Matt Swartz | MLB Trade Rumors

Arbitration Breakdown: Aroldis Chapman, Mark Melancon, Kenley Jansen

By Matt Swartz | January 14, 2016 at 8:25pm 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.

As young fireballers have gotten more opportunity to close, more arbitration cases with few comparables have emerged. Last year, I wrote about such a foursome of closers who had reached second-year arbitration eligibility, and this year I am writing about two of those closers, Aroldis Chapman and Kenley Jansen, along with Mark Melancon (who I wrote about separately last year). My arbitration model projects each of these pitchers to get raises between $4MM and $4.85MM this winter, each of which would break Jim Johnson’s current record of a $3.88MM raise for a third-year eligible closer.

Depending on how different statistics are weighed, they all have a compelling case to break this record. Johnson’s $3.88MM raise came after he had a 2.49 ERA and 51 saves in 68 2/3 innings, but Johnson struck out just 41 batters that season. He also only had 72 total saves at that point in his career. Although pre-platform performances generally do not matter outside of first-time-eligible arbitration salaries, one large exception I have found is career saves for closers. It is clear that having a history of being a closer matters, which means that Chapman’s 146 career saves, Melancon’s 121 saves, and Jansen’s 142 saves will all help them have better arbitration cases than Johnson did with 72 career saves.

Melancon also had 51 platform-year saves, matching Johnson’s 51 in his platform year in 2012. Along with his 2.23 ERA in 76 2/3 innings, he should have little trouble topping Johnson’s $3.88MM raise after his 2.49 ERA in 68 2/3 innings. Melancon’s $4.6MM projected raise seems about right.

Although Chapman only had 33 platform-year saves, his 1.63 ERA and aforementioned 146 career saves have led him to get an even bigger projected raise than Melancon. His projection actually slightly exceeded the Kimbrel Rule maximum, which is why he is projected for $12.9MM instead of the $13MM figure that was actually forecast by the model. In spite of the lower platform-year save total, Chapman’s vastly superior ERA and greater bulk of career saves give fair reason to assume he will probably get a bigger raise than Melancon, whose case is a straightforward improvement over Jim Johnson’s 2013 case. Both pitchers are likely to get raises between $4MM and $4.85MM.

Kenley Jansen is projected to land a $4MM raise, which would just barely top Johnson’s record. Jansen had 36 platform-year saves, but 142 career saves, so he has fewer platform-year saves but almost double Johnson’s career saves. His platform-year ERA (2.41) is a bit better than Johnson’s was, although it came in fewer innings (52 1/3 versus 68 2/3) due to the fact that Jansen opened the season on the disabled list with a foot injury. I could see Jansen failing to make the case that he should get a larger raise than Johnson did, although if Melancon or Chapman set new records, he could easily argue that those are more applicable comparisons.

It is difficult to find pitchers other than Johnson that would apply to this trio of players. Jose Valverde had 44 platform-year saves going into his 2009 case, in which he earned $3.3MM, and he did have 142 career saves. However, his ERA was 3.38. A year prior to that, Francisco Rodriguez had a $2.95MM raise with similar numbers, but that case would be even more stale than Valverde’s. Joel Hanrahan got a $2.94MM raise with 36 saves going into his 2013 case, but he only had 96 career saves at that point. Johnson’s case against appears more applicable for all three of these closers.

Each of these three players could set the market for each other, so their raises are likely to be highly interdependent. They are also likely to set the market for future closers, now that more players will presumably reach their third year of arbitration eligibility with a career of closing behind them. I think that my model probably has appropriately guessed their salaries for 2016, but if it is wrong, it will probably be either too high on all three, or too low on all three.

Photos courtesy of USA Today Sports Images.

Arbitration Breakdown: Nolan Arenado

By Matt Swartz | January 14, 2016 at 3:07pm CDT

Over the next few weeks, 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.

Nolan Arenado broke out offensively in 2015 with 42 home runs, 130 runs batted in and a .287 batting average to go along with his third Gold Glove Award. Arenado was not a prolific power hitter before this year, so he only has 70 career home runs, including this year’s 42. This jump in power in his third year in the league is unique and makes it harder to find appropriate comparables for him when building an arbitration case. Our model has him at $6.6MM, but I could easily see this being either a big miss or a big win for the model.

It has been eight years since the last time a hitter entered his first year of arbitration after clubbing at least 40 home runs in his platform year. That was when Ryan Howard beat the Phillies in an arbitration hearing to earn $10MM. However, Howard also had been a power hitter for over two seasons beforehand and had 129 career home runs, nearly twice as many as Arenado brings to the table. It seems very unlikely that Arenado could get $10MM.

Another case that is old enough that it might not be applicable is Ryan Ludwick from 2009, although his numbers are at least closer to Arenado in that he had a huge jump in power in his platform season. Ludwick’s 37 homers in his platform season were five fewer than Arenado his this season, but the two had identical marks of 28 homers combined in their careers prior their platform arbitration year. Ludwick also had a lower career batting average, 34 fewer career RBIs and 17 fewer RBIs in his platform season, although he did post a higher average in his platform (.299). All that said, Arenado should surpass Ludwick’s $3.7MM by a substantial margin.

