Analyzing the Early Free Agent Market

Free Agency seemingly just started and already three players of note have signed on to contracts with new (or the same) teams. The interesting thing to consider about these free agent deals isn’t so much where the players have gone, though that is intriguing, but rather how much money they’ve signed for and what it means for other free agents and MLB teams.

Discuss free agent contracts and how they affect the O’s on the BSL Forums.

Marlon Byrd and Carlos Ruiz both agreed to contracts with the Phillies, while Tim Hudson signed a two year deal with the San Francisco Giants. All 3 moves garnered relatively significant attention for a few reasons.

Marlon Byrd

Byrd was the first free agent domino to fall, and MLBTradeRumors had the details on his signing:

The Phillies have signed free agent outfielder Marlon Byrd to a two-year, $16MM deal, according to a team release. The deal includes an $8MM option for 2016 that vests if Byrd gets 600 plate appearances in 2015 or 550 plate appearances in 2015 and a total of 1100 plate appearances in 2014 and 2015. If the option does not vest, it becomes a team option.

There’s a lot to wrap your head around in there, so let’s take it piece by piece. The deal is essentially a two year deal with an $8 Million Average Annual Value (AAV) with a vesting/team option for $8 Million in 2016. That option vests based on plate appearances, and if it doesn’t, the Phillies get a chance to decide if they want to bring back Byrd for another $8 Million.

Reaction to the Byrd signing was mixed, with many fans thinking that 1 Year and $5 Million or so was a more appropriate deal for Byrd. The thing is, most in baseball seem to be caught up in 2010 where free agent wins cost a team about $5 Million a piece. In reality, that number is likely much closer to $7 Million per win on the free market. Philadelphia likely paid a bit of a premium to lock Byrd up so quickly, so let’s say the extra $1 Million / year is that premium. That leaves us with a deal that essentially requires 1 WAR per season from the player as a break even point.

Marlon Byrd produced 4.1 WAR last season, a year in which his batting line was undoubtedly buoyed by a near career high BABIP. It’s not likely that he’ll post a BABIP north of .350 again in 2014 or 2015, though he has done that 3 times in his career thus far. It’s likely that he’s worth that deal in any given year if he plays a full season. He will also need to play roughly two full seasons in order for the third year to vest. If he does not, Philadelphia holds all the power with a team option and no buyout.

In reality, it seems that the deal is about right, and if Byrd continues to produce Philadelphia could have a solid bat in the outfield for the next three seasons at a reasonable cost. Again, worst case scenario Philadelphia about breaks even on this deal, but there’s certainly upside for the club here. If the going rate for wins on the free market is $7 Million, then Philadelphia made a solid move in bringing on Byrd.

While many around baseball cried foul when Byrd signed his deal, FanGraphs crowd-sourced his projected contract at 2/$15M, which is almost exactly equal to the deal he eventually signed. If you take my $1M/year bonus for signing quickly, that puts the FanGraphs crowd right on the money. Additionally, MLBTR projected that Byrd would receive the exact contract he got from the Phils, minus the vesting option of course.

Carlos Ruiz

Ruiz was re-signed by the Phillies after spending his entire career with the club. Once again, reactions were mixed as Ruiz signed a deal that exceeded what many had projected for him prior to the free agency period began. MLBTR was one of the most pessimistic on Ruiz’s chances, suggesting that a deal in the range of 2/$14M would be what Ruiz would get, with Russell Martin’s 2/$17M being his ceiling. The FanGraphs crowd had projected Carlos Ruiz at exactly that, a 2/$17M deal that matched what Russell Martin got last offseason.

Once again, MLBTR has all the details on the signing:

ESPN’s Jayson Stark provides a breakdown of the contract (on Twitter). Ruiz will earn $8.5MM annually from 2014-16, and the fourth-year option is for $4.5MM with a $500K buyout. The contract includes a very limited no-trade clause, as Ruiz is able to block deals to four clubs.

Ruiz can earn an additional $500K each season by appearing in 125 or more games behind the plate, tweets Jim Salisbury of CSNPhilly.com.

For those keeping score at home, that bring the total to 3 years and $26 Million, with the ability to earn a bit more if he stays behind the plate for the majority of the deal. This greatly exceeds all expectations out there, and since Ruben Amaro, Jr. was the GM behind the signing, it was immediately labeled crazy. Dave Cameron suggests that’s not the case however, providing some perspective on the signing.

Ruiz has been very valuable over the past few seasons, despite being old for a catcher, and missing 25 games due to a suspension. Looking exclusively at the numbers, Ruiz posted 17 WAR from 2009 to 2013, ranking him 6th in baseball during that time. Among those 6 players, 2 won’t be catchers any more (in any real capacity) as Napoli and Mauer have or will be moving to 1B/DH on a more permanent basis. With McCann a candidate to move depending on where he lands in free agency, the argument could be made that Ruiz will be the 3rd best catcher over the past 5 seasons who is likely to stay at the position over the duration of his next contract.

