Cliff Lee’s Worth (The “No Panic” Edition)

To start, let me express my gratitude to Dave Cameron at FanGraphs, who has written a series of posts using the Wins Above Replacement (WAR) statistic to value the deals made this off-season with Carl Crawford, Jayson Werth and others. Cameron is a guru of WAR, so I feel comfortable following his approach in examining the Yankees’ offer to Cliff Lee. Cameron has valued the current crop of free agent deals at $5 million per each WAR to be added by the free agent in question. Looking at this in simplest terms, Cliff Lee has produced about 7 WAR over the past three years, making him worth about $35 million for each of those years.

(Does $5 million per WAR seem high to you? It seems high to me, too. But most experts value WAR in free agency at between $4 and $5 million per WAR. Cameron has estimated a dollars per WAR figure that has been steadily growing towards $5 million per WAR. In a moment, I’ll consider what Lee’s value might be at a price per WAR below $5 million, but for right now, rest assured that the $5 million per WAR figure for free agents is a real number employed by real experts.)

What will Lee be worth in future years? We can expect Lee’s performance to decline as he gets older. Cameron estimates a 0.5 drop in WAR each year. Others estimate a 10% annual drop in WAR as a player enters his declining years, and I’ll use that estimate since it is the more conservative for a top performer like Lee. If we assume that Lee will still be a 7 WAR guy in 2011, and that Lee’s WAR will decline by 10% per year thereafter, here’s what Lee should be worth for the next 7 years:

By these figures, Lee is a relative bargain at $23 million per year.  Sure, per these projections, Lee will be worth a lot more than $23 million per year at the beginning of the contract, and will be worth a  lot less than $23 million a year at the end of the contract, but these projections show Lee’s average value to exceed $23 million, and that’s all we can ask for.

If you think I’ve overvalued WAR at $5 million per WAR, then here’s the same chart shown above, with WAR valued at a more conservative $4.5 million per WAR:

At $4.5 million per WAR over 7 years, Lee would be worth a little less than $23 million per year, but not a lot less.  So again, the deal proposed by the Yanks for Cliff Lee still appears to be a reasonably fair deal for both sides.

What if Lee’s performance begins its decline in 2011, and not in 2012?  Here are the numbers for that scenario, using a $5 million per WAR calculation:

Charts 2 and 3 turn out to be identical.  In both charts, the Yankees may be overpaying for Cliff Lee, but only by a small amount.

Let’s consider another factor used by Dave Cameron in his analysis, an inflation factor.  The cost per WAR from free agents is steadily increasing.  Cameron uses a 5% inflation factor for some of his analyses on FanGraphs.  Let’s incorporate 5% inflation into our prior graph and see where it takes us:

Now Lee is a relative bargain again.  What if we incorporate 5% inflation, but assume a lower cost per WAR of $4.5 million?

No matter how we vary the assumptions, Lee appears to be worth somewhere between $20 million and $25 million per year over 7 years.  This leads me to conclude that the Yankees did not panic when they offered Lee a 7th year on his proposed contract, reports to the contrary notwithstanding.

What would it take for this contract to go wrong for the Yankees?  Let’s drop our inflation assumption to 2%, and use the lower $4.5 million per WAR figure, and in addition let’s assume that Lee’s performance declines by 15% instead of 10% per year.  Where would that leave us?


This is one place where the Yankees have cause to worry.  Of the factors we changed, the most significant is the 15% projected annual decline in Lee’s performance.  Everyone understands that by 2017, Lee is not going to produce 7 WAR per year — and that’s OK, so long as he’s producing  two or three WAR per year at the end of the contract.  The Yankees don’t expect Lee to be worth $23 million a year at age 39, but they need Lee to be worth Andy Pettitte money in 2017 — $10 million, $12 million, $15 million a year — in order for this contract to pay off for the Yankees.

So … this is one scenario where the Lee contract may prove to be a loser:  Lee’s performance may decline with age more sharply than the Yankees have projected.  Of course, there are plenty of other things that might go wrong between now and 2017.  Lee could be injured in a skiing accident.  He could blow out an elbow or a shoulder.  His arm could mysteriously “go dead”, like Javy Vasquez.  I’ve run 6 projections for you , but truth is, life is a difficult thing to project, pitching even more difficult, and long-term pitching projections still more difficult.