Another thing that makes Arenado unique is his defense. No player in my dataset, which goes back nine years, has had three Gold Gloves before reaching arbitration eligibility. Only Matt Wieters had two, and he was a catcher. Wieters did earn $5.5MM, and while he’s a totally different position than Arenado at third base, the concept that he had such a high salary with one fewer gold glove and worse power numbers (23 HR, 83 RBI platform year; 65 and 249 career), could help Arenado argue that he deserves more. However, it is rare that a catcher would be a comparable player for a third baseman.

Few other players seem like reasonable comparables. Chris Carter hit .227 with 37 home runs and 88 RBIs in his platform year in 2014, and had a career average of .222 with 85 home runs and 216 RBIs. Carter got $4.175MM. Other than career home runs, Arenado clearly has bested Carter on all of these fronts. Pedro Alvarez had very similar numbers the year before that (.233/36/100 platform, .235/86/268 career) and got $4.25MM, making that $4.175-4.25MM range seem like something of a floor in Arenado’s case.

How much higher than $4.25MM we would expect Arenado to go is tricky. Dan Uggla got $5.35MM in 2009, with a worse platform year (.260/32/92) but decent career numbers (.262/90/270). However, the age of that case makes it a potentially stale comparison. Giancarlo Stanton had only 24 platform year home runs when he got $6.5MM, but he had 117 career home runs at that point. Mark Trumbo had 34 platform year home runs, but 95 career home runs, although his batting average was just .234 in his platform year. None of these players can boast the defense that Arenado can, either.

Another factor that could play into Arenado’s case is where Manny Machado lands. Machado is similar to Arenado in that he had an explosion of power in his platform year, hits for average, and plays third base very well. Both of these players are likely to earn similar amounts, although Arenado led the league in home runs and runs batted in, plus he has three Gold Gloves, which should give him a leg up on Machado. Both players will pay careful attention to where the other guy considers signing. Ultimately, I suspect both will fall short of their projected salaries (Machado’s projected $5.9MM is $700K less than Arenado’s $6.6MM projection). However, if one player does indeed reach his projection (which is certainly possible), the other is likely to have a better chance to do so as well.

Photo courtesy of USA Today Sports Images.

Arbitration Breakdown: Manny Machado

By Matt Swartz | January 13, 2016 at 7:56am CDT

Manny Machado has reached arbitration eligibility at the young age of 23, and has already put up solid numbers in his career, including a breakout year in 2015. Machado hit .286 this past year, which is not all that much better than the .278 career mark he had going in, but his 35 home runs more than doubled his career high. After Machado’s 51 doubles in 2013 suggested he would eventually show more power than the 14 home runs that accompanied them, injuries in 2014 limited him to 354 PA. As a result, Machado’s pre-platform performance and overall career numbers are not as strong as his platform year, which makes him somewhat of a tricky case. Few comparables cases present themselves, so although his $5.9 million projected salary seems plausible, it could easily miss by a lot.

Machado’s strong defense also makes his case trickier as well. Although my model has repeatedly shown that defense does not consistently affect arbitration cases, many of the hitters who could be considered comparables for Machado were far worse fielders, and this could certainly help him earn more than them. Just because the model does not prove the importance of any specific defensive statistic, that does not mean that defense never enters into a case—we know from firsthand reports that it does. Machado’s relatively low number of RBIs for a guy who hit 35 home runs also makes his case unique as well.

Perhaps the best comparable could be Chris Davis’ case three years ago, although nearly everything about Davis’ case is slightly worse. Davis hit .270 with 33 home runs and 85 RBIs, which is a near match of Machado’s .286/35/86 in his platform year. Davis also did not have many home runs pre-platform, so his career 77 home runs at the time are not much different than Machado’s 68. However, Davis’ career average of .258 is way below Machado’s .281. Davis also plays an easier defensive position than Machado. However, the Orioles could certainly try to argue that Machado should not out-earn Davis’ $3.3 million award by too much.

Although it was seven years ago, Ryan Ludwick’s case looks very similar to Machado’s when Ludwick earned $3.7 million in 2009. He hit .299/37/113 in his platform year and had .273/65/209 career numbers, and although Ludwick’s platform numbers were slightly better, Machado’s career .281/65/215 is extremely similar. The Orioles could try to argue that a little salary inflation on Ludwick’s $3.7 million would put Machado between $4 and $5 million.

If Machado wants to argue for a salary closer to his $5.9 million projection, one potential comparable that Machado could consider is Dan Uggla, who had 32 home runs and 92 RBIs in his platform year before reaching arbitration eligibility, and who received $5.3 million. However, this was back in 2009 and cases that old are rarely used. Uggla also only hit .260, although he did have 90 career home runs, far exceeding Machado’s 68.

Another possibility Machado could use to try to push his salary closer to his projection, who is more recent than Uggla, is Giancarlo Stanton’s case just two years ago. Although Machado could be a similar match in terms of stardom, Stanton’s injuries kept him to 504 PA in his platform year and only 24 home runs, while he hit .249. He did have 117 career home runs though. While he played a different position, Stanton could be considered a comparable. He earned $6.5 million in 2014. Like with Uggla, the difficulty for Machado if he tries to argue for Stanton as a comparable is that both Uggla and Stanton had many more career home runs than Machado does.

