The Poor Man’s Analyst

Dollars Per Win

with 4 comments

Today at FanGraphs, Dave Cameron wrote up a good explanation of the dollars per win system that MLB teams choose to operate under. Part of the analysis in effect shows why young players are so cost-effective, and in turn shows why teams like the Rays can compete with such a low payroll. Something that is often missed when looking at big free agent contracts is that just because a player is paid a billion dollars doesn’t mean that he’s overpaid, relative to the rest of baseball of course.

Now, I know there’s some sentiment that teams don’t pay for wins linearly, because a six win player is worth more than three two win players. While I agree with this in theory, major league teams just don’t operate this way. If you just look at the dollar per win costs for the multi-year contracts handed out to hitters last year, the cost per win was $4.3 million for guys with an average win value of 4.4 wins per player. Alex Rodriguez signed for about $3.8 million per win last year. Teams just don’t pay exponentially more for higher win value players than they do for average and below players. You could argue that they should (and I would probably agree), but they don’t. The dollar per win scale is linear.

So just because Sabathia and Santana are being paid boat loads of money doesn’t mean that they’re being paid more than their expected production because of their “marquee status.” In some cases, that may happen (Derek Jeter would be an example, maybe), but that’s more the exception than the rule.

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Written by dcn29

January 2, 2009 at 1:33 PM

4 Responses

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  1. I cannot say I truly understand this but I am thinking that I agree. However, teams do give players offers and if they are out bid they go higher and higher. So a team like the Yankees for example who originally wanted to give Teixeira no more than 160 mil which I have no clue what that would be in dollars per win, ended up giving him 180 mil because other teams outbid them. So many times teams are paying “more for higher win value players than they should” because they feel the need to outbid other teams.

    Mark Elliot Wishnia

    January 4, 2009 at 12:20 AM

  2. That does happen, obviously (although I think you misquoted something). The general point of that portion was that teams haven’t shown that they will pay a premium to acquire a star. The rate that teams pay each player for the wins that he provides is the same PER WIN regardless of whether or not he is a star.

    The reason the “prices” range from 160 to 180 in one off-season because of the different values that teams place on the player and the differing dollars per win figures they choose to spend.

    dcn29

    January 4, 2009 at 2:02 AM

  3. Interesting post.

    Mark, I think the reason you see teams up their offers is…they weren’t offering the true revenue potential of the player for their team. They begin by lowballing it. Negotiations always go like this. Why would a team pay $180 when no one is offering more than $159? They put in a $160 bid, they win. There are, of coruse, intangible aspects of the employment contract, but we’ll leave these aside for now (winning, geographical preference, fan preference, private planes, management style, teammates, simple douchebaggery, etc.).

    My question (as posed in the original article) is that maybe the teams should start investigating the linear nature of their offers. At this point, I guess no one is bidding this way. However, with a restriction on the number of players allowed on a team, finding an inefficiency in the way stars are paid may produce winning and profitable teams. While teams wouldn’t bid above the expected MRP of the player, if the salaries at this point are well below their calculations, they may be able to put together a formidable lineup by concentrating talent on those who play the most. Would you rather have a platoon at 3B for $35 million where one guy almost never plays, or having Alex Rodriguez at $32 million play every day (assuming the platoon and A-Rod have the same stats). Having A-Rod frees up a roster spot for something like an extra reliever, or a cheap utility guy that can play elsewhere. (Keep in mind this is an EXTREME example…you would never pay 2 platooners $35 million…I hope…the Yankees will prove me wrong possibly with the Swisher-Damon-Matsui-Nady tandem this season).

    I love fantasy sports these days, and I have run into this dilemma in the past. Do I buy Arod, Utley, and Hanley…or do I get an extra solid SP and settle for Longoria, Lowell, Renteria, Bartlett, and just Utley for a little bit less/more? Protecting oneself from injury is always a good thing to do…but if you don’t pay linearly, you could just go for the gold.

    My main point is that the roster size limit may allow for putting a premium on someone that can play every day. In fact, an extra cheap arm in the bullpen could be the difference between winning or losing a division in REAL baseball with that little bit of surplus from A-rod’s $3.8 million per win and a free roster spot (as we can see from the Mets last season). You could pay A-Rod $3.9 million per win to get him to your team…then spend the just a bit less surplus on something else. Other teams would eventually have to follow and bid up the player for themselves…resulting in a more efficient bidding pattern, if the actual expected revenue from a single star is truly non-linear.

    Millsy

    January 7, 2009 at 2:29 PM

  4. I agree that that would probably be a good thing for teams to do. It’s just that as of right now, they’re not doing it. Maybe they have reasons beyond what we know.

    dcn29

    January 7, 2009 at 3:24 PM


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