all that much.
So, if Bedard’s a 5 win pitcher, and a win is worth $2.5 million, then basic math tells us that Bedard is worth something like $12.5 million in 2008. That’s his actual value to the team in dollars.
However, market value doesn’t care so much about actual value, because MLB’s system is setup to steal money from young players and give it to older players. Since teams have these low cost young talents making far below their actual value, the extra cash savings from those players goes to the guys who are eligible to have their contracts decided either through arbitration or free agency. Since teams have money to fight over a limited pool of players, inflation kicks in, and the market value for a win is more like $4 million. That is, teams will pay $4 million for a win in free agency to fill out their rosters, hoping that the sum of their 25 man roster works out to something less than $2.5 million per win.
So, if we say that market value is $4 million per win, and Bedard’s still a 5 win player, that makes his market value for 2008 $20 million. You can see why the M’s want him so badly – a $12.5 million player (with a market value of $20 milllion) who could only ask for $8 million in arbitration is quite the bargain.
Now, because Bedard doesn’t have free market leverage yet, no team is going to want to get anywhere close to that $20 million per year figure by locking him up now. And Bedard, knowing that he’s only 12 months away from being able to demand something close to market value, isn’t going to want to give up his big payday for something close to his actual value.
So, in reality, an extension for Bedard will have to come in north of $12.5 million per year (to encourage Bedard to sign) and less than $20 million per year (to encourage the team to sign). If Bedard was only one year away from free agency, he could probably get closer to his $20 million figure, but since he’s two years away, the line will be closer to the $12.5 million mark.
In reality, I’d expect that neither the Mariners nor the Orioles will be willing to go past $14 million per year on an extension and for no longer than five years. That would put the deal at 5/70, far short of the 7/100 that has been tossed out as a starting point. After all, if Bedard will only command (estimates of) $7 million this year and $15 million next year, then both teams would have him under control for 2 years and $22 million, then by offering him 5/70, they’re really buying out his first three years of free agency for $48 million, or $16 million per year.
This is the decision Bedard will have to make – does he believe that the extra $4 million (or so) per year he’ll be able to command next winter after a successful, healthy season is worth the risk of having him blow out his arm and potentially lose out on a big payday. If he can get 5/70 now, or he can wait 12 months and try to get 5/100 then, is the shot at another $30 million worth the risk?
If I’m Bedard’s agent, I tell him its not – this is a guy with a long history of arm problems coming off the year of his life. The nature of pitching is so fragile that his $70 million could turn into $30 million very quickly, even if he stays healthy – just ask Dontrelle Willis or Josh Beckett.
So, if 5/70 (or something close to it) is the magic number at which Bedard should be signing a long term deal, is that a deal the M’s should be interested in?
Its a big risk, but I’d lean towards yes. I wouldn’t do much beyond 5/70, but at that point, I’d swallow hard and hope his elbow stays glued together.