Other potential comparables that Machado could use are Mark Trumbo, Chris Carter, and Pedro Alvarez, who all reached their first year of arbitration eligibility in the last couple years and earned $4.8, $4.175, and $4.25 million. They each hit between 34 and 37 home runs and between 88 to 100 RBIs in their platform year. Although they had more career home runs than Machado, ranging from 85 to 95 between them, their batting averages are much worse than Machado’s. They each hit between .227 and .233 in their platform year and between .222 and .250 in their careers. Machado could make the case that he had similar power to them, but a better average, so he deserves to have somewhere above $5 million.

It is difficult to find obvious cases where Machado exceeds his $5.9 million projection. There are a number of players with higher salaries who had similar platform years, but more home runs, while there are a couple of players who earned less money with career numbers that look similar to Machado, but whose cases are weaker in one way or another. Machado has a better batting average and defense than just about all of these players, including the players with more career home runs. However, I think Machado is probably likely to under-earn his projection.

A potential wild card that could come into play is a similar player who is also reaching his first year of eligibility this year, Nolan Arenado. With a similar breakout performance in 2015 along with strong defense at the same position, Arenado could easily help or hurt Machado’s case for arbitration this year if he reaches an agreement first.

Arbitration Breakdown: Josh Donaldson

By Matt Swartz | January 7, 2016 at 8:48am CDT

The reigning Most Valuable Player of the American League enters his second year of arbitration eligibility due for a healthy raise on the $4.3MM he earned in his award-winning season. Josh Donaldson hit .297 with 41 home runs and 123 runs batted in 711 plate appearances, with an All-Star appearance and a Silver Slugger Award to add to his MVP honors.

It was the third baseman’s first year with the Blue Jays after a solid career in Oakland, and he certainly made a great impression on his new employers. Now, they will have to pay up in his second year of arbitration. Our model and several knowledgeable sources have confirmed that after the first year of arbitration eligibility, most players’ cases are treated as raises based almost exclusively on the previous year’s statistics. This helps explain why the model projects that Donaldson will receive a $7.7MM raise to a total of $12MM, which would be a record raise for a second-time eligible player.

The model’s projection of a record raise seems appropriate. The current record belongs to Chris Davis in 2014, who did not win an MVP Award when received a $7.05MM raise. Davis did out-homer Donaldson, 53 to 42, and had 138 RBIs — 15 more than Donaldson — as well. But, Donaldson had a higher average, .297 versus .286, and played a harder defensive position (third base versus first base) and is known for his excellent defense. While defensive performance usually does not matter much in arbitration cases (other than position played), I believe that Donaldson should be able to use his defense and his hardware to argue that he should have a bigger raise than Davis did– probably something in line with the $12MM projection, I would guess.

The last hitter to enter his second year of arbitration eligibility after winning an MVP Award was five years ago, when Josh Hamilton earned a $5.5MM raise. Hamilton had hit .359 with 32 home runs and 100 RBIs, but in only 571 plate appearances. Donaldson’s 140 extra trips to the plate with nine more home runs and 23 more runs knocked in should help him argue for a much larger raise than Hamilton received on the heels of his MVP season in 2010. Even if Donaldson cannot effectively argue that his raise should be larger than Davis’ due to the power gap, he should have less trouble arguing that he is deserving of a bigger raise than Hamilton received five years ago.

Few other players seem likely to make better arbitration cases for Donaldson than Hamilton and Davis. As a result, I think the case will likely come down to an argument about whether Donaldson should get something like a $6MM raise to top Hamilton by a decent margin, or whether Donaldson should get a $7.5MM raise to set a new record beyond Davis. It’s unlikely that Donaldson out-earned the $12MM salary I have projected for him, but I think it is more likely than not that he is close to this range. If he cannot argue that his case is stronger than Davis, though, he might end up around $10.3MM — a hefty raise, to be sure, but a fair margin shy of the current record increase that our model currently projects.

Photo courtesy of USA Today Sports Images.

Arbitration Breakdown: Tyson Ross

By Matt Swartz | January 6, 2016 at 7:52pm CDT

Tyson Ross enters his third year of arbitration eligibility coming off a very strong performance but a weak win-loss record which, while not indicative of his actual talent and performance, still holds weight in the arbitration process. Ross finished below .500 with a 10-12 record, although he had a 3.26 ERA in 196 innings and struck out 212 hitters. The strong performance combined with his poor record have given our model some trouble this year, and I believe that the $4.75MM raise it projects him to get to reach $10MM for 2016 is probably too high. However, I do still think that Ross is due for a large raise.

One of the benefits of using a quantitative model to project arbitration salaries is that it enables us to get reasonably accurate estimates for players with atypical numbers. Few pitchers with ERAs as low as Ross have had losing records, and fewer still have been held to only 10 wins. However, the model still had some trouble with Ross this year. So, let’s examine a few pitchers that stand out as reasonable statistical comparables but got raises less than Ross’ projected $4.75MM.

