Matt Swartz | MLB Trade Rumors

Arbitration Breakdown: Nolan Arenado

By Matt Swartz | January 8, 2017 at 5:51pm CDT

Over the next few days, I will be discussing some of the higher profile upcoming arbitration cases. I will rely partly on my arbitration model developed exclusively for MLB Trade Rumors, but will also break out some interesting comparables and determine where the model might be wrong

Rockies third baseman Nolan Arenado earned $5MM last year, but after belting 41 home runs, knocking in 133 runs and hitting .294 in 696 plate appearances, he is due for a hefty raise. The record raise for a second-time-eligible position player on a one-year deal is Chris Davis’ $7.1MM increase in 2014. My model actually projects for an $8.4MM raise in Arenado’s case; however, the “Kimbrel Rule” – which states that no player gets projected for an increase over $1MM higher than the record raise for his service class – moves Arenado down to an $8.1MM raise (a $13.1MM salary).

Davis’ 2014 case is by far the most applicable to Arenado’s. Aside from those two, no other player eligible for his second year of arbitration has led his league in home runs and RBIs. Davis hit .286 with 53 homers and 138 RBIs the prior year, so his numbers are similar except for clearly having more HRs. However, Arenado does play a harder defensive position than Davis, a first baseman, and the former actually won a Gold Glove last year. So there is a good reason to think that Arenado could earn more, especially three years later. But the 12 fewer home runs signify that it is less than a sure thing.

Finding another comparable is extremely difficult. No other third basemen since 2009 have even hit 20 home runs and received one-year deals in their second year of arbitration eligibility. No other position players have hit at least 35 home runs and received one-year deals in their second year of arbitration eligibility.

Using players receiving multi-year deals is generally not customary in these cases, but can be done in some unique circumstances. Often when both the player and the team exchange numbers, the club’s offer can be seen as a potential comparable case. Josh Donaldson’s case last year could be one such scenario. Donaldson hit the exact 41 home runs that Arenado did this past year, and knocked in 123 runs (just 10 shy of Arenado’s total). He also hit .297, which is almost exactly where Arenado landed. Donaldson ultimately received a multi-year deal, but he first exchanged figures with the Blue Jays, who offered a $7.05MM raise. Donaldson’s two-year deal gave him a $7.35mM raise. He did win the MVP in his platform year, so that could be a better case, but the multi-year deal probably makes it a weaker comparable. On the other hand, Donaldson only requested a $7.5MM raise, so it would be hard to see why Arenado would get more without an MVP award.

I would guess that Arenado ultimately receives closer to a $7MM raise than the $8.1MM he is projected to land. Davis’ extra home runs and Donaldson’s MVP award help their cases look stronger than Arenado’s, and even though Donaldson got a multi-year deal, his exchange of salary figures with the Jays fit into a pretty tight window. Arenado may argue that Donaldson’s case is not applicable, and that Davis’ extra home runs came with less defense, but it might not work. Although fielding is certainly considered in arbitration cases, I have not found any statistically significant impact of defense on earnings and the overall effect is limiting. Arenado may yet earn his lofty projection, but I would take the under.

Photo courtesy of USA Today Sports Images.

Arbitration Breakdown: Jake Arrieta

By Matt Swartz | January 8, 2017 at 10:10am CDT

Jake Arrieta enters his third and final year of arbitration this winter with a hefty $10.7MM base salary following his 2015 Cy Young Award season. While his 2016 campaign was less stellar, Arrieta still posted a very respectable 3.10 ERA in 197.1 innings, along with an 18-8 record and 190 strikeouts. As a result, my model projects him to get a $6.1MM raise and earn $16.8MM for 2017.

Finding comparable pitchers to Arrieta’s platform season is tricky. His $6.1MM raise would be the second-highest ever for a third-year eligible starting pitcher — Max Scherzer got an $8.8MM raise after his Cy Young Award-winning season three years ago. Scherzer’s 21-3 record, 2.90 ERA, 214.1 innings and 240 strikeouts (plus the Cy Young Award itself) combine to put an obvious ceiling above Arrieta. There is no way Arrieta is going to get anywhere near Scherzer’s $8.8MM raise, but where the Cubs ace falls below that number is difficult to discern.

Aside from Scherzer, the next highest raise in this service class (excluding the anomalous and stale case of Carlos Zambrano in 2007) belongs to Jeff Samardzija, who got a $4.46MM raise in 2015. Samardzija posted just a 7-13 record that season, but with a 2.99 ERA in 219.2 innings to go along with 202 strikeouts. While Arrieta’s 2016 season fell twenty innings short of Samardzija’s 2014, Arrieta’s 11 extra wins suggest he should easily top Samardzija’s raise.

Doug Fister in the 2014-15 offseason could be an interesting comparable because his win total is more applicable to Arrieta’s case. Fister received a $4.2MM raise after winning 16 games in 2014. Fister’s 2.41 ERA bested Arrieta’s mark from this past season, though Arrieta significantly outpaced Fister in innings (197.1 to 164) and strikeouts (190 to 98). Alfredo Simon got a $4.05MM raise that same year with 15 wins and 196.1 innings, but his 3.44 ERA is less impressive than Arrieta’s, and his 127 strikeouts are far weaker too.

