November 7, 2013

The BP Wayback Machine

Today's Oxymoron is Free Agents

by James Click

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James Click explained why free agents are often costly in the piece reprinted below, which was originally published as a "Crooked Numbers" column on November 10, 2005.

There's been a lot of talk this winter about how weak the new free agent class appears to be. A.J. Burnett is being hyped as the only possible starting pitcher available, while Brian Giles and Paul Konerko are likely to command the highest figures for hitters. There are quite a few proven closers available, but whereas last year's market featured legitimate options at nearly every position, this year's crop is severely lacking. If teams are smart, they'll curtail spending and avoid costly bidding wars for resources overvalued by their scarcity.

That's all well and good, but we all know that's not how the baseball market works. There is a long list of reasons why teams choose to rearm even with terrible markets facing them. The competition may be entering a downward phase, new ownership may need to make a good impression on the fan base to keep ticket sales up, or--in the manner of budgets in any business--teams with money may spend it just to justify having it available again next year. As such, prognosticators are already proclaiming financial doom for teams investing heavily in pitchers with injury histories, aging outfielders, or a slow-footed first baseman coming off a career year.

They're right. Investing in the free agent crop this winter is going to cost teams millions of dollars, but the reason isn't necessarily that this year's group is so inferior, but that free agency, by its very nature, forces teams to overpay. The current reserve clause prevents players from reaching free agency until their late 20s or early 30s, exactly when they're typically about to begin their decline phase. That, combined with the extremely limited number and quality of players available and the effects of an auction-style system, means nothing but money for the players. But more importantly, it means that no matter how good the available talent is, teams are going to overpay. That's not to say that signing free agents is never a good idea, but a wide variety of factors have to align to make participating in the free agent market a good decision for most teams.

As such, let's look back at last winter's free agent class and see how things shook out. Nate Silver used PECOTA projections and the full list of last year's free agents to determine a quick formula to estimate the market value of wins. Now, rather than applying it to PECOTA projections, we can apply it to players' actual WARP totals from last season and see which teams ended up being the most valuable and which the least when compared to the rest of this free agent class. But rather than looking at all players who were available, this time let's just concentrate on the cream of the crop, as measured by ESPN. The "Value" column is the estimated market value of each player's performance in 2005 as measured by WARP and Nate's formula. "Net" is "Value" minus the player's 2005 salary (as reported by Hardball Dollars). I'll just list the top and bottom ten players by "Net" here. The full list is added at the bottom.

                       2005 Salary
Player           Team  (millions)    WARP   Value    Net
Carlos Delgado    FLO    $ 4.00       6.7   12.25    8.25
Roger Clemens     HOU    $18.00      10.2   26.24    8.24
Placido Polanco   PHI    $ 4.60       6.6   11.92    7.32
Richie Sexson     SEA    $ 4.50       6.5   11.60    7.10
Jeff Kent         LAN    $ 8.00       7.4   14.63    6.63
Bob Wickman       CLE    $ 2.75       5.6    8.93    6.18
Esteban Loaiza    WAS    $ 2.90       5.1    7.59    4.69
Kevin Millwood    CLE    $ 7.00       6.3   10.98    3.98
Paul Byrd         ANA    $ 5.00       5.3    8.11    3.11
Omar Vizquel      SFN    $ 4.60       5.1    7.59    2.99
---
Troy Percival     DET    $ 6.00       0.6    0.32   -5.68
Jaret Wright      NYA    $ 7.00       0.1    0.04   -6.96
Nomar Garciaparra CHN    $ 8.25       0.9    0.53   -7.72
Eric Milton       CIN    $ 8.00       0.3    0.14   -7.86
Carl Pavano       NYA    $ 9.00       0.9    0.53   -8.47
Edgar Renteria    BOS    $11.00       1.8    1.41   -9.59
Carlos Beltran    NYN    $17.10       5.0    7.33   -9.77
Russ Ortiz        ARI    $10.00       0.4    0.20   -9.80
Magglio Ordonez   DET    $12.00       2.3    2.05   -9.95
Adrian Beltre     SEA    $17.00       4.1    5.23  -11.77

Of the 50 available free agents, 49 of them signed major league contracts (Tony Batista decided to head for Japan) that paid them just over $330 million in 2005 alone, an average of nearly $7 million. As Nate noted in his updated formula, teams are willing to pay a premium for the top tier of free agents because of the talent pyramid in baseball. The more WARP you can cram into a roster spot, the more valuable that player becomes, not only because the WARP is going up, but because roster spots and playing time are limited resources.

There was just one problem with this approach: the top tier of free agents didn't play like it. Instead, the "Top 50 Free Agents" averaged just under 3.5 WARP as a group. Just looking at hitters, 141 batters totaled more than 3.5 WARP in 2004, or nearly five per team. Of the top 50 free agents in 2004, only 15 hitters (60% of the total number of hitters) hit for more than 3.5 WARP. What that means is teams that bought hitters on last year's free agent market had only a 60% chance that the newly purchased bat would be better than their fifth best hitter already on the roster. The ratio is about the same for pitchers, though on a slightly different scale: there were 131 3.5+ WARP pitchers in 2004 but only 12 of last winter's free agents topped that number in 2005.