Meaning what?  Meaning that luck will play a substantial role in determining whether this contract offer (if accepted) turns into a winner or a loser for the Yanks.  A lot of unlucky things can happen to Cliff Lee and his left arm between now and 2017, and in order for this proposed contract to work out, the Yankees and Cliff Lee will have to avoid nearly all of these things.

But there’s no other course open for the Yanks. The Yanks have made a good offer for Cliff Lee, but luck enters into every offer in free agency, and the Yanks must roll the dice and hope for the best, whether it’s Cliff Lee they’re pursuing, or Zack Greinke, or someone else.  In Vegas, you or I can avoid the gaming tables, but running a baseball team is different.  There’s no choice other than to play.

Given this reality, the Cliff Lee deal offers the Yankees a reasonable chance for success, and I hope that Cliff Lee soon signs on the dotted line.

26 thoughts on “Cliff Lee’s Worth (The “No Panic” Edition)

  1. williamnyy23

    I am not discrediting Cameron's approach, but I don't really think there is such a thing as an expert when it comes to how much a win is worth. After all, the value of a win must be affected by context. Also, concepts like diminishing marginal returns must be considered.

    If the Yankees believe that they need Lee to turn themselves into a championship team, that would make the wins he contributes worth more than they might to a team like the Nationals. On the other hand, if the Yankees think they are already have a championship team, Lee's marginal contribution might not be worth the salary he is being paid.

    • colins

      Agreed wholeheartedly

  2. Sabrina

    Lee has gotten what he wanted. A seven year deal offer. And the Yanks are offering it. Ryan has gone on record to say he couldn't see himself offering Lee more than five years. Makes me wonder if it is all about the money for lee. Whatever it maybe, the Yanks end up looking evil on any deal they do and when other teams do it, it is brilliant. Tired of that double standard. With or without Lee, the Yanks are still playoff contenders. We usually are and will continue to be because we spend when we have to. If Lee wants to win, he'll come here. If he wants to be with one hit wonders, let him be…good for him. Picking 0 rings over 27 rings, makes you look dumb not us.

    • LarryAtIIATMS

      Sabrina, good to see you! Yes, it's occurred to me that Lee has intended all along to sign with the Rangers, and that he's only using the Yankees to drive up the Rangers' price. I hope the Yanks land Cliff Lee, but the next best thing is to get the Rangers to pay more than what they want to pay.

      The double standard angers us all, but it's all part of being a Yankees fan.

      • Sabrina

        Can I say let us trade for Grienke and have a pitcher for 5 more years? The longer it takes for Lee to decide. The more I really don't care for him.

        • LarryAtIIATMS

          Sabrina, take a deep breath. Then take the dog for a walk. Put some classic Miles Davis on the CD player. Light a fire in the fireplace if you have one.

          Cliff Lee is about to decide where he's going to work for the next 6-7 years. He's about to sign a contract that probably represents around 90% of what he will earn for the rest of his life. He gets a few days to make his decision. I'm sure it is a tough decision, because both the Yankees and Rangers have something to offer, and because both the Yankees and Rangers have gone to great length to present attractive options. Even if Cliff Lee has decided which team he wants to play for, he still needs to figure out which of that team's offers he wants to accept (as each team has given Lee a menu of choices).

          I would not make this decision quickly, and I respect Cliff Lee for taking his time.

          My rational side tells me that the Yankees have made a strong offer, and that I should not stress over whether Lee accepts it or not. All we can ask is that the Yanks do what they reasonably can do to make the team better. Reportedly, the Yankees have made the top dollar offer for Cliff Lee. Now, all we can do is wait. There's no reason to like Lee less because he's negotiated well or because he's making us wait. We cannot expect that every great player wants to be a Yankee, or that every great player will take the biggest money offer. We should not discount what the Rangers have to offer. Remember, the Yankees were willing to trade top prospects to Seattle, just to have a few months of Lee's services. We can see now why Cashman was willing to do this: the team where Lee finished the 2010 season was going to have a leg up on signing him to the long-term deal. Reportedly, Lee liked playing in Texas. It would not be crazy for Lee to take fewer dollars and stay put.

          By the way, it would not shock me if the Yankees sign Lee AND work out a trade for Grienke.