One plausible comparable could be Justin Masterson, who got a $4.07MM raise after a strong 2013 campaign — 14-10 record, 3.45 ERA, and 195 strikeouts in 193 IP. While the innings and strikeouts are a reasonable comparison, the record and ERA are clearly a step behind Arrieta.

Overall, we see a very obvious ceiling at $8.8MM with Scherzer way above Arrieta, and a series of pitchers in the low $4MM-raise range that clearly represent a floor. Where Arrieta lands is a mystery, but it would surprise me if he achieved the $6.1MM raise as projected by the model. I think a $5MM raise makes a lot of sense based on these comparables, and maybe $5.5MM since he clearly has a much better case than all of the $4MM-raise pitchers, though $6.1 million seems a little too high. Look for Arrieta to land somewhere closer to $16MM in 2017 than the nearly $17MM the model expects.

Arbitration Breakdown: Manny Machado

By Matt Swartz | January 7, 2017 at 10:48pm CDT

Over the next few days, I will be discussing some of the higher profile upcoming arbitration cases. I will rely partly on my arbitration model developed exclusively for MLB Trade Rumors, but will also break out some interesting comparables and determine where the model might be wrong.

Manny Machado enters his second year of arbitration eligibility with a $5MM base salary and a strong case for a solid raise. My model projects him to reach $11.2MM, good for a $6.2MM raise, after an All-Star campaign with a .294 batting average, 37 home runs and 96 runs batted in. The model is a useful tool here, and probably came up with a reasonable guess, because so few comparables are appropriate for Machado’s platform year.

Position players like Machado generally receive multi-year deals in lieu of one-year pacts once they reach their second year of arbitration. In the last decade, only 10 players have hit at least .280 and belted 30 homers going into their second year of arbitration eligibility, and a full seven of those 10 received multi-year deals before reaching agreement on a single-year number.

Only two of those cases have occurred since 2007 – Jacoby Ellsbury in 2012 and Chris Davis in 2014. Ellsbury received a $5.65MM raise, while Davis’ salary grew by a full $7.05MM. Both players had better platform years than Machado. Ellsbury hit .321 with 32 home runs, 39 stolen bases and 105 RBI. Davis hit .286 with 53 blasts and knocked in 138. Ellsbury’s case is probably stale, however (it is now five years old), so even though he only received a $5.65MM raise there is reason to expect Machado could eclipse that number. Davis’ case is only three years old, and it’s harder to argue that Machado should get a bigger raise. The model, in fact, does not believe this to be true.

With Ellsbury’s case stale and Davis’ looking more like a ceiling, it makes sense to look for a floor for Machado. But it is difficult to find one. In the last three years, no other second-year-eligible player has received a single-year deal with a raise larger than the $2.77MM that Daniel Murphy received. But Murphy had only clubbed 13 homers and hit .286. While he had stolen 23 bases, he only knocked in 78 runs. Clearly Machado should get a far larger raise than Murphy.

Going back further, Hunter Pence in 2011 is a longshot possibility for a floor. He received a $3.4MM raise after posting a .282/25/91 line. Pence’s case was clearly inferior, and the six-year gap between his case and Machado’s certainly makes him a floor.

It’s clear that Machado is likely to earn less than Davis’ $7.05MM raise, but he’s also likely to get more than Pence’s $3.4MM increase. There is an argument that Machado should earn less than Ellsbury’s $5.65MM raise, but given the five-year lag between the two cases, that may not be applicable anyway. I suspect that the model’s $6.2MM projected raise is as a reasonable of an estimate as we can expect for Machado’s unique situation. It falls short of Davis, but with Machado playing better defense at a harder position, he probably will not fall all that far short despite the significant gap in power numbers.

Photo courtesy of USA Today Sports Images.

Arbitration Breakdown: Todd Frazier & Eric Hosmer

By Matt Swartz | January 7, 2017 at 3:58pm CDT

Over the next few days, I will be discussing some of the higher-profile upcoming arbitration cases. I will rely partly on my arbitration model developed exclusively for MLB Trade Rumors, but will also break out some interesting comparables and determine where the model might be wrong.

Two corner infielders, Todd Frazier and Eric Hosmer, enter arbitration this offseason after completing two-year deals that paid them each $8.25MM in the latter year (including a prorated portion of Frazier’s signing bonus). Both had solid years as power hitters, and my model projects each to receive a raise of $5.25MM for Frazier and $5.05MM for Hosmer, to $13.5MM and $13.3MM, respectively).

Only ten position players in the past decade have received additional single-year salaries through arbitration after receiving multi-year deals earlier in their eligibility. Most of these players had poor seasons, and only five of these ten have met these criteria since 2009.

As a result, it’s difficult to find good comparables for the situations in which Frazier and Hosmer find themselves. Perhaps the best match would be Prince Fielder, who received a $4MM raise in 2011 after a solid season in which he batted .261 with 32 homers and 83 RBIs. Frazier actually had more home runs last season but a worse average, posting a .225/40/98 line with 15 steals, while Hosmer was very similar at .266/25/104.

It’s rare for six-year old cases to be used in arbitration hearings, so Fielder is probably not a great match. However, applying some salary inflation to his $4MM raise suggests the model’s projections for Frazier and Hosmer are probably somewhat reasonable.

