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.