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 2^nd 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 2^nd 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.  

Adrian Gonzalez: Contract Analysis

+

The Boston Red Sox and first baseman Adrian Gonzalez finally came to a contract extension agreement.  The deal is reported to be worth 7 years and $154 million.  That's 154 followed by one million 0's.  No, actually it isn't.  But it is a lot of money.

I recently looked at the Sox' extension with Clay Buchholz and I'm going to take a similar look here.

Gonzalez has shown a pretty steady climb during his formative years with the Padres.

*Click to make bigger

Doesn't get much more consistent than that.  How this leveling off is going to go is anyone's guess but if we take a standard aging model and give Gonzo two more seasons of steady production before a half WAR decline once he reaches age 31 (in 2013) and we assume the same $5 million per WAR and 5% inflation as we did with Buchholz, we'll get the following chart.

*Click to make bigger

The Actual Salary for 2011 includes Gonzo's $5.5 million salary for the year plus the $6 million signing bonus.

Under these parameters Gonzo would provide the Red Sox with 33.5 WAR over the life of the contract. The market value of the WAR would be $194.3 million with the Red Sox paying only $159.5 million.  The $35 million Projected Savings represents the risk that the Red Sox take on.  If Gonzo's shoulder falls apart tomorrow they are still on the hook for almost $160 million.  From here, it looks like a pretty fair deal for both sides.

There is still the issue of the market.  What is the going rate for slugging first basemen?  With Buchholz we could look at his teammate Jon Lester's deal.  With Gonzalez we will look to the Red Sox' mortal enemy, the New York Yankees.

Prior to the 2009 season the Yankees signed their version of Gonzalez, Mark Teixeira, to an 8 year $180 million contract.  Teixeira was 29 in the season following his contract.  Teixeira and Gonzalez are pretty similar players as the following graph shows.

*Click to make bigger

The only real difference in their total production is that during Teixeira's age 23 season he played a full season and put up 2 WAR while at age 23 Gonzalez only played 46 games.  At age 24 Teixeira and Gonzo both played full seasons.  Teixeira put up 4.5 WAR and Gonzalez 3.9 WAR.  They've been pretty equal ever since.

*Click to make bigger

A couple of things to note.  First, the $/WAR rate in 2009 was lower-about $4.5 million.  Second, the actual $/WAR in 2010 dropped to $4 million instead of increasing 5%.  Teixeira was coming off a 7+WAR season in 2008 when he signed the deal.

Gonzalez' deal looks to be a bit better than Teixeira's.  The Yankees are over paying $5 million compared to the Red Sox saving $35 million.

One other thing to remember though, the Red Sox traded for Gonzalez (giving up prospects) while the Yankees signed Teix as a free agent (surrendering 2 draft picks).  The 'cost' of the prospects could be subtracted from the Red Sox' side of the ledger (but not added to Gonzalez' side, certainly).  And the Yankees are made out of money.

Given that, the two deals look pretty equal.

One deal that doesn't look equal is the Ryan Howard deal.

In February of 2009 the Phillies and Howard agreed to a 3-year $54 million deal that covered Howard's 2nd and 3rd arbitration years and first year of free agency.  Then, one year later, the Philles gave Howard another deal worth $125 million over 5 years.  Let's look at that deal.

*Click to make bigger

*Note: The Phillies have a $25 million option for 2017 with a $10 million buyout.  The graph assumes the Phillies decline the option.

It looks a lot different.  Using the same parameters as the Teixeira deal (the deals were signed the same year) we get the Phillies coming out almost $40 million in the red.  There are a few reasons for this.

First, Howard isn't as good as Teixeira and Gonzalez.

You can see that Howard's graph is nowhere near Teixeira's and is getting farther apart over time.  He's closer to Gonzalez', but only because of a monster year at age 26.  The gap widens every other year.

Also, Howard's deal covered 2 of his arbitration years.  Remember that in the second two years of arbitration players generally get 60 and 80 percent of their market value.

The Phillies will most likely regret this deal...well...now...but will really regret in when the the deal starts NEXT YEAR.

*Stats from FanGraphs
*Contract data from Cot's and BleacherReport