Last year, Jeff Samardzija had a losing record of 7-13 despite a fantastic 2.99 ERA in 219 2/3 innings, ultimately resulting in a $4.46MM raise. Although he had 10 fewer strikeouts overall than Ross and obviously had three fewer victories, his ERA and innings were much better, and I suspect it would be tough to argue that Ross should get a raise $300K larger than the one awarded to Samardzija. If those three victories loom important, it’s conceivable that Ross will in fact hit his projection, but other players suggest more downside is possible.

Two other recent pitchers had exactly 10 wins in their third year of arbitration eligibility and also had about as many innings. In 2012, Matt Garza went 10-10 with a 3.32 ERA 197 strikeouts in 198 innings. He received a $3.55MM raise. Although Ross had two more losses, his case looks similar otherwise. More recently, David Price in 2014 had a 10-8 record with a 3.33 ERA in 186 2/3 innings, but he only struck out 151 hitters. Price had generally similar numbers to Garza but with fewer strikeouts, resulting in a raise of $3.89MM. Price’s similar numbers and larger raise suggest that a panel would agree that the market has shifted, making the Garza result stale. As a result, Ross could argue that Price’s $3.89MM raise a couple of years ago should be a floor, considering Ross’ similar ERA and innings total but vastly superior strikeouts numbers.

Digging further yet, Justin Masterson could also be a plausible ceiling. His 14-10 record clearly topped Ross’ 10-12 record, while his 3.45 ERA was similar to Ross’ 3.26. Masterson had 193 innings and 195 strikeouts, which are not that much less than Ross’ 196 and 212. As a result, the extra wins could suggest Masterson’s $4.07MM raise might be a ceiling for Ross.

Putting these together, it seems clear that the range of potential raises for Ross is probably around $3.9MM to $4.45MM, which would put him between $9.15MM and $9.7MM in 2016. While this is not appreciably less than his $10MM salary projection, it does appear that guessing low on this is the safer bet.

Photo courtesy of USA Today Sports Images.

The Dollar Value Of Recent Opt-Out Clauses

By Matt Swartz | January 5, 2016 at 9:45am CDT

Following a wave of multi-year club options attached to deals, players and their agents have begun to request and receive player options in recent years as well. David Price, Johnny Cueto, and Jason Heyward have each received them this winter, meaning that quantification of such deals is essential for careful team building. (Editor’s note: this article was written before the Dodgers reached an agreement with Scott Kazmir.) Everyone up to the commissioner has expressed concern that these “opt-out” clauses have been included in deals, and some feel teams simply should not give them. However, this is akin to saying that teams should not pay players above the league minimum salary—of course teams would like to do this, but you need to give players compensation to sign them. An opt-out is a way to lower the cost in dollars to the team, because the player will want more money otherwise.

Each of these three deals would be substantially more expensive without opt-out provisions—each opt-out clause is worth around $20MM, by my calculations. To test this, I looked at how a rough weighting of previous years’ WAR would affect a future projection, and compared this to how that projection would crystalize as it got closer. This led to an estimate that a very rough projection of future value 2-3 years in advance would change by about 1.0 WAR over the following 2-3 years. A more sophisticated system would probably change by about 0.7 WAR as it gets closer—and dollar value would probably change by about $7MM per year after accounting for overall uncertainty in salary levels. (The relationship between dollars and WAR utilized in this post is explained at this link.)

Given that potential level of variation, there are still a wide band of possibilities in terms of what a given player’s expected future value will be at the point of decision on an opt-out. But at base, an opt out is a binary choice: yes or no. Based on what we know now, and based on reasonable projections, we can estimate a given player’s future expected value at that point of decision by weighting different possible outcomes.

In other words, if Player X opts out, we can assume it is because his anticipated value at the point of that decision is higher than that which he would have earned through the remaining portion of the contract. But we don’t know exactly how much higher. So, to arrive at a value for the scenario in which a player does opt out, I’ve weighted all of those possibilities and reduced them to a single dollar value. The same holds true of the situations in which the player does not opt out.

We’ll get into each player’s situation further below, but this table shows the results of the exercise. (App users can click on this link to see the table image.)

David Price received a contract for seven years at $217MM, but it was really a three-year contract for $90MM with a player option of four years and $127MM. If Price only held teams to a three-year commitment, he would probably get close to $120MM—but this is not what he did. Instead, he will require $127MM for 2019-22, only on the condition that he looks to be worth less than that by then. Although $127MM is not a terrible estimate of his 2019-22 production as of January 2016, this value will probably change drastically by October 2018, one way or the other. If he does not opt out, he probably will have performed worse, and conditional on the assumption that he will not have opted out, I estimate his expected value for his 2019-22 seasons to be $80MM. If he does opt out, he probably will have performed better, and conditional on the assumption that he will have opted out, I estimate his expected value for those seasons to be $170MM. Given that this corresponds to roughly a 40% chance of opting out, his opt-out clause is worth about $17MM, meaning that his seven-year $217MM contract is roughly equivalent to a seven-year $234MM contract with no opt-out clause.

