Friday, May 13, 2011

Why Do Teams Keep Good Players in the Minors?

I was recently having a discussion about the Nationals’ Bryce Harper in reference to this FanGraphs article.  The question came up as to why the Nationals don’t bring Harper up now as he’s probably already a better player than at least a couple of guy on the roster.  I responded that the Nationals had a financial interest in keeping Harper in the minors due to baseball’s salary structure.  I want to put some numbers to that to make it clearer. 

Since Harper signed a major league deal worth $9.9 million over 5 years, this post isn’t about Harper, per se, but minor league players in general. 

I’ve done a few posts on player contracts ( Ryan Braun, Adrian Gonzalez, Clay Buchholz) so this chart might look somewhat familiar.

I’ve made up some WAR numbers that represent a steady increase in the player’s abilities.  In the $/WAR column I’ve assumed a 5% salary inflation.  In the WAR * $ column I simply multiplied the player’s WAR times the market value of WAR to get the player’s value to the team.  In the Act Sal column I’ve created some salaries that reflect baseball’s salary structure including the 40/60/80 assumptions for arbitration years.  The Savings column is the difference between Harper’s market value and what the Nationals would actually pay him. 

The first part of the graph assumes the team calls the player up immediately and pays him the minor league minimum for a .5 WAR season.  For the next 2 seasons a team can unilaterally decide the player’s salary.  In 2007 Ryan Howard received the largest contract (of this type) ever for a 2nd year player; $900,000.  I’ve chosen salaries of $1 and $1.5 million.  Those numbers may fluctuate a bit in either direction (probably down) but not enough to make a significant difference in the conclusion.  For the next 3 years (2014-2016), I assumed the team paid exactly 40%, 60%, 80% of the player’s market value.  Under this scenario the player produces $62 million in value while being paid only $32 million.  This leaves the team with $30 in surplus value.

The second part of the graph assumes the team waits 2 years, until 2013, to call the player up and still pays him the minor league minimum for his first year.  Instead of producing a .5 WAR season, the more developed player produces a 1.5 WAR season.  This leads to an even larger 2nd year (and beyond) contract.  In this scenario the player provides  $106 million in value while being paid $50 million.  This leaves the team with $56 million in surplus value. 

This is why teams wait to call up prospects.  In a player’s first 6 seasons in the majors teams get a huge discount on their services.  By waiting, teams get to pay players much less than they are worth during the players’ most productive seasons.  

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