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Kings Cost More


Update: The extension, according to ESPN, is for $135.5M over five years. So Felix is under contract for the next 7 seasons at $175M, as originally reported.

I find the Felix extension—if it’s true—an interesting case study in how a particular team’s situation can make potentially make a difference in both how negotiations are conducted and how fans perceive the result. But before I get into that, let’s get right to the data. Below I have the King’s year-by-year values to this point—taking the average of Fangraphs and Baseball-Reference WAR. The last column is his approximate free-agent value over that time.

Year

WAR

Value

2006

2.5

$9.1

2007

3.9

$15.3

2008

3.7

$15.2

2009

6.2

$26.8

2010

6.4

$29.0

2011

4.3

$20.5

2012

5.4

$26.8

Total

32.3

$142.7

 

Here, I have attempted to estimate some reasonable boundaries for how he will perform going forward. In the favorable outcome, I have also allowed for 7% inflation. In the less favorable outcome—including an injury shortened year in an arbitrarily chosen 2016—I only accounted for 5% inflation. I hope this gives us some reasonable boundaries for the expected value of his contract. Notice that I’m considering this a 7-year contract for $175M because for all intents and purposes, that’s what it is.

Year

WAR

Value

WAR

Value

2013

5.5

$30.3

5.5

$30.3

2014

5.5

$32.4

5.0

$28.9

2015

5.5

$34.6

4.5

$27.3

2016

5.0

$33.7

2.5

$15.9

2017

4.5

$32.4

3.5

$23.4

2018

4.0

$30.9

3.0

$21.1

2019

3.5

$28.9

2.5

$18.4

Total

33.5

$223.1

26.5

$165.2

 

I would consider the left option to be a little optimistic. Though our King is only 26 years old, he has already logged 7+ seasons of more than 1600 innings. His arm’s age is probably a little older than his birth date would imply. The outcome on the right might be a little pessimistic, but perhaps better accounts for injury and lost value. But if we look at these boundaries—which are admittedly guesses at best—the contract doesn’t look all that bad.

There’s one major issue, though, that I haven’t discussed. Hernandez signed* this contract for what we believe to be $175M two years before free agency. There is currently no competition for his services. He said he wants to stay in Seattle, and the front office said they want him to stay in Seattle. Hernandez and his agent, Alan Nero, shouldn’t have had any leverage in the negotiations. Except they obviously did. Felix is getting free-agent money and free-agent length during a time when there’s no free-agenty competition for his services.

Last off-season, Matt Cain signed an extension one year before free agency. Cain, 27 at the time with 7+ seasons of wear and tear, got six years for $127M—$21M per season—with a vesting option for the seventh year. Vesting options aren’t quite as team-friendly as team options, but still team-friendly for sure.  Cain is probably only slightly less valuable than Hernandez. In fact, Hernandez’s top B-R comparable is Cain. Over the last five seasons, Cain’s ERA in his pitcher-friendly ballpark has been 3.09. Hernandez’s in his pitcher-friendly park, 2.92. It’s hard to measure Cain by fWAR because he defies it, but bWAR suggests Cain is worth about one less win per season. That, perhaps justifies his $21M-per-year contract (with vesting option) to Felix’s $25M-per-year contract (with extra year). Or maybe both contracts—being the largest of their kind—simply represent the high end, and they’re both bad deals for the team.

In the end, the contract is not awful, and I’m as glad as you that the King’s court will be in session every fifth night in Seattle for a long time. It just hurts a little that we couldn’t get a more team-friendly deal. Maybe one that doesn’t use up 30% of the team’s payroll until my hair goes grey. It seems like the fans’ decade of suffering might have given Nero the leverage he needed to strike a player-friendly deal. But I quibble…

 

*Pending

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  • maqman

    Felix has already created 38.3 fWAR (using Fangraphs numbers) for the M’s worth $191.5MM based on $5MM per fWAR (It’s current value is probably a little
    higher and will be even more so when gets paid the first dollar on his
    extension.) So far the team has paid him about $60MM so he has already earned
    about $130MM in surplus value. There is a very low probability that Felix will
    not more than earn every dollar he will have been paid in his career by the
    M’s.