          • RabidWookie

            Larry: How much of the "Greinke isn't mentally capable of handling New York" do you buy into? I'm having a hard time forming an opinion on that one. On the one hand, yes, his anxiety and depression issues may be exacerbated by playing in New York. On the other hand, overcoming those issues might have given him the strength and perspective to ignore the pressure. From everything I've read about Greinke, he's never really taken baseball seriously in the first place, so perhaps that means he wouldn't take much of the pressure of playing in New York to heart?

          • LarryAtIIATMS

            Personally? I don't take it seriously at all.

            This is just my opinion, so take this for whatever you think it's worth, but I've never bought the idea that playing in NY requires some kind of "right stuff" or intestinal fortitude that is not found in the average major league ballplayer.

            One of my favorite quotes comes from legendary golfer Lee Trevino. Someone asked him what the pressure was like putting in a major championship, and he replied "pressure is when you play for five dollars a hole with only two in your pocket." I don't think Greinke will ever be under that kind of pressure.

            My assumption is that Greinke has his issues well under control. I think you're right when you say that overcoming his issues has probably given Greinke more strength and perspective. But I also think that you don't win a Cy Young if you can't pitch under pressure.

            Again, this is just my opinion, and there's plenty of room here for disagreement.

    • The Baseball Idiot

      The Yankees created that Double Standard. Yankee fans bought into that standard. You don't really get to whinge about it being true.

      • LarryAtIIATMS

        I do not follow any part of what you are saying.

        • Sabrina

          I concur with you Larry. thanks for calming me down and getting lee plus grienke would be a dream come true!

          • Glenn G.

            Randy Johnson anyone?

            Yea, he worked out great for years in New York.
            He might retire a Yankee for life.

  3. Chris

    Interesting article and something interesting to consider moving forward, not just with Lee but when evaluating any free agent contract of this size. I had just one question about the numbers you listed for WAR; why did you stay with the .7 wins above replacement deduction following 2011 instead of taking 10% off of the value of each year's performance. It makes Lee even more valuable doing it that way, as he is losing less than .7 wins each year.

    • LarryAtIIATMS

      Chris, thanks!

      Originally I calculated the decline in WAR exactly as you suggested, so instead of using a straight-line deduction, I calculated each year's WAR at 90% of the prior year's WAR (so that the decline tapers off over time). But that didn't look right or seem right to me. Eventually an older player's performance WOULD decline to 0 WAR and even below, as the player's ability declined below replacement value. So, a straight line decline seemed correct to me, and besides, it is the more conservative approach.

  4. LarryAtIIATMS

    william, there are different ways of performing this value calculation. There are different theories on how an older player's performance might deteriorate, different deterioration rates and curves are possible for high performance v. low performance players. There are different ways to value a win, different values that may be placed on a win depending on whether a team has a chance to qualify for the post-season, and of course not every WAR that a player earns need be given the same value (you might decide that the 7th WAR earned by Lee is more valuable than the first WAR). My own feeling is that a 7 WAR player is more than twice as valuable as a 3.5 WAR player.

    We can also spend some time considering risk factors, and how risk might be mitigated, and whether a team like the Yankees can control risk to an extent by making diversified "bets" on numbers of high-priced free agents (much as you might control risk in an investment portfolio by making diversified investments across different positions, assets types, industries, etc) and could thus afford to take more risk. We might explore inefficiencies in the free agent market. It might prove to be the case that, since only a limited number of teams can afford a free agent as expensive as Cliff Lee, Cliff Lee may prove to be a bargain (on a WAR per dollar basis) compared to less pricey free agents.

    Then there's the stuff you suggested, that players do not have absolute values, but instead would have team-specific values. For a team like the Yankees with Brett Gardner and Curtis Granderson under contract, a player like Carl Crawford may not be as valuable as he'd be on a team like the Red Sox. You might also have to factor in a team's farm system. The $5 million per WAR value applies only to free agents — WAR is a lot cheaper for players signed to minimum contracts or that are only arbitration-eligible, and no team can afford to buy all of its needed WAR in the free agent market.

    In other words, it's not like I haven't thought of these things.

    Sure, we might come up with more precise ways of measuring value than the ones I used in this post. Presumably teams like the Yankees are doing something more sophisticated than what I did. But there's a larger point. No matter how accurately we might employ objective formulas to measure value, the luck factor is going to predominate. In other words, it won't really matter whether we've properly considered diminishing marginal returns if Lee develops chronic back problems.

