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. 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.

  2. 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.

  3. 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.

  4. 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. 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. 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. 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…

  8. 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.

  9. 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

  10. 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. 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.)

  11. 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.