Johnny Cueto’s contract is somewhat trickier, but it essentially amounts to a deal of two years for $46MM, with a player option of four years and $84MM, followed by a club option of one year for $16MM. Cueto would probably be worth $17MM above his salary for 2016-17. But for 2018-21, he is likely to be worth $50MM if he does not opt out and $117MM if he does. With roughly even odds of opting out, this makes his opt-out worth about $17MM. While the club option for 2022 makes the deal somewhat more attractive for the Giants, the odds that he will be worth much more than this are low. Overall, Cueto’s six-year deal for $130MM would probably cost about $147MM with no opt-out clause.

Jason Heyward’s contract is even trickier, but it mostly boils down to a three-year deal for $78MM, followed by a five-year player option for $106MM—except that the first player option (if exercised) is only certain to include one more year for $20MM. That’s because there’s a vesting provision that, if triggered—by Heyward reaching 550 plate appearances in the season following the initial option decision—would give him yet another player option for four years and $86MM. (If he exercises the initial option but then doesn’t reach that PA threshold, then both sides would be stuck with the remaining four years of the contract.) Heyward’s value is further complicated by the fact that signing him required forfeiting a draft pick, which is worth around $9MM.

Although Heyward’s contract contains two opt-outs, it is not all that likely that he opts out after 2019 if he does not after 2018. Players’ values do change substantially, but he is likely to be either much more valuable than his five-year player option after 2018, or much less valuable. It is not that we expect his value to look similar after 2018 and 2019—it is that he will probably already be way above or way below the current expected value near $20MM per year, and is likely to remain way above or way below this line through 2019.

For the first three years of Heyward’s contract, I estimate that he is worth about $22MM more than his contract will pay him. With five years of player option, there is a wide range of potential values afterward. I estimate that he also has about even odds of opting out, but if he does not opt out then he is probably only worth $65MM, while if he does he would be worth $157MM. If he doesn’t opt out after 2018 and does after 2019, he is likely near the middle and the value of the second opt-out is small. The net effect is that his opt-out clauses are worth about $25MM, and he would probably have received $209MM for eight years instead of $184MM had no opt-out been included in the deal.

With values of $17MM for each of the two pitchers and $25MM for Heyward’s pair of opt-outs, these opt-outs help keep costs down for teams. While they contain more downside and less upside than typical free agent contracts, they cost less money as well. As teams move forward in this new market, they should be careful to properly consider the true cost of these player options. If teams are willing to expose themselves to some downside risk, they can lower the cost of acquiring elite players.

Arbitration Breakdown: Jake Arrieta

By Matt Swartz | January 4, 2016 at 12:42pm CDT

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

Jake Arrieta enters his second year of arbitration coming off a Cy Young Award and is due to get a large raise from his 2015 salary of $3.63MM. Our model technically has him projected to receive $10.9MM next season — a $7.27MM raise — but due to our “Kimbrel Rule,” this has been revised down to $10.4MM. The Kimbrel Rule states that no player can receive a raise more than $1MM larger than the current record raise for a player in his service class. The rule was named after Craig Kimbrel a couple of years ago when his track record entering arbitration so far outdid potential comparables that we did not believe the result the model produced. Given that there are generally limits to the extent by which players break existing arbitration records, we have adjusted the model to reflect this and come up with a number of around $1MM.

Arrieta’s case is a good application of the Kimbrel Rule, considering the fact that no player in recent years has matched Arrieta’s achievements heading into his second year of arbitration eligibility. The only recent player to win a Cy Young in Arrieta’s service class was David Price three years ago, who went 20-5 with a 2.56 ERA. Comparatively, Arrieta won a couple of extra games and recorded a far superior ERA: he was 22-6 with a 1.77 ERA. Additionally, Arrieta’s 229 innings and 236 strikeouts surpassed Price’s respective totals of 211 and 205 by a significant margin. Price received a $5.76MM raise, so the Kimbrel Rule gives Arrieta projected $6.76MM raise — good for a $10.4MM salary projected for 2016.

Another potential comparable that could come up in a hearing is Felix Hernandez’s 2010 season. Although Hernandez ultimately signed a multi-year deal, he initially exchanged figures with the Mariners after going 19-5 with a 2.49 ERA. The Mariners offered a $3.4MM raise, while he asked for a $7.7MM raise. Since Price ended up roughly between these two numbers three years later and had won a Cy Young, though, it would be tough for the Cubs to argue that the Hernandez case is more applicable than the case of Price. Hernandez did have the lowest ERA of any pitcher entering his second year of arbitration eligibility in recent seasons, however, but even this was nearly three quarters of a run greater than Arrieta’s 1.77 mark.

Although Price did not and Arrieta has not yet, pitchers get multi-year deals in most cases like these. The downside risk of injury for a pitcher usually encourages them to hedge and cash in on their success, and the risk for the team to have to bid against other teams in the free agent market encourages them to cut a deal as well. As a result, it is difficult to find many elite pitchers who go year-to-year in arbitration. Price was the only pitcher in recent years entering his second year of arbitration eligibility as a 20-game winner, in addition to being the only Cy Young winner. However, Arrieta’s far superior ERA makes Price a weak potential comparable, certainly more of a floor than a ceiling.