    All we can really do, I think, is a rough calculation like the one I did, and see if a contract seems to be in the general vicinity of a player's projected value. The Yanks' proposal to Lee IS in this general vicinity. You or I as Yankees' GM might come to the conclusion that the Yanks could offer more or less to Lee — I doubt that valuing a player can ever be an objective science — but I think that the approach I used IS good enough to show that the Yankees' offer is at least a reasonable one — not crazy, not born of panic.

  5. adam

    if Lee had the deal he wanted he would have accepted it already…why make the yankees wait a few days when he knows nobody will come close?…because maybe he doesn't want to play here…i hope i am wrong, but this doesn't feel right…his legend and legacy will only be that much bigger in pinstripes

  6. LarryAtIIATMS

    Adam, I don't know whether the Rangers are feeling all that comfortable at this point, either. I'm pretty sure that Lee's made up his mind by now. He may be waiting a few days as a courtesy, to make it appear that this is a tough decision. He's asked both the Rangers and Yankees to jump through a lot of hoops — it's just polite at this point to wait a couple of days, to make it appear to the losing side that Lee respected its offer.

    I'm trying to remember a baseball negotiating battle for a free agent that was anything like this. Texas beats the Yankees to Cliff Lee mid-summer, Lee helps eliminate the Yanks and launch the Rangers to the World Series, and now the two teams are battling all over again for the same guy.

    I have no clue what Lee will do. Nothing would surprise me. I give the Yanks the edge, since I think the Yanks have made the bigger offer. But Lee might just decide that he's comfortable in Texas and that the mess of money being offered by Texas is more money than he needs anyway.

  7. Andrew

    Larry, I like how you employed various formulae to cover several possibilities.. Prior to Dave’s articles, Tango anaylzed Tulo’s extension using WAR – and produced interesting results.. I’m sure some of you have read this already. http://www.insidethebook.com/ee/index.php/site/article/tulo/

    • LarryAtIIATMS

      Andrew, yes I'd seen that around the time it was posted, and I should have included a cite to it. Thanks for doing it for me. It's more evidence that some of the smartest people on the web are following this kind of approach to gauge the soundness of a long-term contract offer.

      Personally, this is my first stab at this sort of thing, so I'm very open to criticism of this approach. One thing I've seen is that this approach tends to validate a LOT of contracts — even the Jayson Werth deal looks OK (expensive, yes; insane, not by a long shot) with this approach. I think the approach relies too heavily on a single statistic — WAR — since it is easy to manipulate for these calculations and offers a "one number describes everything" approach. Also, there's something about that neat straight-line decline in WAR over time that I just do not trust.

      So I'm NOT trying to say that Cliff Lee is worth $23 million a year for the next 7 years. I AM saying that, based on the best ways I've seen to evaluate a contract offer, the Lee offer is NOT insane, and NOT panic-induced. If we wanted to use these calculations to compare contracts, I think the contract is a slightly better deal to the Yanks than the Werth deal is to the Nationals or the Crawford deal is to the Red Sox.

  8. Left coast baseball

    I just have a few things I would like to say, as a third party observer. Firstly, if the allure for playing for a team as legendary as the Yankees is so great, why do they only sign free agents when they pay the most money? Secondly, there isn’t a double standard. People don’t hate the red sox as much because they haven’t been spending appallingly excessive amounts of money as long or as often as the Yankees. Aak yourself, how many 20 million per year contracts have the sox shelled out? 2. How many have the Yankees? More than 2… Make no mistake, baseball fans are starting to detest the sox as well. They’ve become arrogant and entitled since they started winning championships. It’s just going to take a bit more time and more of the same behavior. No one can criticize a team for shelling out a 20 million per contract if they can and if they really need the player. But when you shell out four or five of them, and hand out 15 million for jeter to be your mascot thats when baseball fans take offense. You don’t see the sox paying Papi 15 million for declining performance…

  9. LarryAtIIATMS

    Left Coast, in response:

    No argument, baseball free agents generally accept the highest dollar offers. No argument, the Yanks have attracted free agents to NY since the inception of free agency by making the biggest dollar offers. I'm trying to remember an example of a baseball free agent who did not accept the biggest dollar offer, whether it was from the Yankees or someone else. Some players SAY they want to play for a team that has a chance to win the World Series, and the Yankees are usually on the list of teams that fall into this category. Your point here is what, exactly?

