Why Beltran Could Be Worth $20 Million a Season
published December 19, 2004
by David Luciani

While I spend a lot of time in these pages talking about baseball forecasting and fantasy baseball, occasionally it's necessary to return to the "real world" and in this case, it's the market price for big name free agents that motivates this essay.  A topic that has long interested me is the question of what a player is worth to a team, dollar-wise.  Part of my interest in this is because while my primary focus is on forecasting baseball performance, it's also indirectly tied to my belief that we could scientifically assemble a contending team in baseball given a minimum level of resources and a solid plan.

Bill James a few years ago laid a solid foundation for discussion about how many wins a player contributes to a team in his excellent (but even more statistically advanced than usual) book called Win Shares.  I enjoyed this book but I only recommend it to those readers who are the most die-hard fans of James' writing because, as some of us in his audience hoped, he actually explained quite a bit of the research and thoughts behind his eventual conclusions.  His research in this book has resulted in annual win shares for each player being published in the more familiar format of the Bill James Handbook, which is a book I strongly recommend to readers because it makes for easy access to all recent statistics.  It's published by Baseball Info Solutions, the company who provides big league statistics to Baseball Notebook and so I have a high degree of confidence in its data and I also happen to like the company and its owners, which is always a bonus.

I won't repeat James' arguments or conclusions (as they're his - not mine) but basically, when he publishes a win share, what he's saying is that a player's win share is equal to three times the number of wins he actually caused the team to win.  That is, if Roger Clemens had a win share of 20 in 2004 (which he did), that means that Clemens actually helped his team win about 6.7 games that they wouldn't have had he not been around.  Yes, I know Clemens was awarded 18 wins in 2004 but what James' system is doing is filtering out what the team would have otherwise won and determining what Clemens' real contribution was to the team.  The ultimate win share total is team-neutralized and also considers defense, which makes it an excellent tool.  You'd be surprised how consistent a player's win share total is from year to year too.

While I'm not entirely in agreement with the win share method, my own methods are certainly less refined than James and no doubt not as tested at this point and so I'm going to concede ground to him here for purposes of making a separate point in this essay.

One topic I've been exploring the past couple of years is how a big league team's payroll should be managed and I've made some preliminary conclusions that remain open to debate.  Basically, I've started with the following premises which certainly aren't rock solid:

• A team will win about 40 games a season no matter how bad it is and even putting together such a disastrous team would still cost more than $7 million a season for any team because it would have to pay 25 players around $300,000 a year just to go out there and lose games.
  

• A team that wins 100 games will be a strong contender for the playoffs right up to the final days of the season.
  

• A player's salary should be determined by the percentage contribution he makes toward winning those 100 games.

Now, if I'm to make consideration for what Bill James says a player contributes, in wins, I have to drop the first premise because I can't even presume those 40 wins because James isn't - even a bad major league player is still, as James has often said, well above average compared to the rest of the world baseball playing population (i.e. he's maybe the 2000th best player in the world).  That is, he doesn't have players typically contributing "negatively" because they take a team below that 40 win threshold.  So, here's my belief and how it applies to salary.  The sum of a team's salary should add up to achieving 100 wins of value.  That means that if a player could somehow be worth 50 wins to a team, and there's no such player, I believe he should be worth half of a team's payroll.

Let me get to a real example and talk about Carlos Beltran.  In that newest edition of the Bill James Handbook, Carlos Beltran is listed as having been worth 31 win shares last year, 28 in 2003 and 22 in 2002.  Remember that a win share is actually three times the number of "real" wins that a player contributed, meaning that according to James, Beltran added 10.33 wins in 2004 to his team (i.e. 31 / 3 = 10.33).  I'm not going to use a multi-year average here.  Let's go with a best-case scenario and presume that 2004 is a real expectation for Beltran's win contribution in 2005 and beyond.

Now, consider the New York Yankees.  Let's say that they decide that they can manage a $200 million payroll for 2005, which is about a $20 million increase over their 2004 total payroll.  That means they have $200 million with which to buy 100 wins.  If they add Beltran, and assuming they replace a player who otherwise would not have contributed (which is a big assumption on a team so good), it means that they're getting 10.33 wins, at best, or about 10.33% of their desired 100 wins.  Given a payroll of $200 million, that means that theoretically if they were filling a vacant position, Beltran could be worth $20,666,667 a season to them.  It means that they could justifiably consider him to be worth that amount of money if he plays as much and performs at the level he did in 2004 and if they are replacing someone who otherwise would not have contributed at all.

Just to put this in perspective, take the Astros for example.  We know that they do actually have the hole to fill and Beltran is their target.  But Houston had about a $75 million payroll in 2005 and are expected to have a budget of about $82 million for 2005.  That means that if Beltran contributes as much as 10.33% of the wins they need, that means that the fair price for Astros, assuming that the rest of the roster is paid at its actual contribution, is about $8.47 million per season, which in today's market is a lock not to happen at all.  Paying Beltran more means that they take the team off target for the goal wins and paying him "only" $8 or $9 million guarantees the team not to sign him.  If I were the GM, as much as I like Beltran, I'd take the second route and let him go.