If Arrieta does not sign a multi-year deal, he is likely to set a record for second-year arbitration-eligible raises for starting pitchers that will set the baseline going forward. Where he lands will be an excellent test of the Kimbrel Rule, since he perfectly fits the example of pitchers who outperformed their service class in recent years on all arbitration-relevant statistics.

Photo courtesy of USA Today Sports Images.

MLB Trade Rumors Arbitration Model

By Matt Swartz | October 5, 2015 at 11:31am CDT

Salaries for arbitration eligible players eclipsed $1 billion in 2015, making the arbitration process more important to team building than ever. At MLB Trade Rumors, we are entering our fifth year of modeling arbitration salaries and have improved the model again for the 2015-16 offseason.

Being able to accurately predict salaries is crucial for teams, and it’s important for MLBTR readers who want to understand the rationale behind teams’ decision-making processes. Teams typically sign free agents before reaching agreements with arbitration eligible players, so budgeting effectively requires a reasonable estimate of how much they will spend on the complete roster once arbitration raises are determined.

Forecasting arbitration salaries is also important for signing young players to long-term deals. Teams have increasingly used such deals to achieve payroll certainty and to avoid the risk of crippling free agent contracts. As a result, teams have used arbitration forecasts many years into the future to determine appropriate spending levels on extensions. Understanding the arbitration process in general is also important for teams seeking to find inefficiencies. Teams succeed by finding bargains on the free agent market, but finding players who will be bargains in the arbitration process is helpful as well.

The basic structure of the arbitration model to be used for this year is the same as in past years. Players are compared to recent players who went through the arbitration process, who played similar positions and who had similar MLB service time. Typically, players qualify for arbitration upon reaching three full years of Major League service time. The top 22 percent of players from the group that has between two and three years of service time also becomes eligible. These players are designated as “Super Two” players and can be arbitration eligible four times before reaching free agency.

A player’s first arbitration salary is based primarily on his most recent season, but on overall career statistics are considered as well. Beyond the first year, players receive raises based more heavily on the most recent season’s performance. Historical performance is only factored in to the extent that it affected a player’s most recent salary. While that may seem counter-intuitive, those familiar with the process have confirmed that this is usually the case in actual arbitration hearings.

Another quirk to the arbitration process is that it usually only factors in “baseball card statistics” rather than more sophisticated metrics. While teams signing free agents are typically up to speed on sabermetrics, the arbitration process does not account for them. Counting stats are important, as is playing time in general. Since labor lawyers typically sit on arbitration panels, the concept of “making it to work every day” is something that holds value.

Hitters are typically evaluated using batting average, home runs, runs batted in, stolen bases and plate appearances. There are some positional adjustments, but typically the added defensive value of a shortstop relative to a first baseman is not as important in arbitration hearings as it is on the free agent market. Hitters also can receive larger arbitration awards if they have unique accomplishments, such as winning an MVP award. Pitchers typically are evaluated using innings pitched and earned run average. Starting pitchers are rewarded for wins, and relievers are rewarded for saves and holds. Unique accomplishments, such as Cy Young Awards, matter for pitchers as well.

In addition to factoring these statistics into the process, the arbitration model also accounts for salary inflation—players are expected to receive more money in 2016 for the same performance than they would have in 2015. Precedents are also important, as we learned when we developed the “Kimbrel Rule.” The Kimbrel Rule limits the maximum margin for a player to exceed the previous record for his player type to $1MM (and similarly, the maximum raise for a non-first time eligible player is $1MM greater than the previous record raise as well). This was developed because Craig Kimbrel’s eye-popping save and ERA numbers entering his first year of arbitration would have led to a projected salary that was unrealistically high. Historically speaking, players do not typically break arbitration records by much greater magnitudes than $1MM.

The arbitration model we use at MLB Trade Rumors has improved over the years. The typical average error is generally around $300K or slightly below, but it does vary significantly based on how many big misses there were in a given year. The more useful metric that we track is the number of players who ultimately earned a salary within 10% of our salary projection. This has steadily increased from 55% in 2012 to 65% in 2015 and hopefully will continue increasing going forward. We have added some other adjustments for this year’s model. Such bells and whistles usually increase predictive efficiency of the model but can hurt in some cases. As a result, our adjustments typically mimic the way that the arbitration process works.

An additional feature of our model at MLB Trade Rumors is that I also pen roughly ten articles each year on unique arbitration cases in a series we’ve previously titled Arbitration Breakdown. Within that series, I look at historical comps for the players in question to determine whether the model is likely to be accurate in a particular case. I personally look forward to not having to write about the challenges of predicting David Price’s salaries anymore, now that he is a free agent. This Price-less set of articles will be released in the coming months, while the actual forecasted salaries for every arbitration eligible player will appear on MLB Trade Rumors during the middle of this week.

