Monday, March 21, 2005

Signing J. D. Drew

I was thinking this weekend about the Drew signing and I wondered how much the Dodgers expect to pay for each win. For teams with limited resources (everyone but the Yankees), a major goal of acquiring players is to minimize the dollars spent per win. Actually, as Doug Pappas pointed out, the goal is to minimize the marginal dollars above the league minimum per "marginal win". To do better than last year, the Dodgers must spend less than $1.8 million/marginal win. Drew is earning $11 million with the Dodgers, which is $10.7 million more than the league minimum. Therefore, the Dodgers are getting a bargain each year Drew nets more than 5.9 marginal wins.

Baseball Prospectus says that Drew added about 10 wins above a replacement player last year, which would translate into a "fair" salary of about $18.7 million. In 2002 and 2003, he added only 3.7, which would be a hair below $7 million. In his six full seasons, Drew has averaged 5.3 WARP, which would be worth about $9.8 million. According to the Win Shares method, Drew was worth about 11 wins last year, 4 the year before and 5 in 2002. The methods more or less agree given that Win Shares don't adjust for marginal value.

Below is a table listing the "fair" salary in millions of dollars if marginal wins are worth $1.8 million plus $300,000 for the league average:

Year Age   WARP  Salary
1998  22    1.3     2.6
1999  23    2.7     5.2
2000  24    4.6     8.6
2001  25    7.1     9.8
2002  26    3.7     7.0
2003  27    3.7     7.0
2004  28   10.2    18.7
And here is a peek into the future:
2005  29      ?    11.0
2006  30      ?    11.0
2007  31      ?    11.0?
2008  32      ?    11.0?
2009  33      ?    11.0?

Ultimately the contract depends on what gets filled into those question marks. If we assume Drew has two years like 2004, the Dodgers will get a phenomenal value, but will probably loose him to another team. If Drew has typical seasons, the Dodgers will be slightly overpaying, and will probably keep the rest of the contract. If Drew gets injured, they better have their insurance paid up. It's the first and third scenarios that cause the biggest concerns.

Clearly this is a good contract for Drew, since he's guaranteed $55 million and has an option for more. But it doesn't mean that it's bad for the Dodgers. In particular, the team seems willing to take on some of the risk of losing Drew to injury in exchange for the possibility of two great years or five good years.

Actually, it's possible they could get four great years. The option may only be exercised at the end of the 2006 season, so if Drew misses part of that season to injury, he wouldn't be likely to find a better contract no matter how good he might be in 2005. On the flip side, he might blow his knee the first week of 2005 and be dead weight on the payroll for the next five years.

I think it's misleading to think of the option as more or less the same thing as an option in the financial sense. For one thing, the Dodgers are getting a non-monetary return on their investment. Sure, if Drew helps the Dodgers to win some games, it will help them sell more tickets, concessions, and advertising. But the effect is indirect. A great year might help the Dodgers win the World Series, which would make the contract exceptionally valuable, even if Drew was a bust after that. Another difference is that there is no market for player options. The only way to benefit from it is to exercise it or use it as leverage to renegotiate the contract.

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