I believe that there are a couple of teams in baseball who think this way and I believe they should.  What makes a team powerful is if it somehow manages to lock players under long-term contracts at less than their value so that each time opportunities come up, they can afford to overpay new players that help them achieve their win goal.  I believe the Cleveland Indians did this for much of the early 1990s and I believe Oakland and Minnesota has done it pretty much constantly the past five or six years.  Much like the "78% thinking" I've argued for in fantasy baseball, the more underpaid a real team's roster is, the more resources it can commit to acquiring those new remaining players (i.e. outstanding wins) it needs to be a contender.

What I find particularly interesting about this and how it applies to some recent free agent signings is how some teams are locking themselves into overpaying for players based on the number of wins they will contribute.  The Seattle Mariners, for example, were supposed to have a budget of about $94 million for 2005, up from only $81 million in 2004.  Adrian Beltre had a win share of 37 (or about 12.33 wins) in his fantastic 2004 campaign and most people don't even believe he can repeat it.  If he really is contributing about 12.33 wins and if the Mariners accepted that their goal was to even win just 90 games rather than 100 (and I believe that would be too risky), it would mean that Beltre, even if at 2004 form again next season, contributes 12.33 wins out of the 90 they need or about 13.7% of the wins they need.  Dedicating 13.7% of their planned $94 million payroll would justify about a $12.88 million contract for Beltre for the 2005 season.  His salary for 2005 is $10 million but he's also getting a $7 million signing bonus.  Consider Richie Sexson.  We certainly can't use his 2004 win share total because he missed most of the season but his best year was a win share of 26 in 2003 or about 8.67 wins.  Again, if the Mariners goal was just to win 90 games, that means Sexson would contribute about 9.6% of the wins they're targeting and given a team payroll of $94 million, should be worth about $9 million for the 2005 season, if the Mariners truly expect him to be back at his peak 2003 value.  In this case, he'll earn only $4.5 million for 2005 but with a $6 million signing bonus and then the contract escalates significantly in future years.

There is one particular team in baseball that always seems to think along similar lines in Oakland.  Every time I evaluate a trade or signing by the A's, and consider their entire roster, it always seems they are thinking this way.  I can't know for sure but I sincerely believe that teams who do will more consistently put a winning (and often surprisingly good) team on the field.  In Oakland, it seems that they are quick to recognize when a player's coming contract does not fit in line with such a target for wins.  I believe Oakland's front office does target more than 90 wins, maybe 100 wins even if there's no way to no for sure if they think so specifically.  Oakland had about a $60 million payroll in 2004 and though there's been no public confirmation of their budget, most insiders speculate that it's between $55 and $60 million so let's presume about $57.5 million for argument's sake.

Tim Hudson's best win share year, according to Bill James, was 23 win shares in both 2002 and 2003 and he dropped to 16 in 2004 but we'll use 23 so we have an approximate best-case scenario here.  Divided by three, as James says we should do, we end up with 7.67 wins or about 7.67% of what's needed to get our 100 win goal.  If a team had a $57.5 million budget, it could only pay such a player about $4.9 million per season.  That means when you see people talking about Hudson as a "bargain" for 2005 at $5 million, it is true that on a team with a bigger budget, he is a bargain but if the A's really did have only $57.5 million for 2005, Hudson was actually at slightly more than his projected peak value in terms of his contribution to the 100 wins.  To someone like the Braves, he's a bargain because the Braves have a much bigger budget.  Remember too that this value here is presuming Hudson repeats his top form of a couple of years ago.

Mark Mulder may have seemed to drop off significantly but according to James, his win shares have actually been quite consistent, peaking at 18 win shares for the years 2001-02.  That would mean about 6 wins per year.  If the goal is to win 100 games, that puts his maximum projected contribution at 6% or about $3.8 million a team with a limited budget like Oakland's.  He'll earn $6 million in 2005 so again, he doesn't fit into Oakland's win budget and they know it.  It means that keeping a player like Mulder around means that they theoretically have to find ways to significantly underpay other players and moreover, that $3.8 million Oakland value is based on a theory that he could repeat his best seasons.

One other team in baseball I've observed that has been trying to fall in line with this sort of thinking but has been hampered by a single contract in recent years is in Toronto and as it happens, General Manager J.P. Ricciardi came from the Oakland front office, which doesn't seem to be a coincidence.  Ricciardi has been weighed down by Carlos Delgado's contract the past few years, pretty much negating any possible attempt to create a contending roster.  I love Delgado as a player but the team paid him $19.7 million in 2004 thanks to the huge contract that the previous regime had set up for him.  To put that in perspective, the Blue Jays had a $50 million payroll in 2004 so Delgado was earning about 39% of the entire team payroll.  That should mean that he contributes 39% of the number of wins needed to be a contender.  Even if Toronto had ill-advisedly set a 90 win target in a division that contains the Red Sox and Yankees, it would mean that Delgado would have had to contribute 35 wins on his own just to justify his 2004 contract!  In his best season (2003), he contributed just 10.67 wins (or 32 win shares) and that means that projecting ahead to 2005, even if the Jays could have expected Delgado to return to top form and given their projected payroll of about $52 million, it means that a Toronto team that settled for just a 90 win goal could only justify paying Delgado about 11.9% of their payroll (i.e. 10.67 projected wins Delgado contributes out of 90 they would have needed to be a contender) or about $6.16 million per season, and that's assuming Delgado returns to top form and that 90 wins is enough to compete in this division, neither of which are guaranteed.