    As to whether there is a double-standard: I decided not to focus on this in my main piece, because doing so means citing to dozens of articles in an A versus B comparison analysis, which isn't interesting enough to me to be worth the trouble, and it would probably sound like whining besides. If you don't see a double standard, fine. I'm not going to argue.

    As for your point about it being OK to shell out $20 million a year for a player you really need — when did I ever say otherwise?

    It is at this point in your comment that I start to get lost. Are you saying that the Red Sox truly needed their $20 million per year players, and the Yankees did not?

    I'll skip past the Jeter as mascot nonsense, unless by "mascot" you mean "Captain" and "starting shortstop".

    You're right. I don't see the Red Sox paying Big Papi $15 million per year for declining performance. I see them paying $12.5 million per year for declining performance. Actually, what I see is that the Sox picked up the option on Ortiz's contract. If I'm following you, the Red Sox are admired by all because they exercised the option on Ortiz's contract, instead of tossing out that option and paying Ortiz $15 million this year.

    I take your point that the BoSox may be better-liked than the Yankees, because they have not been acting as a big-money team for as long as the Yankees. Otherwise, I'm not sure what you're trying to say.

  10. Left coast baseball

    It isn’t about the red sox. I think it has been adequately cited they’re well on their way to becoming another evil empire. The point is teams like the angels and twins, and rangers, who can only afford to shell out one 20 million per contract versus teams like the yankees and sox that can seemingly hand out as many as they please. But that’s getting into a whole different debate on salary caps, etc. In the end, the point is I enjoy your website because it has excellent analysis and tends to humanize Yankees fans when the team is so often demonized. But a lot of user comments during this whole cliff lee negation continue point out that a lot Yankees fans do remain a bit out of touch with the baseball world. When you can’t understand how a player could possibly have the audacity to not sign with your team because you’ve signed every other free agent the team’s targeted, that’s how you know you’ve lived a bit of a charmed life as a fan

  11. LarryAtIIATMS

    Left coast, touche. Point taken about the charmed life.

    We've written quite a bit here about salary caps, and before long we'll write quite a bit here about revenue sharing.

    Cliff Lee gets to play baseball wherever he likes. Nothing says he has to take the biggest money offer. Since I last wrote you here, I read a NY TImes piece about how Greg Maddux turned down the Yanks and signed for less with the Braves. http://nyti.ms/gmJ8KR. With the kind of money being offered by the prospective buyers, Lee can easily afford to take the lower offer.

    I'm glad you clarified your earlier comment, and I hope we'll hear more from you. We left coast guys have got to stick together around here! (I'm currently exiled in LA.)

  12. jay_robertson

    Didn't Tex take (possibly) less money to play with the Yankees? I thought I heard stories where the Nats offered stupid money, but he didn't want to be the only star on a last place team – after all, he got to see that with A-Rod when HE was a Ranger.

    Thing is, using that logic – the Yankees can reasonably expect to sign most of the guys they want – since they do offer the most money, and they do offer the chance (and expectation) to be in the post season every year.

    • LarryAtIIATMS

      Jay, you're right, there WERE rumors to that effect. http://bit.ly/gSGX. Thanks for pointing me in that direction. There ARE factors in free agency other than which team makes the highest offer … at least sometimes. Sure … the Nationals swept in and landed Werth by being first to the table with the most money. But it sounds like Crawford truly wanted to play for the Red Sox. Teix's childhood hero was Donny Baseball.

      This being said, I don't know whether we can believe everything we read about which team offered which player how much money. This is not a public auction process. Witness the contradictory reports out there about the last offer made by the Angels to Carl Crawford.

      Circling back to Cliff Lee, if Lee truly wants to play for the Rangers, I'm confident that the Rangers' offer is plenty high enough to justify that choice.

      • jay_robertson

        "Circling back to Cliff Lee, if Lee truly wants to play for the Rangers, I'm confident that the Rangers' offer is plenty high enough to justify that choice. "

        For sure. Every derogatory remark I made during the Jeter negotiations applies here, also. One's ski-yacht is going to be just about as good at $120 million as it would be at $145 – or $160. At this point, the final pay has to be more about bragging rights than how much money one needs to pay off the PayDay Loan guy.

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