We can also check if players going to arbitration following multi-year deals fare better or worse than players who have been going year to year, and the evidence here suggests looking for regular comparables among the year-to-year group is reasonable. The average raise for the ten players coming off multi-year deals was $1.6MM, compared to projected earnings of $1.5MM. This difference is not significant enough to worry about a systematic bias. Therefore, looking for comparables in the year-to-year group makes sense to pin things down more precisely.

Of course, it is rare for power hitters to go year to year at all, so few players emerge as possibilities. No one in the last three years has entered their third or fourth year of arbitration eligibility coming off a platform year with 20 home runs and 90 runs batted in. A couple players did so in 2013, including Chase Headley, who received a $5.1MM raise after a .286/31/115 campaign with 17 steals. Hunter Pence only got a $3.4MM raise after his .253/24/104 campaign the year prior. Pence could prove a reasonable comparable for Hosmer’s .266/25/104, which suggests Hosmer’s $5.05MM projected raise is probably high. However, Headley clearly did not do all that much better than Hosmer in his platform year, and both cases are old, so it remains possible that Headley is the better comparable and a $5MM raise is reasonable.

Frazier’s case is tricky in that no one in the last decade has entered their third or fourth year of arbitration eligibility with a batting average below .260 and at least 30 home runs. Although Frazier’s batting average was much poorer, I have found that batting average is a somewhat less important criteria than ran home run totals in arbitration, so I believe Frazier’s case is strong. I think Headley’s 60 points of batting average probably roughly offset the nine fewer home runs, and a $5MM raise or slightly higher does seem more believable for Frazier.

Three players in the last decade have gotten $5MM raises as part of multi-year deals—Jose Bautista, Carlos Pena, and Matt Kemp. However, none of them are great comparables, since they all had much better numbers than either Frazier and Hosmer. Additionally, multi-year deals are generally not used in arbitration hearings, although they may be in these instances where comparables are tough to find.

Ultimately, I think both Frazier and Hosmer have good cases to top Fielder’s $4MM raise and either could make a case for being near Headley’s $5.1MM raise. I suspect Hosmer may fall short of his projected $5.05MM raise, and get somewhere closer to $4.5MM—which would put him around $12.75MM. Frazier’s 40 home runs allow for more upside, and his $5.25MM projected raise to $13.5MM seems like a reasonable estimate.

Arbitration Breakdown: Addison Reed

By Matt Swartz | January 7, 2017 at 9:30am CDT

Modeling arbitration salaries is an inexact science, and sometimes “inexact” is too generous of a description. Setup man Addison Reed’s projected $5.3MM raise to $10.6MM is clearly one of those times. Even worse is that the model was only saved by the “Kimbrel Rule,” which states that a player can only beat the record salary for their service class by $1M in the model. The raw model projected a $5.8MM raise. Reed is going to get a far smaller raise than he projected, because the peculiarities of his case confuse the model so much.

Reed’s case is unique because he has 106 career saves but had 40 holds this year in lieu of working as a closer. Further, he struck out 91 batters in 77.2 innings while posting a microscopic 1.97 ERA. Relievers who have a career of closing success behind them tend to out-earn those who have a single good year as closers. So the model gives credit to career save totals, which boosts Reed’s projection significantly.

He is, however, unlikely to get extra credit for those saves in real life. Remove those career saves, and the model projects him for a $3.6MM raise. That’s still large, but much more reasonable.

Reed’s 40 holds this year put him in elite company on their own. In the last decade, only three relievers entering their third year of arbitration eligibility have even accumulated 30 holds—David Robertson in 2014, Tyler Clippard in 2014, and Mike Adams in 2012. They had 33, 33, and 32 holds, respectively, and earned raises of $2.12MM, $1.88MM, and $1.87MM. Their ERAs were strong as well: 2.04, 2.41, and 1.47, as compared with Reed’s 1.97 ERA total. The extra holds suggest Reed’s raise will be worth significantly more than Robertson’s $2.12MM.

That establishes a floor for Reed, but looking for a ceiling is tricky with a lack of relievers amassing 40 holds or anything near it. To find a potential ceiling, we can look to closers who pitched similarly. Among closers who had ERAs under 2.00 like Reed, only one name emerges from the last five years—Aroldis Chapman. He had 33 saves and a 1.63 ERA in 2015, with 116 strikeouts in 66.1 innings. Chapman got a $3.27MM raise. Although Reed had seven more holds than Chapman did saves, he had a higher ERA and fewer strikeouts.

Putting this together, it makes sense that Reed should fall somewhere between a $2.12 and $3.27MM. I suspect right in the middle at $2.7MM would make sense, putting him at $8MM. It is a far cry from the model’s $10.6MM projection ($11.1MM ignoring the Kimbrel Rule), but it definitely would be a healthy raise for Reed’s third year of eligibility.

Arbitration Breakdown: Cole, Odorizzi, McHugh, Fiers

By Matt Swartz | January 7, 2017 at 12:04am CDT

As I discussed in my write-up on Jacob deGrom and Carlos Martinez, it has been difficult for starting pitchers to top Dontrelle Willis’ arbitration salary of $4.35MM in his first year of arbitration eligibility back in 2006. Dallas Keuchel finally broke that record last year, but otherwise many pitchers have fallen short. In many cases, pitchers have gotten close only to sign multi-year deals to remove themselves from the list of comparables, and other times they have settled for numbers at or just short of Willis’ old record.