Arbitration Breakdown: Lance Lynn, Chris Tillman, Alex Cobb

By Matt Swartz | December 26, 2014 at 10:46pm CDT

Way back in 2006, Dontrelle Willis set a record for first-time eligible starting pitchers by earning a $4.35MM salary. Arbitration records rarely last eight years, but Willis’ record has. This year, however, three pitchers emerged as possible contenders to top this record. There have been a number of pitchers who looked destined to break this record before. Notably, Tim Lincecum and Clayton Kershaw had cases that were far stronger than Willis. But each signed a multi-year deal, which does not count towards arbitration records. As a result, there have been a number of pitchers who have crept closely up to Willis’ record but failed to top it. Had Lincecum or Kershaw signed a one-year deal to avoid arbitration, it is likely that other pitchers would have ended up earning more than the $4.35MM that Willis earned in 2006.

This type of situation is one that can break a model of arbitration salaries. My model sees Lance Lynn earning $5.5MM, Chris Tillman earning $5.4MM, and Alex Cobb earning $4.5MM. Of course, “The Kimbrel Rule” would cap Lynn and Tillman at $5.35MM, letting them only eclipse the previous record by $1MM. But these are all sort of path-dependent. Only Lynn looks likely to break the arbitration record on his own, but if he does that it is likely to affect what Tillman and Cobb earn. The effect that records have for a given service class and role can make the model look bad in that respect. There have been nine different pitchers in the last five years who have gotten within $50K of Willis’ record, but in each case something led the players to earn just less than him.

The lower run-scoring environment in the league in recent years has certainly helped Lynn, Tillman, and Cobb put together better cases than some of the other nine guys. Last year, Lynn had a 2.74 ERA while Cobb allowed 2.87 earned per nine. The only two starting pitchers in recent years to reach their first year of arbitration eligibility with ERAs under 3.00 have actually been Lincecum and Kershaw. Stephen Strasburg had an ERA of 3.00 exactly and earned $3.97MM last year, but he struggled with run support and only had an 8-9 record. Travis Wood and Mike Minor earned $3.90MM and $3.85MM last year with low ERAs of 3.11 and 3.21, but their records were 9-12 and 13-9. Lance Lynn had a 15-10 record, which should help him put together a better case than any of them. Cobb only mustered a 10-9 record despite his 2.87 ERA. Tillman went 13-6 with a 3.34 ERA, so his ERA is more in line with these other pitchers, but he had a better record than many of them. Tillman also has a lot of innings under his belt for a first-time eligible pitcher. He not only threw 207.1 innings in 2014, but logged 473 innings in his pre-platform years, which is basically as many as any of the nine pitchers who earned within that $3.85-4.35MM range that I mentioned earlier.

David Price actually matched Willis’ record with a 12-13 record in 2011 and a 3.49 ERA in 224.1 innings, so he might be that person that would be considered if any of these pitchers try to set a new high mark. Lance Lynn seems the most likely to do so, and his case actually compares pretty favorably to Price’s. Lynn had a better record and ERA (15-10, 2.74) than Price (12-13, 3.49) in his platform year. Although Price threw 224.1 innings, Lynn did throw 203.2. Lynn also had a 34-18 record with a 3.82 ERA in 412.1 innings in his pre-platform seasons, while Price had a 29-13 record with a 3.31 ERA in 351 innings. Lynn’s case also is pretty good compared to the next highest case in recent years. In 2010, Jered Weaver went 16-8 with a 3.75 ERA in 211 innings, after having a 35-19 record with a 3.71 ERA in 460.2 innings in his pre-platform years. Lynn’s pre-platform numbers are very similar to Weaver’s but his platform year ERA is a run better. Putting Lynn’s case up against Price and Weaver makes it look likely that he could set the record.

That being said, I doubt that Lynn will crush the record and end up with the $5.5MM the model projects without applying the Kimbrel Rule, or even the $5.35MM that he would earn once the Kimbrel Rule was applied. But it does seem likely that he will find himself earning north of $4.35MM.

If Lynn established the record, then he may be used as a comparable for Tillman and/or Cobb. But I suspect that they will still not be able to top $4.35MM despite what the model says. Cobb’s 10-9 record will hurt him, although his 2.87 ERA is obviously outstanding. Price’s numbers look better when you consider the fact that he threw 58 more innings than Cobb in his platform year and won two more games. He also had 80 more pre-platform innings and four more pre-platform wins with a similar pre-platform ERA. I suspect Price will be seen as a ceiling for Cobb unless his ERA matters more than I suspect. I could see Doug Fister’s 2013 case, which earned him $4.00MM, serving as a floor for Cobb though. Fister also struggled with run support and only went 10-10, so he had the same number of wins as Cobb. Fister only had 161.2 innings, too, which is almost equal to Cobb’s 161.1. But Fister had a 3.45 ERA, which is more than half a run higher than Cobb. Fister also had only a 20-31 record pre-platform with a 3.49 ERA in 448.1 innings, while Cobb had a 25-14 record and a 3.39 ERA in 332.1 pre-platform innings. Obviously Fister has the edge in pre-platform innings, but I suspect the superior ERA will make Cobb’s case look better. I think somewhere between $4-4.35MM is likely for Cobb, falling somewhat short of his $4.5MM projection but still in the same ballpark.

