Last time up I looked at the impact of a teams overall salary on the number of wins that they picked up for a season and there was an overall trend to indicate that higher salary equates to more wins. But there was a murky sector in the middle between -10% and +30% of the league average salary which showed little difference, so it seems if a team is in this salary area how they spend that money is very important. There many ways that a teams salary can be affected but in this article we are going to look at one of the main way it is, getting players from the free agency.
In the image above the next to 3 time Cy Young winner Max Scherzer is Scott Boras, that might be a name a few of you know but probably not a face. Boras is the super agent of the MLB, his client list is a whose who of Major League players, so this is the man you have to compete against if you were in charge of a club trying to get a player from free agency.
To be able to negotiate with him you need to know how much you expect to pay to bring in a player which will improve your team? To do that we are going to have to define a metric which will enable us to compare the worth one player versus another. Thankfully the sabermetric baseball community has already done this with WAR (Wins Above Replacement), it summarize a player’s total contributions to their team in one statistic.
League-average WAR rates vary but an average full-time position player is worth about 2 WAR and an average starting pitcher also are worth around 2 WAR, while relief pitchers are considered superb if they crack +1 WAR. Below is the distribution of MLB players WAR for 2017 (min 100 PA or 100 IP).So this how we are going to determine the value of a player and compete with Scott Boras. With this we can then determine the average amount of money that is being spent in the free agency for a win above replacement and negotiate from there. And having established this framework, we also now have a basis with which to consider whether players are undervalued or overvalued.
So, what would you think the cost of a win above replacement was in 2017’s free agency? $2m per year, $5m per year, $8m per year?
For contracts signed in the free agency in 2017 the average was a massive $10.5m per WAR, meaning if you were going to sign a player who would get 4 WAR for each of the next 4 years you should expect to pay him $168m for that contract. This has been shown to be linear so you would spend similar amounts on one 4 WAR player and two 2 WAR players, just the contract lengths may differ. This has been steadily growing over the decade.
In 2017 the average team salary in the MLB was $152m. So if we go back to our teams in the -10% to +30%, there is $60m difference between the two. That should get you just shy of 6 WAR in new players from the Free Agency. So, if Scott Boras came to you with two players you think can produce 3 WAR seasons and was wanting $70m a year combined we know that he has overvalued them and we should negotiate the figure down.
While adding a player via the free agency is one of the most effective way to improve your team for the next season it isn’t the most cost effective why to do it. And here is why. Based off this Dollars per WAR analysis we see that traded MLB players have tended to underperform their projections when compared to untraded players. This means that an “average” player who reaches free agency is overvalued by his projections relative to another “average” player who doesn’t reach free agency. Over the last 5 years a free agent has cost 16% more compared to an internal player.
Now I here a few of you crying out that players sign favourable contracts to stay in their home town and/or they renegotiate with a few years left for financial stability. If we look to remove those cases and just look at players in their last year before free agency who get multi year contracts there is still a 7% premium on players from other teams.
So, as the table above shows if you go into the free agency you are going to have to pay more than you would to keep your players but this has come down over the last 5 years compared to the previous 5. I think the best evidence is that teams have gotten smarter about signing free agents from other teams, teams have more data about the opposition players than they ever have had before. Previously they would have lost out on 1 WAR for every 4 WAR that you bought where as now you would only lose out on 0.3 WAR.
The MLB world has got better determining a players value so is a better position than ever to negotiate with people like Boras and get the best for their teams. But if it is more cost effective in the long term to re-sign players currently in your team to new long term contracts, how do you get them into your team? Draft them? Pick them up in trades? That is what I will look at in the next piece.
NOTE — A lot of the statistics used in the piece are from analysis completed by Matt Swartz. Matt is an analyst for a major league team and has written multiple pieces on the analysis of the Dollars per WAR estimates which can be found on the Fangraphs blogs here. If you interested by this piece I would suggest you read his pieces from last year which cover this and more in further detail.