My model has trouble with these symbolic barriers, and I have written many articles about why pitchers projected to earn slightly more than $4.35MM would earn slightly less. Mathematical modeling is a science, but it does not pick up on the psychological nuances of a precedent being broken. It remains to be seen whether Keuchel’s new record makes it easier for pitchers to out-earn Willis—and Carlos Martinez this year could be a great case. However, despite Gerrit Cole of the Pirates, Jake Odorizzi of the Rays, and Collin McHugh and Mike Fiers of the Astros all projecting near the $4.35 mark—Odorizzi and McHugh are projected slightly above it—I suspect all four will earn slightly less than their projections because of this barrier.

All four of Cole, Odorizzi, McHugh, and Fiers have at least 30 career wins, 500 career innings, 400 career strikeouts, and 100 platform year innings. All of them also have relatively average ERAs in the 3’s or 4’s. None won the Cy Young Award last year. There are only four such pitchers who met these criteria to receive one-year arbitration deals as first-year starting pitchers in the last three years, and all four earned in a tight range of $3.63MM to $4.35MM. These include Shelby Miller, Chris Tillman, Mike Minor, and Jake Arrieta. It is difficult to see any of these four pitchers falling out of that range.

Gerrit Cole is projected to earn $4.2MM, but his case is somewhat unique in that he had a relatively weak platform year despite a strong career. He went 7-10 last year, but his 47-30 in his career. His 3.88 last year is worse than his 3.23 career mark. He only threw 116 innings with 98 strikeouts last year, but he has thrown 579.1 innings with 538 strikeouts in his career. Good comparables will include players with high career wins but low platform year wins. Ivan Nova is a reasonable comparable, although he earned just $3.3MM three years ago. He had a 9-6 record with a 3.10 ERA in 139.1 innings, but was 38-20 in his career with 4.04 ERA in 517 innings. Cole’s career numbers are definitely much better than Nova’s, but Nova makes sense as a floor. I suspect Cole will get a raise over Nova’s salary plus some extra money for inflation and will end up in the $3.5MM to $4MM range, probably right in the middle—well short of his arbitration projection of $4.2MM.

Jake Odorizzi went 10-6 last season with a 3.69 ERA in 187.2 innings along with 166 strikeouts. He only has 30 career wins, fewer than the other three guys on this list, but he does have 562 career innings and a 3.75 career ERA, along with 516 strikeouts. His best comparable is probably Doug Fister four years ago, who also won ten games and had a similar ERA at 3.45. Fister also had 30 career wins and a 3.48 ERA in 610 career innings. Fister struck out over a hundred fewer batters in his career at the time he earned $4MM exactly, so adding in some salary inflation should be Odorizzi comfortably in the low 4’s. However, it is hard to find a reason why Odorizzi would top Matt Harvey, David Price, Shelby Miller, or Chris Tillman, all of whom earned between $4.32 and $4.35MM. My model projects Odorizzi at $4.6MM but my gut says $4.2MM.

Collin McHugh had a 4.34 ERA last year and has a 4.13 career ERA, so his run prevention resume is unimpressive compared to the other pitchers in this group and many other potential comparables. However, McHugh won 13 games last year and has won 43 in his career, which is a rare feat. There are only two pitchers in the last six years who have won at least 12 games in their platform years and 40 in their careers while having ERAs above 4.00. These include Ian Kennedy, who earned $4.26MM in 2013, and Tommy Hanson, who earned $3.72MM in the same year. Kennedy’s numbers are largely similar to McHugh’s, but slightly better in many aspects. Hanson was slightly behind McHugh in most categories. Given how stale these comps are, I think McHugh should pass the midpoint of around $4MM, but I also see him struggling to make a case for besting $4.35MM. I think something like $4.1MM or $4.2MM is likely, which is also below his $4.6MM projection.

Michael Fiers 4.48 platform year ERA will definitely dent his case, although his 3.87 career ERA is more impressive. He also has 11 platform year wins and 34 career wins, along with a platform year of 168.2 innings with 134 strikeouts. Jeremy Hellickson’s 2014 case is a great match. He had only one fewer loss, although Hellickson’s 5.17 ERA is definitely much worse than Fiers’ 4.48. His 39 career wins to that point best Fiers, but his 409 career strikeouts fall far below Fiers’ 542. Hellickson earned $3.63MM back in 2014, so with a more impressive platform year ERA plus three years of salary inflation, we would expect Fiers to easily top Hellickson’s salary. It is difficult to find much evidence that Fiers will hit his $4.3MM projection, though, since many of the pitchers in that range have much better cases than he does. I suspect he may be able to get close to $4MM, but probably not top it.

All four of these pitchers are likely to earn a few hundred thousand dollars less than they are projected to earn. My arbitration model tends to miss these sorts of subtleties, and a longstanding symbolic barrier at $4.35MM definitely has skewed salaries in this range down a few hundred thousand dollars. Keuchel’s new record is much higher than Willis’ old record, but several other pitchers will probably need to top $4.35MM before the model results are smooth enough that we can stop shaving money off these projections.