By letting Delgado go, the Blue Jays were able to actually use their full payroll now to build a contender, which will take time obviously.  You can have the money to spend but there might not be players available who fit into this sort of valuation model.  Corey Koskie, who signed with Toronto this off-season, will earn just $2.5 million in 2005 plus a $3 million signing bonus or about $5.5 million out of the team payroll for 2005.  If the Jays are targeting about 90 wins and have a $52 million payroll, Koskie would have to contribute about 9.5 wins to justify this contract, which is above any level at which he's ever performed.  However, his best year of 2001 saw him contribute 24 win shares or about 8 wins and it is possible that the Blue Jays feel the rest of their roster is undervalued enough that Koskie fits into the model.  For example, Vernon Wells has averaged about 6.3 wins worth of value over the past three years which would make him worth about $3.7 million if the Blue Jays are targeting 90 wins and yet he's earning just $2.9 million in 2005.  That's $800,000 worth of resources freed up by good contract management on the Blue Jays part, for example.

But what would Delgado be worth to the Yankees?  Let's say Jason Giambi becomes a hole they have to fill and that they believe Delgado's 2003 season is representative of his real ability.  A team like the Yankees could justifiably set a 100 win target and, even if they left their payroll at about $183 million which is what it was in 2004, they could correctly value Delgado at about $19.5 million per season!  It becomes easy to see why the big market teams can expect to do better if they think this way.  It means that the same player actually becomes worth more to the richer team.

Across town in New York, the Mets opened up their pocket book to Pedro Martinez.  The Mets had a payroll of just over $100 million last season and I've heard many conflicting reports on just how high they're willing to go for 2005 but let's say that somehow they push the payroll up to $120 million.  Pedro Martinez in his best season according to James' win shares (which was the 2000 season) contributed 29 win shares or about 9.67 wins.  If the Mets are expecting Pedro to go back to this form and let's say they target only 90 wins and somehow have a payroll of $120 million, it would mean that Pedro would be worth about $12.9 million for 2005.  The Mets haven't publicly broken down Martinez's contract on a per season basis yet but at about $52 million for four seasons, he wouldn't make more than about $13 million in 2005 as contracts tend to escalate from year to year.  There are a lot of "ifs" here - if 90 wins is enough to contend and if the Mets can carry a $120 million budget and if Pedro Martinez performs at top form - then you have a justifiable contract.  Let's change a few of these.  Let's say the Mets can still carry that theoretical $120 million budget but instead target a more appropriate 100 wins instead of 90 and that they expect Pedro only to perform somewhere between his 2004 and 2003 levels, which would average out to 18 win shares in James' model or about 6 wins.  That would then make Pedro only worth about $7.2 million a season to them, which would then make him significantly overpaid in terms of how their budget relates to their win goal.

Take this to one of their other rumored free agent targets in the earlier-mentioned Carlos Delgado.  If Delgado performs at his peak 2003 form of 10.67 projected wins and given a $120 million budget and a 100-win goal, that would make Delgado worth about $12.8 million for the 2005 season, at least worth that much to the New York Mets.  Rumors were that the team had offered Delgado $40 million over three seasons which would put his maximum salary for 2005 (if that offer had been accepted) at about $13.3 million, still above the peak projected value he would have even if Delgado returned to 2003 form.

Anyway, all of this isn't to say that salaries can be absolutely scientific and as I said, I'm not yet convinced the win share method is the best that can be done, though I so respect Bill James that I doubt we can do much better on our own.  I wanted to lay out here the reality of what I think is one possible payroll management system for real teams because there are a couple of teams in baseball who seem to be secretly thinking this way and if they aren't, there are frequent coincidences where these teams such as Oakland and Toronto (and less often in Boston, Minnesota and Los Angeles) seem to unload contracts that don't also happen to fit into this model.

I believe the salary model here is original but the win shares belong to Bill James and I encourage readers to check out either of those two books I mentioned.  As I say, the book that explains win shares is a bit more advanced and certainly if you think I'm overly scientific or mathematical sometimes, that book's not for you.  The other handbook should be on every shelf as it's not only a handy reference but in the back, it has published win shares for every player broken down by season.  It makes an excellent tool for evaluating your team's latest free agent signing and given what I've discussed here, you can have some fun rating the efficiency of a new contract.