December 19, 2003

6-4-3

Hart to Hart

by Gary Huckabay

In case you've been living under a rock, it's been a pretty interesting couple of weeks in the news. If you've been feverish, like most of the populace of California's scenic Contra Costa County, you may have observed that a bombastically hirsute Alex Rodriguez was liberated from a sort of cave/hutch just north of Tikrit and west of Odessa by a U.S. Army strike force, who then checked him for ticks, packaged him in a box, and shipped him to Worcester, where he was unpacked by Larry Lucchino and Gene Orza, then shipped back to Houston, Texas, where he was awarded a Hummer by noted conservative talk show host Michael Savage.

The more coherent among you are aware that the Boston Red Sox and Texas Rangers have been discussing a deal that is, at its center, Manny Ramirez for Alex Rodriguez.

Since both players have very long, lucrative contracts, money has been a significant component of the deal. So let's dive in and take a look:

The two key players here have contractual obligations that look like this:

MANNY RAMIREZ

                             Present Value
Year           Salary     (Assuming 4% hurdle)
2004       20,500,000.00    $20,500,000.00
2005       20,000,000.00    $19,230,769.23 
2006       19,000,000.00    $17,566,568.05
2007       18,000,000.00    $16,001,934.46
2008       20,000,000.00    $17,096,083.82
2009 OPT   20,000,000.00    $16,438,542.14
2010 OPT   20,000,000.00    $15,806,290.51

So, if this deal goes through, Tom Hicks will be obligated to pay $90,395,355.55 in present value to Ramirez through the 2008 season. I'm going to assume for the sake of this comparison that the club will not exercise its 2009 and 2010 options on Ramirez, and that Rodriguez will not void his deal after 2007.

ALEX RODRIGUEZ

                             Present Value
Year            Salary    (Assuming 4% hurdle)
2004        21,000,000.00   $21,000,000.00 
2005        25,000,000.00   $24,038,461.54 
2006        25,000,000.00   $23,113,905.33 
2007        27,000,000.00   $24,002,901.68 
2008 PLOPT  27,000,000.00   $23,079,713.16 
2009 PLOPT  27,000,000.00   $22,192,031.88 
2010 PLOPT  27,000,000.00   $21,338,492.19 
2011         6,719,581.90    $5,106,329.98 
2012         5,375,665.52    $3,927,946.14 
2013         4,031,749.14    $2,832,653.47 
2014         4,031,749.14    $2,723,705.26 
2015         5,375,665.52    $3,491,929.81 
2016         5,375,665.52    $3,357,624.82 
2017         5,375,665.52    $3,228,485.41 
2018 PLOPT   4,031,749.14    $2,328,234.67 
2019 PLOPT   4,031,749.14    $2,238,687.18 
2020 PLOPT   4,031,749.14    $2,152,583.83

Some important items about Rodriguez's contract: First, the payments from 2011-2020 are deferred salary from the year ten years previous, with a compounded APR of 3%. Hence, Texas owes the salary from 2011-2013, and whoever has the contract in each subsequent year will owe the salary during the year ten years later. So, taking that into consideration, some amounts to keep in mind:

• Remaining contract encumbrance, without deferred salary, net present value: $158,765,505.78
• Remaining contract encumbrance, with deferred salary, net present value: $178,286,756.75
• If Rodriguez was gone today, Texas would still owe deferred salary of, net present value: $11,866,929.59
• Remaining contract encumbrance, if Rodriguez voids deal after 2007 season, net present value: $104,957,013.85

Now, let's take a look at the recent performances of Manny and Alex, along with our forecast for their 2004, and the most salient statistic of all--age.

                   Manny           A-Rod
Year            Age     VORP    Age     VORP
2001             29     66.0     25     97.3
2002             30     74.3     26     90.9
2003             31     69.2     27     86.3
2004 (Projected) 32     57.1     28     83.2

I don't really understand why Tom Hicks, John Hart, or Grady Fuson wants to make this deal. Ramirez is significantly older, inhabits a much easier defensive position to fill, plays it badly, is more fragile, has a skill profile of a player who could drop off a cliff offensively, and is just plain far more replaceable than A-Rod.