Arbitration Breakdown: Jacob deGrom & Carlos Martinez

By Matt Swartz | January 5, 2017 at 11:22pm CDT

Ever since Dontrelle Willis received $4.35 million in arbitration in 2006, it has been hard for first-time eligible starting pitchers to top his salary. The record stood for ten years, until last year Dallas Keuchel took home $7.25 million following a Cy Young Award-winning season. In the decade since Willis received his record first-year salary for starting pitchers, many pitchers have come extremely close to hitting his $4.35 million or have actually hit it. David Price matched Willis’ $4.35 million in 2012 and Shelby Miller did so last year. Seven other starting pitchers have earned between $4 and $4.35 million in the last decade as well.

Other pitchers who would likely have exceeded Willis’ record received multi-year deals, which usually removes them from consideration when looking for comparables. Tim Lincecum and Clayton Kershaw were both coming off Cy Young seasons when they received multi-year deals, and Lance Lynn and Cole Hamels also received multi-year deals and subsequently missed out on breaking the record as well. Many elite starting pitchers are worthwhile candidates for multi-year deals, so it is not surprising that few of them actually receive one-year deals and become comparables. Among pitchers in the last decade with 30 career wins, 450 career innings, career ERAs below 3.50 and at least 100 platform year innings, five of nine signed multi-year deals before reaching agreement on one-year deals for their first year of salary arbitration.

Modeling arbitration salaries is obviously something that requires much precision, but the psychological barrier of $4.35 million is something that emotionless mathematical modeling will miss. As a result, I have written several articles over the years in which I explained that certain pitchers who were projected just over $4.35 million probably would not actually do so. Jacob deGrom and Carlos Martinez may be two such pitchers today, although Martinez is more likely to best that amount.

Jacob deGrom is coming off a mediocre platform year (for arbitration purposes) where he only won seven games amidst throwing 148 innings. Although his ERA was 3.04, lack of counting stats is likely to hurt his arbitration case. His career numbers may offset this—he has 30 career wins and a 2.74 ERA across 479.1 innings and has struck out 492 batters. He also won Rookie of the Year in 2014. His projection is $4.5 million, although I think there is good reason to believe that he will fall short of this.

Carlos Martinez has a much stronger case, and is projected to earn $5.3 million. He went 16-9 with a 3.04 ERA in 195.1 innings with 174 strikeouts, and has a career 34-21 record with a 3.32 ERA in 492.2 innings with 466 strikeouts. Few pitchers can match his performance, and he may be able to top the old record of $4.35 million, although he will come nowhere near the new record. The peculiarity of Martinez’ case is that is that there are no comparable pitchers with salaries in the range between $4.35 and $7.25, so he will be filling in some empty space if he does exceed the old Willis number.

In the last five years, there have only been five pitchers who had 25 career wins, 400 career innings, 400 career strikeouts, and career ERAs under 3.50 who did not sign multi-year deals. All five received between $3.97 and $4.35 million in arbitration. These include Shelby Miller at $4.35 million, Matt Harvey at $4.32 million, Doug Fister and Alex Cobb both at $4 million, and Stephen Strasburg at $3.97 million.

It is difficult to see a good reason why Jacob deGrom would earn above or below this range as a result. Although he had slightly fewer innings than all of them, Doug Fister in 2013 was coming off just 161.2 innings and Alex Cobb was coming off 166.1 innings. Both won 10 games, more than deGrom’s seven, but neither had a Rookie of the Year Award under his belt and deGrom’s career ERA is lower than both of theirs. He also has more strikeouts than either had in their careers at this point as well. As a result, I think he will probably top their $4 million salaries.

I think deGrom will struggle to top Matt Harvey’s $4.32 million from last season, though. Harvey had a better career ERA and a better platform ERA, along with many more platform innings. Something around $4.2 million seems likely for deGrom—below his $4.5 million projection.

Martinez, on the other hand, does seem like a likely candidate to top the five aforementioned starters’ earnings. None of them had more than 13 platform year wins, and Martinez had 16. His 3.04 ERA is in the middle of the pack for the group, but his 195.1 innings total is only bested by Miller. His 34 career wins are bested by Alex Cobb, but exceed the other four starters. His innings and strikeouts are similar to them as well.

All things considered, he has a clear cut case to beat the $4.35 million mark. Comparing him to Shelby Miller alone, he went 16-9 as compared with Miller’s 6-17 in his platform year. His platform year ERA was nearly identical and he threw only 10 less innings but had three more strikeouts than Miller. In his career, he has two more wins than Miller but 14 fewer losses. He also has a relatively similar ERA. Although he has thrown about eighty fewer innings, he has only struck out seventeen fewer batters. Martinez is likely to succeed in asking for a number higher than Miller’s $4.35. But given that the main difference is ten platform year wins, I believe he will probably not get the $5.3 million projection my model estimates. I think something between $4.5 and $5 million is likely for Martinez.

Both of these pitchers are projected for slightly more than they will probably earn. The symbolic barrier at $4.35 million is still a factor despite Keuchel’s new record, which was set up by his 232 innings of 2.48 ERA pitching and the hardware to match. Because of that, the model is likely to miss on starting pitchers near that until that symbolic barrier has been passed enough times.