What's more, the total of the "Net" column above is -$70.9 million, indicating that if we only consider 2005 salary and performance, teams overspent by about $1.45 million per player. Obviously only looking at the first year of the contract doesn't tell the entire story, but remember that contracts are often back-loaded, players signed as free agents are usually 30 or older and likely to decline, and performance projections past the next season are hazy at best. Even with all those advantages working for them, teams still drastically overvalued the top tier free agent class, getting a positive return on only 18 of 49 players signed (37%). It's certainly possible that Nate's formula has undervalued the ability to pack as many wins as possible into one roster spot, but given the overall unimpressive performance of last year's crop in 2005, that's not likely the case. Last year's free agents, a group thought to be of good talent and a few overpaid pitchers, has been a bust so far.

Next year, we're likely to look back at this time and see that the big names in the free agent class of 2005 didn't work out well either. But that failure isn't a result unique to this winter; it's the problem inherent in the system. As we saw last winter, even when there appears to be a healthy number of viable superstars, there are precious few free agents who contribute at the 5-6 win level. If anything, maybe the weak options available will remind teams that there are other ways to acquire players. But more than likely, teams will revert to the oldest of all solutions: throwing money at the problem.

ESPN's Top 50 Free Agents (2004) Ordered by "Net":

                       2005 Salary
Player           Team  (millions)    WARP   Value    Net
Carlos Delgado    FLO    $ 4.00       6.7   12.25    8.25
Roger Clemens     HOU    $18.00      10.2   26.24    8.24
Placido Polanco   PHI    $ 4.60       6.6   11.92    7.32
Richie Sexson     SEA    $ 4.50       6.5   11.60    7.10
Jeff Kent         LAN    $ 8.00       7.4   14.63    6.63
Bob Wickman       CLE    $ 2.75       5.6    8.93    6.18
Esteban Loaiza    WAS    $ 2.90       5.1    7.59    4.69
Kevin Millwood    CLE    $ 7.00       6.3   10.98    3.98
Paul Byrd         ANA    $ 5.00       5.3    8.11    3.11
Omar Vizquel      SFN    $ 4.60       5.1    7.59    2.99
Jermaine Dye      CHA    $ 4.00       4.6    6.35    2.35
Pedro Martinez    NYN    $13.55       7.7   15.71    2.16
Vinny Castilla    WAS    $ 3.00       4.0    5.01    2.01
Jeromy Burnitz    CHN    $ 5.00       4.6    6.35    1.35
Jon Lieber        PHI    $ 6.25       4.9    7.08    0.83
Derek Lowe        LAN    $ 7.50       5.2    7.85    0.35
Orlando Cabrera   ANA    $ 5.00       4.1    5.23    0.23
Matt Morris       SLN    $ 2.50       2.7    2.64    0.14
Matt Clement      BOS    $ 6.58       4.6    6.35   -0.23
Juan Gonzalez     CLE    $ 0.60       0.0    0.00   -0.60
Moises Alou       SFN    $ 7.25       4.7    6.59   -0.66
Troy Glaus        ARI    $ 8.25       5.0    7.33   -0.92
Steve Kline       BAL    $ 2.50       1.6    1.19   -1.31
Odalis Perez      LAN    $ 3.00       2.0    1.66   -1.34
Orlando Hernandez CHA    $ 3.50       2.3    2.05   -1.45
Tony Womack       NYA    $ 2.00       0.7    0.39   -1.61
David Wells       BOS    $ 9.00       5.0    7.33   -1.67
Brad Radke        MIN    $ 9.00       5.0    7.33   -1.67
Kris Benson       NYN    $ 7.00       4.1    5.23   -1.77
Jose Lima         KCA    $ 2.50       0.5    0.25   -2.25
Jason Varitek     BOS    $13.20       6.2   10.67   -2.53
Armando Benitez   SFN    $ 4.10       1.4    0.98   -3.12
Jose Valentin     LAN    $ 3.50       0.2    0.09   -3.41
Corey Koskie      TOR    $ 5.50       2.3    2.05   -3.45
Paul Wilson       CIN    $ 3.60      -0.4   -0.13   -3.73
Cristian Guzman   WAS    $ 4.20      -0.2   -0.07   -4.27
Richard Hidalgo   TEX    $ 5.00       0.7    0.39   -4.61
Steve Finley      ANA    $ 6.00       1.1    0.70   -5.30
J.D. Drew         LAN    $11.00       4.3    5.66   -5.34
Troy Percival     DET    $ 6.00       0.6    0.32   -5.68
Jaret Wright      NYA    $ 7.00       0.1    0.04   -6.96
Nomar Garciaparra CHN    $ 8.25       0.9    0.53   -7.72
Eric Milton       CIN    $ 8.00       0.3    0.14   -7.86
Carl Pavano       NYA    $ 9.00       0.9    0.53   -8.47
Edgar Renteria    BOS    $11.00       1.8    1.41   -9.59
Carlos Beltran    NYN    $17.10       5.0    7.33   -9.77
Russ Ortiz        ARI    $10.00       0.4    0.20   -9.80
Magglio Ordonez   DET    $12.00       2.3    2.05   -9.95
Adrian Beltre     SEA    $17.00       4.1    5.23  -11.77