Ruiz had an absolutely awful 2013, in that he only posted 1.4 WAR, his lowest mark since 2008. It was also the first time since 2008 that he posted a wRC+ below 100 as his offense was 11% worse than league average. That said, the seasons between his worst ones were terrific, and can best be described by quoting MLBTradeRumor’s free agent profile:

Among those who caught at least 250 games from 2010-12, Ruiz is tops in all three slash stats: batting average (.303), on-base percentage (.388), and slugging percentage (.454).  Ruiz was about as good a hitter as Joe Mauer was during that time, and easily better than Yadier Molina, Miguel Montero, Brian McCann, or Matt Wieters.  On a rate basis using weighted on-base average, Ruiz’s offense was on par with non-catchers like Billy Butler, Nick Swisher,Carlos Beltran.  He topped Ryan Zimmerman, Dustin Pedroia, David Wright, Curtis Granderson, Shin-Soo Choo, Nelson Cruz, and many other very good hitters in wOBA during that time.  FanGraphs wins above replacement puts Ruiz’s total 2010-12 contribution on par with Wright, Prince Fielder, Jose Reyes, andCarlos Gonzalez.  Though Ruiz’s work went under the radar, he was recognized with MVP votes in each of the 2010, ’11, and ’12 seasons.

We’re talking about a guy who, had he signed last off-season, would have been looking at a deal with an AAV well over $10 Million, with a total cost coming in north of $50 Million.

The deal he signed with the Phillies however essentially requires Ruiz to play three seasons at last year’s level of production in order to break even. If Ruiz can put together anything resembling 2010, 2011, or especially 2012 over this next deal, it could very well end up being a steal for the club.

Tim Hudson

When reports of a Tim Hudson deal first hit Twitter, rumors were abound trying to explain who he had signed with and for how much. It was no secret that Hudson was looking for a multi-year deal with his hopes of reaching 250 wins. The question though was who would he sign that with, and for how much.

The first report I saw had Hudson signing with an unknown team for 2 years and $35 Million. My gut reaction was “Wow”. Then I thought about it some more, and decided that if the mystery team think Hudson can produce 5 WAR in their ballpark over two seasons that the deal wasn’t completely crazy.

Turns out it was, as Hudson’s deal with the San Francisco Giants was for 2 years and $23 Million. I’m sure Hudson would have preferred the rumor I first saw.

Once again, we’ll go to MLBTR for the details:

The Giants made another move to fortify their rotation by signing right-hander Tim Hudson to a two-year, $23MM contract.  Hudson will earn $11MM in 2014 and $12MM in 2015, and the deal contains a no-trade clause.

At $23 Million I instantly thought the Giants had done a great job of securing a good talent in Hudson for a reasonable cost. I wasn’t alone in my praise for the Giants, who much like the Phillies have a track record of questionable signings. The vast majority of people though felt that Hudson’s deal was a huge overpay, that you couldn’t rely on the 38 year old pitcher for much over the next two seasons.

MLBTR’s prediction for his contract was 1/$9 Million, which clearly missed the mark well on the low side all things considered. FanGraphs users said they’d sign him to an even smaller 1/$8 Million deal, but at least offered the likely scenario where he signed a 2/$17 Million contract somewhere. These predictions likely set the benchmark to which his actual deal was compared, providing some of the explanation for why people thought it was an overpay.

Looking at the numbers though, we see that there’s more to this than it seems. If we take the $7 Million rough figure I mentioned above as the free market cost of a win, we’re looking at just over 3 wins in 2 years for the deal to break even. Last year Hudson put up 1.7 WAR despite having his season cut short by an ankle injury. There was only one full season in Hudson’s career where he posted a WAR below 2, and that was back in 2005 where his ERA was 3.52. It’s reasonable to assume that Hudson could’ve posted a WAR between 2 and 2.5 last year, and that over two seasons a total of 5 WAR is reachable for him.

His skill set won’t be greatly affected by his age, so I see no reason why he won’t be able to post solid numbers for San Francisco. He’s also going to a better park for pitchers, so it would seem that this move further improves his potential to pitch well over his next deal.

Again, as with the Ruiz and Byrd deals we should consider the fact that there could potentially be a premium in there for signing quickly.

 What Does it All Mean?

Some have claimed that the $25 Million+ in new TV money is burning a hole in the pockets of owners, leading to extreme spending in free agency. On face value that seems like it might be a valid hypothesis.

Based on the above though, I don’t think that’s necessarily true. All of these deals have merit, and a decent chance of breaking even. In Free agency, when there are more free market forces impacting a signing, teams aren’t likely to get a positive ROI on their investments. Breaking even is often the goal here, and teams are willing to take a loss in later years to get production in the early years of a contract. Also, the cost of a win here is more than you’d expect because of those market forces. If we assume that $7 Million per win is roughly the cost of a win on the free market, these deals make sense from a pure baseball production standpoint. You get superior value out of cost-controlled young players (like Machado) and reliable production at a higher cost from free agents.

If we assume that $7 Million per win is roughly the cost of a win on the free market, these deals make sense from a pure baseball production standpoint.

That doesn’t mean that the O’s are all of a sudden going to be in the bidding for big time free agents. It just means that fans and analysts can no longer look at deals through the lens of $5MM/win. Costs on the market are higher, and that should be taken into account when looking at these deals.

For the O’s, it could mean that player you expected to make $10 Million over two years is really going to get $14 Million. That’s not a sign of TV money burning holes in MLB pockets; it’s a sign of teams valuing wins on the market differently than we have in the past.

If the team is operating on a $100 Million budget as has been rumored, it makes it difficult for them to add value without blowing the budget on the free agent market. That’s why the team will likely continue to employ its strategy of signing cheap players with upside like Kelvin De La Cruz. Cruz is a cheap option who could have a significant impact on the MLB roster. The O’s problem is that they already have a large group of players who produce just about even production to what their salaries call for. This is ok when your budget is $150 Million, but not when it’s closer to $100 Million.

The team will need to be smart about its acquisitions, and even smarter about the types of players it commits itself to. At the end of the day, the club will need to replace guys whose salaries match their production. Otherwise they’ll soon be a 70-win team again, without the salaries to match.