Valuing 2016 Opt-Out Clauses

By Matt Swartz | March 28, 2016 at 8:51pm CDT

Back in January, I wrote an article in which I approximated the dollar value of the opt-out clauses in the contracts for David Price, Johnny Cueto, and Jason Heyward. Since then, five more contracts with opt-outs have been signed, so I have extended this analysis to put values on these opt-outs as well. These include contracts for Yoenis Cespedes, Justin Upton, Scott Kazmir, Ian Kennedy, and Wei-Yin Chen. Remember, these values are approximations of what these contracts would have cost without opt-outs. (Please reference the above-linked post for further explanation of the methodology.)

Too many people talk as though opt-outs are just bad decisions on the part of teams, without considering how much more expensive contracts would be without them. This logic would imply that no financial firm should ever sell a put—of course they should, but only at the right price.

The earlier three contracts were larger than almost all of the five more recent contracts. Other than Justin Upton, the other recent contracts were under $100 million, so the opt-out values are generally lower than the $17-22 million that I found for Price, Cueto, and Heyward. However, all five opt-out values all range between 10 and 15 percent of the full contract value, similar to the prior three deals.

The following table shows the assumptions surrounding the opt-outs, like the one in January’s article. (Mobile app users can click here to see it.)

Yoenis Cespedes received a three-year contract for $75 million, but it is really a $27.5 million one-year contract with a player option of a two-year, $47.5 million deal. Few players actually sign one-year deals for that much money, but as we saw a decade ago with Roger Clemens, one-year deals for superstars have an AAV much higher than the AAV superstars receive on longer deals. In this case, Cespedes would probably have been worth about $31.7 million on a one-year deal. At this stage, a reasonable estimate of Cespedes’ value for 2017-18 would be around $55.1 million. However, like with all of these deals, we know that it is very likely that Cespedes’ market value will change significantly by next year. Chances are that if he is good enough to opt-out, then he will have had a strong 2016 campaign, and his market value will be higher. I estimate this would be around $68.2 million for 2017-18 in that case. If he does not opt-out, then he probably has disappointed in 2016 and probably has lowered his two-year value for 2017-18 down to $36.9 million. With an estimated 60% chance of opting out, that puts Cespedes’ opt-out at about $11.8 million. In other words, a regular three-year deal for Cespedes would be for $86.8 million instead of $75 million.

Justin Upton’s contract six-year, $132.5 million contract with the Tigers amounts to a two-year, $44.25 million deal with a four-year, $85 million player option. As a relatively young free agent, Upton has the potential to remain very valuable by the time he reaches his opt-out, but as a unique talent he is a risk to regress to the mean significantly—there is more room for him to fall than mediocre players. I estimate that if he has opted out after 2017, he has played well enough over 2016-17 that his market value will be about $119.1 million over 2018-21, and if he has not opted out then it stands to reason he has played poorly enough that his market value for 2018-21 would be about $52.2 million. Further, I estimate that he has a 58 percent chance to opt out. As a result, Upton’s opt-out is worth about $19.7 million, meaning that his value in a six-year deal without an opt-out would be $152.2 million.

Scott Kazmir had a relatively small deal for one that included an opt-out. His deal amounts to a $16 million one-year deal with $32 million two-year player option. I estimate that if he has opted out after this year, then he must have played well enough in 2016 that his market value for 2017-18 probably reached around $44.1 million. On the other hand, if he has played poorly enough that he does not opt out, then I estimate his market value for 2017-18 must have fallen to around $21.7 million. I think there is a 46 percent chance he opts out. As a result, his opt-out value is only worth $5 million—so a regular three-year deal without an opt-out would probably have been for about $53 million.

Ian Kennedy’s $70 million five-year contract is actually a $27 million two-year deal with a three-year, $43 million player option. His contract values him significantly higher than his Steamer or especially his ZiPS projection on FanGraphs would suggest, making it challenging to estimate his value. However, it is safe to assume that the Royals are placing more value on him than the projection systems and that they probably expect that his 2016 value is higher. Furthermore, there must have been at least some pressure for another team (real or imagined) that caused the Royals to believe they had to offer as much as they did. So we need to estimate the equivalent value of a contract based on the what the Royals paid, rather than what ZiPS or Steamer (and up to 28 other teams potentially) seem to think. Based on this, if he has opted out after 2017, then there is a good chance that the Royals (and potentially the other team they imagined themselves outbidding) were right about him, but if he does not then there is a good chance the projection systems were right. I estimate that his value over 2018-20 would only be $15 million conditional on not opting out, while it would be about $57.7 million if he played well enough to justify opting out. I think the Royals estimate a 44 percent chance that he will opt out (again, another team bidding presumably thought something similar), making his opt-out value about $7.1 million. A five-year deal without an opt-out would probably be worth about $77.1 million.

Wei-Yin Chen has a tricky deal. Nominally he has a 5 year deal worth $80 million, but it is really a $28 million deal over two years, with a player option for $52 million over the following three years. However, if he does not opt out, then the team has an option for 2021 that will actually vest if he pitches a sufficient number of innings and is healthy. Putting a value on a vesting option that is conditional on having a low value after 2017 is tricky, but I believe I have come up with a reasonable estimate. I think that if he does opt out, his value for 2018-20 is probably about $60.4 million, while his conditional value if he plays poorly enough to not opt out would be $21.3 million over 2018-20. His vesting option at the end is essentially worth under $2 million to the team. I think that on a normal five-year contract for 2016-20, Chen would have gotten about $82 million, which means his opt-out value was about $12 million.

