Clay Buchholz: Contract Analysis

The Boston Red Sox signed the guy in the picture above to a $30 million extension today.  That guy is Clay Buchholz.

I wrote about Buchholz' superb 2010 and projection for 2011 here.

I wrote that Buchholz isn't really as good a pitcher as his 2010 made him look due to some BABIP and LOB% luck.

So, did Buchholz get lucky with this extension or did he earn it?

One thing to look at is his partner in crime, Jon Lester.  Lester signed a similar deal after his breakout 2008 season.

Let's compare:
Buchholz 2010: 17-7, 2.33 ERA, 28 starts, 173.2 innings
Lester 2008: 16-6 3.21 ERA, 33 starts, 210.1 innings

At first glance, those would appear to be similar seasons.  Excellent win-loss records.  Buchholz a lower ERA, but Lester with a lot more innings.

Let's look at those seasons less superficially though:
Buchholz 2010: 6.22 K/9, 3.46 BB/9, 50.8% Ground Balls, 3.61 FIP, 84 FIP-, 3.7 WAR
Lester 2008: 6.50 K/9, 2.20 BB/9, 47.5% Ground Ball, 3.64 FIP, 81 FIP-, 5.1 WAR
*FIP-

So, they are coming off of two pretty similar seasons.  They are also at similar points in their careers.  In March 2009 (When Lester signed his extension), Lester had 350+ innings and 59 career starts (and one victory over leukemia).  Buchholz came into 2011 with 360+ innings and 62 career starts.

Lester's deal was structured like:
Y1 (2010) 3.75 million
Y2 5.75 million
Y3 7.625 million
Y4 11.625 million
Y5 13 million team option (250 K buyout)

Buchholz' deal will be something like:
Y1 (2012) 3.5 million
Y2 5.5 million
Y3 7.7 million
Y4 12 million
Y5 13 million team option
Y6 13.5 million team option

Again, quite similar.  The guaranteed money is basically identical (not factoring for inflation) while the Red Sox get an extra option year on Buchholz' deal.

The reaction to Lester's deal was very favorable at the time of the extension.  As it should have been as the extension has basically turned into gold.

Lester 2006-2008: 59 starts, 354 innings, 6.65 K/9, 3.55 BB/9, 4.13 FIP, 91 FIP-, 6.9 WAR
Lester 2009-2010: 64 starts, 411 innings, 9.85 K/9, 3.22 BB/9, 3.14 FIP, 71 FIP-, 11.9 WAR

According to FanGraphs' WAR to Dollar Conversion, Lester has been worth $50.9 million since signing the contract, while earning only $4.75 million.  Not a bad investment.  Lester could...bow out now...and the Red Sox would have had a net positive for the deal.  Everything that he added since the first couple of months of the 2010 season is gravy.

But this is about Clay Buchholz, who is not Jon Lester.

Buchholz entered the 2011 season with 2 years and 59 days of service time, according to Cot's (which means it is probably accurate).  If Buchholz manages a full season in 2011 then he would be eligible for arbitration following the 2011 season.  In their first year of arbitration players generally receive about 40% of their market value.  This is followed by 60% in the second year and 80% in the third year.

If we project Buchholz more pessimistically than what Lester achieved, and say that Buchholz remains about a 4 WAR pitcher until he turns 30 then decreases by half a win after that and we assume a $/WAR of $5 million this year with 5% inflation, then we get the following chart.

*Click to make bigger

Given those parameters, Buchholz would provide 22.5 WAR worth a total of $107 million, while being paid only $55.2 million-a bit more than half of that.  So, Buchholz really only has to generate around 11 WAR to earn the contract.

This is where the option years come in.  The Red Sox guaranteed only $30 million to Buchholz.  If, Buchholz is only putting up 2 WAR seasons between 2012 and 2015 then he will have provided the Red Sox with about $32 million in value, while being paid $30 million.  The Red Sox would then decline the options, and still would have broken even on the contract.  Barring injury, it is very difficult to imagine Buchholz not being at least a 2 WAR pitcher.

Of course, there is the possibility that Buchholz gets injured tomorrow and never pitches for the Red Sox again.  In that case the Red Sox lose out on $30 million.

So the Red Sox are gambling at most $30 million on the the more likely possibility to come out $50 million ahead.  Smart move.

Not bad for Buchholz to put $30 mils in the bank either.

Now, go outside and sling some baseballs through that old tire you have set up in the backyard.