Someone asked me a question at the NorCal Mock Winter Meeting: couldn't Texas be more cost effective and just as well off by just finding somewhere else to get the 25 runs difference between the two? Well, it's not quite that simple, for three reasons:

1. There are other constraints beyond mere cash. The market of talent has to have the appropriate player out there to be a replacement. At shortstop, who is that? Miguel Tejada's gone, for a lot of money, to a team that might end up being the most expensive and best fourth place team in baseball. By all reports, Nomar Garciaparra isn't coming back to Texas in any potential deal. Maybe Bill Bavasi's Magical Dystrophy Tour can stop by Arlington and drop off Carlos Guillen, who we're forecasting for a VORP just over 20. Perhaps Rich Aurilia can make his way to Arlington, but at what cost? We've got him pencilled in for the same general neighborhood as Guillen.

   In short, the dyad of (Crappy Corner OF + Good Defensive Shortstop) is a lot easier to maximize starting with Alex Rodriguez than it is starting with Manny Ramirez. Is it $88 million easier? Maybe; all the money in the world won't do you any good if what you want to buy isn't for sale. Ask anyone who's died rich and ill. I don't see the shortstop out there to fix the problem--MLB's talent market consists of discrete, real life selections, not the tail end of a smooth, abstract binomial distribution.

   Of course, building a team isn't about maximizing the production of two players, but structurally, is Ramirez's contract less burdensome than Rodriguez's? It's still huge no matter what, and the constraints on what options are available are still in place, no?

2. Forecasting error falls on A-Rod's side. He's much younger, in baseball years. He's also demonstrated durability, something Ramirez hasn't shown much of lately. Historically, his comparables have aged significantly better. BP's exclusive PECOTA forecasts show A-Rod with an 8% chance for a "collapse" in 2004. Ramirez? He comes in with a tidy 38%. (Forgive the ostentatious flaunting of the PECOTAs. I'm looking over them as a whole for the first time, and I'm a little fixated, like that creepy dad with the cover of his daughter's new Britney CD.)

   To simplify: Manny's more likely to fall off a cliff than A-Rod.

3. The money would likely to go waste anyway. Think about it: has the John Hart/Grady Fuson regime in Texas shown any skill at identifying and signing talent at a reasonable price? Some names from the past: Chan Ho Park (who's the real reason behind much of this maelstrom in the first place), Jay Powell, Todd Van Poppel, picking up Einar Diaz and his contract...it's not a litany that causes one to bubble over with optimism.

I'm not convinced that this deal won't end up hamstringing the Rangers for years to come. One account of the driver for the whole deal is Tom Hicks' honor. If you haven't heard it, it's basically that Hicks has offered to try to move A-Rod because Hicks promised him he would try to win and wouldn't cut salary. Personally, I like to believe that. I think A-Rod's a Hell of a lot better bargain at his salary than Ramirez is at his, and if Mr. Hicks is willing to damage his financial and competitive state to live up to his word, then he's a stand-up guy, even if it ends up looking like a strange salary dump.

And no matter what happens, Texas isn't going to be playing in the postseason, and Boston is. Based on past history, this deal, if it has any impact at all, will free Texas up to spend too much money on a pitcher that's either ineffective, injured, or both. This deal isn't going to suddenly bring Tim Hudson, Jason Schmidt, and Mark Prior to Texas, nor is it going to undo the ravages of injury and time inflicted on Rusty Greer's battered bones. So if you're Texas, and A-Rod doesn't insist on leaving, you don't make this deal.

It's going to be interesting to see how things actually shake down. This has the potential of being the biggest trade of my lifetime, and it's both good and bad that money and intrigue have become such a big part of it. I do know two things: 1) from a tactical perspective, I think the OCB played this much better than I expected, and 2) Gene Orza isn't paid enough.

What am I getting at? Simply this: this whole exercise looks like Tom Hicks being a stand up guy and trying to live up to a three-year old promise, even when it's not convenient. If that's true, and I hope it is, hats off to Tom. I can't blame him for wanting to do so as inexpensively as possible.

Gary Huckabay is an author of Baseball Prospectus. 
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