As these deals become more common, it becomes more important to properly value these put options. I estimate that these five deals would each have cost about 10 to 15 percent more for teams if they did not provide the players with opt-out clauses. Players with more years post opt-out and higher talent levels will generally have a larger value to opting out, while the inverse is true for players with fewer years post opt-out who are less talented. While these opt-outs are risky, they definitely provide an opportunity for teams to save money relative to mutually guaranteed longer contracts.

Arbitration Breakdown: J.D. Martinez

By Matt Swartz | January 15, 2016 at 9:46pm CDT

Over the last few weeks, I have been discussing some of the higher profile upcoming arbitration cases. I will rely partly on my arbitration model developed exclusively for MLB Trade Rumors, but will also break out some interesting comparables and determine where the model might be wrong.

After struggling earlier in his career with the Astros, J.D. Martinez has come into his own with the Tigers and had a career year in 2015, making a strong case for a large raise in his second year of arbitration eligibility. Martinez had 38 home runs and 102 runs batted in, while hitting .282. After earning $3MM in 2015, our model projects him to get a healthy $4.8MM raise to $7.8MM.

As it turns out, that projection does fall within the filing figures submitted today when the sides were unable to work out a deal before the deadline. But the model is closer to Martinez’s own $8MM submission — which would reflect a $5MM raise — than Detroit’s $6MM figure — which would give him just a $3MM bump.

As player and club work to reach a compromise — or, if not, to prepare for a hearing — they will be looking closely at similarly-situated past cases. But it is difficult to find reasonable comparables for Martinez. After a player’s first year of arbitration eligibility, arbitration salaries in subsequent years are generally based only on the most recent year. For Martinez, this puts him in an esteemed class of hitters who were in the signature 30/100 range for home runs and RBIs, most of whom get healthy raises. In the previous nine years, only two such players received one-year deals in arbitration—mainly because the other seven guys who would have been eligible inked multi-year deals instead.

Notably, both of those players had much better cases than Martinez: Chris Davis hit 53 home runs with 138 RBIs in 2013, leading to a $7.05MM raise, while Jacoby Ellsbury hit .321 with 39 stolen bases in addition to his 32 home runs and 105 RBIs in 2012, en route to a $5.65MM raise. These players certainly look like ceilings for Martinez, so it seemed unlikely he could pin down $5.65MM or above — a doubt that his representatives obviously shared, as reflected in the filing number.

However, nearly everyone else in Martinez’s service class in recent years appears to be a floor. In the last nine years, the third highest raise for a second-year eligible hitter who did not sign a multi-year deal went to Hunter Pence, who received only $3.4MM in 2011. He hit .282 with 25 home runs and 91 RBIs. Although Pence stole 18 bases, far more than Martinez’s three, I have found that power is much more important than speed in arbitration cases and Martinez’s superior power numbers should help him easily out-earn Pence’s $3.4MM raise. The fact that Pence’s cases was five years ago only makes that clearer.

Lucas Duda was another recent player with 30 home runs going into his second year of eligibility, but he only hit .253 and only had 92 RBIs, so his raise was just $1.6375. He seems like an even less relevant comparable.

The fact that no player in Martinez’s service class has gotten a one-year deal with a raise anywhere between Pence’s $3.4MM raise and Ellsbury’s $5.65MM raise made it difficult to tell how accurate our $4.8MM projection might be. It may be that some other player could be discussed as a comparable, but it is hard to see who’d be suitable.

In cases like this, there are often multi-year deals that teams and players are both willing to sign in the face of this type of uncertainty, so that could happen here — as they’ve previously discussed — especially now that there’s a fairly sizable gulf to bridge. But even in that case, it is not clear who could be a model, since most of the multi-year deals for similar power hitters have been inked earlier in player’s careers.

In the end, I view the $4.8MM raise as a reasonable mark, with the entire $3.4MM to $5.65MM range appearing defensible. Given the filed values, Martinez seems to have the more reasonable position, though both parties will have plenty of incentive to work something out rather than trusting the decision to an arbitration panel.

Photo courtesy of USA Today Sports Images.

Arbitration Breakdown: Dallas Keuchel, Shelby Miller, Matt Harvey

By Matt Swartz | January 15, 2016 at 8:25am CDT

Just like last year, our arbitration model expects three pitchers to break the decade-old record for starting pitchers reaching their first-year of eligibility for arbitration. As is generally the case, these pitchers are excellent extension candidates, and extensions are a big part of the reason why Dontrelle Willis’ $4.35MM arbitration salary from 2006 has stood this long as the record.

In reality, the record really should have been broken several times already. Most notably, Tim Lincecum was offered $8MM in 2010 when he requested $13MM upon exchanging figures with the Giants. He ultimately earned $9MM as part of a multi-year deal, but Willis’ record technically still stood, because Lincecum had not signed a one-year deal. Clayton Kershaw in 2012 was offered $6.5MM when requesting $10MM and ultimately signed a multi-year deal, giving him $7.75MM his first year. Just last year, one of the three pitchers projected to break Willis’ record, Lance Lynn, made $7MM as part of a multi-year deal, although it is less clear he would have earned that much had he not signed his three-year deal.