    Additionally, as with the Yankees and A-Rod the M’s will most likely buy insurance against any medical reason ending his ability to pitch for them.

    According to Wendy Thurm (of Fangraphs) the M’s current regional TV deal is worth $45MM a season. Their viewing market covers all of Washington, northern Oregon, most of Idaho and Alaska and western Montana. They along with all 29 other teams will start getting an additional $25MM in revenue from the new MLB national rights sales next year, taking that up to about $50MM a season. That total of $95MM a year next year will about cover their current payroll, including Felix’s. When they renegotiate their regional deal in 2015 (if not before) their media revenues should be close to Texas but not at the level of the NY or LA teams. Texas signed their media deal two years before the Dodgers took regional TV money to a whole new level. Their deal was big then, not so much now and will be even less when the M’s set their new deal up.

    The M’s have put their money where their mouth was so the snarks can now zip theirs. Just think of it! No more trade Felix threads for years and years!

    • Matthias_Kullowatz

      A couple points to consider:

      I agree that Felix will likely make surplus value for the Mariners over his career. But when considering a new contract, we should be paying him for what he will do, not what he has done.

      Additionally, wins haven’t always been worth $5M. So when approximating his value to the team thus far, I started with $5M in 2012, and took 5% away each season.

      Buying insurance costs money, and while it protects against some sort of career ending injury, it won’t pay the Mariners back for old age (relatively speaking). In fact, insurance is designed only to reduce risk, but actually adds to the expected costs, whether you’re buying an HDTV or a baseball player.

      But maybe, like you reported, the TV deals can cover it, and it becomes a win-win for both sides.

      • maqman

        Wins have been valued at $5MM the prior two seasons, they are undoubtedly higher now with all the new money on the game and will increase more than 5% a year for a while for the same reason. Mark Shapiro the president and former GM of the Cleveland Indians valued them at $9MM in a recent interview.

        People may chose to disregard the $130MM in surplus value Felix has created for the club but to do so is ungrateful in my opinion, even if it is in the past and they are paying for his future. He brings 19% higher attendance to games he pitches in compared to games he does not appear in. Now Ichiro has gone he’s the teams only star player. The bean counters get it, hence his contract.

        Lloyds of London is the largest insurer in the world. They will sell the M’s any kind of insurance on Felix they want to pay for. The cost for a policy like A-Rods that pays 80% of his contract after one year if he is medically unable to perform will probably cost about 5-10% of it’s face value. Formula One drivers and skiers obviously pay far more than baseball players. Some teams chose to self-insure, it’s their call and depends on their risk aversion.

        • Matthias_Kullowatz

          I remember that interview with Shapiro, but that $9M figure seems like a steep estimation. I also don’t think wins were worth $5M seven years ago. In my first example above, I allowed for 7% inflation, and conceded that that sort of outcome wouldn’t be half bad.

          When you look at the attendance that Felix brings in, it’s more complicated than just looking at his starts vs. all other starts. As Dave Cameron noted in the comments section of his article over at Fangraphs, people may simply be deciding to go Felix’s start instead of Vargas’. That doesn’t mean that the team is generating any more revenue, but rather just reallocating revenue to a different night. It’s hard to weed out just how much Felix brings in alone.

          As for insurance…with any insurance or warranty package, you’re just paying money for peace of mind and risk aversion. That’s why I don’t see insurance as a fantastic, deal-saving option here, because it just raises the expected costs overall. Insurance companies wouldn’t make money if it raised our expectations. They’re just charging us for risk aversion.

  • Jason Pollan

    Hard to see a better candidate at a better age for a deal like this. You also can’t discount the value of a true superstar who loves the city and team–warts and all–before becoming the sole marquee player. Gotta sell some tickets and jerseys!

    • Matthias_Kullowatz

      Now is probably a good time to sign him before TV deals push free-agent rates up even higher. 7 years at that price, though, is still very risky. Just because he projects out to be worth somewhere in the ballpark of $175M, doesn’t mean there is not a Tim-Lincecum-like cliff as a possibility.

      Dave Cameron wrote an interesting piece over at Fangraphs about the potential frictional costs of not signing stars. When accounting for the potential costs of losing a star, this deal looks a little better.

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