Chris Tillman’s projection looks less likely to be close. Tillman went 13-6 with a 3.34 ERA in 207.1 innings last year and 32-25 with a 4.28 ERA in 473 pre-platform innings. His case actually looks a lot like Price—he has one more win with an ERA 0.15 lower in his platform season, but with 17 fewer innings. He also won 29 games pre-platform, shy of Price’s 32, but had a 4.28 ERA. Price’s ERA was nearly a run better at 3.31. At the same time, Tillman had 473 pre-platform innings to Price’s 351. So depending on whether pre-platform ERA or pre-platform innings are more important, Tillman could beat Price or fall short of him. Mike Minor from last year might serve as a solid comparable for Tillman too. He won 13 games like Tillman did, with a 3.21 ERA and 204.2 innings. However, he had only 19 pre-platform wins in 302.2 pre-platform innings and an ERA even higher than Tillman at 4.37. So Minor would actually be more of a floor at $3.85MM. I suspect Tillman will probably match Price, but if not I doubt that he will fall below Minor’s numbers.

Overall, I think the model is going to be high on all three of these pitchers. They will probably move together, so if one of them ends up hitting the model, then the others are more likely to do so as well, but if they fall short, they will probably do so together. I think that Tillman and Cobb are probably not going to top the $4.35MM record, although I suspect Lynn will. If any of them do—and without signing multi-year deals—then they may make it easier for future starters to do so as well.

Arbitration Breakdown: David Price

By Matt Swartz | December 22, 2014 at 9:55am CDT

David Price enters his fourth and final year of arbitration with a phenomenal case. He already earned $14MM in 2014, but my model projects that he will earn $19.3MM in 2015. After a player’s first year of eligibility, in which their entire career is considered, subsequent arbitration cases generally look at the previous year and determine a raise based on that one year of performance. In that sense, if Price earned $5MM less, he would be likely to get a similar raise in magnitude, but his previous salary would lead to a 2015 salary that was $5MM lower due to a lower baseline. Price has put together several great seasons already, which is why he has reached $14MM in the first place, and now with a 15-12 record, a 3.26 ERA, and gigantic totals of 248 1/3 innings and 271 strikeouts, Price is poised to get another large raise.

That said, my model has always had an interesting relationship with Price’s abnormal performances. In his first year of eligibility, my model projected that he would earn $7.8MM but he only settled on $4.35MM. Since then, his case has been interesting enough to write about every year. In his second year of eligibility, I wrote about how I projected he would earn $9.5MM and he actually topped that and got $10.1125MM. Then the next year I explained how I projected he would earn $13.1MM, but he got $14MM. The last two misses were not as bad as the first, but clearly the southpaw has caused my model some trouble. With an eye-popping 248 1/3 inning season, and a model that rewards performance time to mirror the actual process, it is hard to know if his $19.3MM projection as high, low, or just right.

Perhaps the best comparable for Price is Cole Hamels’ 2012 arbitration case. He got $5.5MM, which is just below the $5.3MM raise that I have projected for Price. Hamels had 216 innings, so that is definitely short of Price’s 248 1/3, as were his 194 strikeouts relative to Price’s 271. Hamels also went 14-9, winning one fewer game than Price at 15-12. However, Hamels 2.79 ERA is decidedly better than Price’s 3.26, and could be enough to offset the innings, strikeouts, and extra win in favor of Price. However, they are not necessarily great comparables because of these differences. Unfortunately, few players are great comparables for Price.

Max Scherzer clearly had a better case last year when he went 21-3 with a 2.90 ERA in 214 1/3 innings. Scherzer also won the Cy Young, further cementing his superb season and arbitration case. He got an $8.8MM raise though, and that is obviously the (very high) ceiling for Price here.

On the other side, a few pitchers emerge as clear floors for Price. Anibal Sanchez got a $4.3MM raise in 2012 with an 8-9 record, a 3.67 ERA, and 196 1/3 innings. None of those make him look as good as Price, so $4.3MM is clearly a floor. Justin Masteron’s $4.07MM raise after a 14-10, 3.45 ERA season with 193 innings last year, could also have served as a floor.

There are few other pitchers who fit in that wide range of $4.3MM to $8.8MM. Way back in 2007, Carlos Zambrano set the record for starters with at least five years of service time with a $5.9MM raise. That type of time lag would generally mean Zambrano is not likely to be used as a comparable in Price’s case, though it is worth noting that he went 16-7 with a 3.41 ERA in 214 innings. Zambrano’s definitely led to a higher salary than people were expecting, and he was a tough comparable to use because other salaries did not seem to fall on the same scale. Still, it could be that Price tries to argue that he should top Zambrano’s $5.9MM raise.

With such a wide range of potential salaries and so few pitchers with similar credentials, it is difficult to say if this will be one of my better or worse projections for Price’s salary. I could see more upside than downside, if only because Price’s innings total is so incredible, but I think that the best comparable is definitely likely to be Hamels, and his $5.5MM raise might be the best bet for Price.

Photo courtesy of USA Today Sports Images.

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