The strongest of the three cases this year is that of the reigning American League Cy Young Award winner, Dallas Keuchel. He went 20-8 in 2015 with a 2.48 in 232 innings. The only other two platform-year Cy Young winners in recent history have been Lincecum and Kershaw, but both of them clearly had stronger careers than Keuchel before winning their Cy Young Awards. Lincecum had a 2.90 career ERA and Kershaw’s career ERA was 2.88, while Keuchel only has a 3.58 career ERA and was at 4.16 before his Cy Young season. Similarly, Lincecum was 40-17 career at the time, and Kershaw was 42-28, while Keuchel is only 41-35.

In addition to Keuchel, two other pitchers are projected to top the $4.35MM record for first-time eligible starting pitchers. Shelby Miller only went 6-17 in 2015, but his 3.02 ERA in 205 1/3 innings in his All-Star platform year, along with his 3.22 career ERA in 575 1/3 innings give him a strong projection anyway. Matt Harvey went 13-8 with a 2.71 ERA in 189 1/3 innings in his platform year, and he has a 25-18 career record with a 2.53 career ERA in 427 innings. While Keuchel is projected to earn $6.4MM, Miller is projected to earn $4.9MM, and Harvey is projected to earn $4.7MM .

Despite no hurler topping Willis’ $4.35MM record, a number of pitchers have gotten very close in recent years. Five players in the last six years have landed between $4MM and $4.35MM on one-year deals, and many more have received multi-year deals. Comparing Keuchel, Miller, and Harvey with these five hurlers, along with a few other players who fell just short of $4MM will help figure out whether our projection for these pitchers is appropriate.

Keuchel seems like a safe bet to break the $4.35MM record if he does have a one-year award or goes to a hearing. David Price, who tied Willis’ $4.35MM record, was 14-10 with a 3.09 ERA in 224 1/3 innings in his platform year, which Keuchel bested in each category. Keuchel also has the same number of wins as Price did for his career at the time (41) and a similar ERA (3.38 for Price, 3.58 for Keuchel). Strengthening Keuchel’s argument is the fact that Price had nearly 100 fewer career innings when he tied Willis’ record.

Chris Tillman, who earned $4.32MM last year, did so after a 13-6 record with 3.34 ERA in his platform year and only a 4.00 career ERA with 45 career wins. Keuchel clearly should out-earn Tillman, Price and Willis handily, although he is likely to fall short of the respective $8MM and $6.5MM figures that were offered to Kershaw and Lincecum prior to their multi-year deals. I suspect Keuchel will miss the $6.4MM projection, but could easily get close to $6MM — comfortably establishing a new record.

Shelby Miller may have a harder time hitting his projection. I suspect that the model is struggling to find pitchers with an ERA as good and with as many innings who did not have many wins. A couple of recent comparables emerge, both of which had single-digit wins in their platform year with low ERAs. Stephen Strasburg in 2014 earned $3.97MM a couple years ago after going 8-9 with a 3.00 ERA in his platform year, but his 183 innings that year are short of Miller’s 205, and Miller’s 575 career innings handily top Strasburg’s 434.

Travis Wood earned $3.9MM two years ago with a 9-12 platform year record, 200 platform year innings and 564 career innings, although his career ERA was 3.83. Miller easily bests that mark with 3.22. Their platform year ERAs were similar, however, with Wood at 3.11 and Miller at 3.02. Miller also struck out a few more hitters than Wood had. Overall, both Strasburg and Wood getting just shy of $4MM two years ago with worse pre-platform performances suggests that Miller should get over $4MM, even if his $4.9MM projection will be harder to land. Most likely, he will end up between $4MM and the $4.35MM record, unless Keuchel or Harvey re-sets the market and pushes his number upward.

It’s difficult to find comparables for Harvey, partly because of his injuries and partly because his playoff performance in 2015 could help his case. Cole Hamels’ case after his 2008 playoff success (although he was the World Series MVP) would have been a good match, even though it is stale, but he signed a multi-year deal instead. He did earn $4.35MM in a multi-year deal that could be a useful comparison. Hamels similarly did not have many platform year wins despite a strong ERA — he went 14-10 with a 3.09 ERA, which compares somewhat favorably to Harvey’s 13-8 with 2.71. Hamels did have 227 innings though, compared with Harvey’s 189. On the other hand, Harvey’s 2.53 career ERA clearly outdoes the 3.43 ERA held by Hamels at the time.

Mike Minor got a one-year deal for $3.85MM a couple years ago after going 13-9 with a 3.21 ERA in 204 2/3 innings, although his 3.90 career ERA is clearly worse than Harvey’s. However, his 507 1/3 career innings at the time exceed Harvey’s 427.

It is not too challenging to make a case that David Price’s numbers when he got $4.35MM are similar to Miller and Harvey. Both Miller and Harvey possess superior ERA marks, although they each also had fewer innings. Harvey’s record was better (13-8 versus 12-13) but Miller’s was worse (6-17). Price’s 3.38 career ERA was similar to Miller’s 3.22, but Harvey’s 2.53 is better. On the other hand, Price and Miller had matching innings totals, while Harvey was about 150 innings short.

It does not seem obvious that Harvey or Miller can top the Price/Willis record, so I suspect both of them will end up in the $4MM to $4.35MM range. Obviously, if Keuchel shatters Price’s record in advance, Harvey or Miller could have a better opportunity to top that figure themselves, but I would bet the model’s projections for this pair ultimately proves to be too high.

Photos courtesy of USA Today Sports Images.

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