Skip to Content, Navigation, or Footer.
The Tufts Daily
Where you read it first | Tuesday, March 19, 2024

How do free agents get paid?

s111714MLBPhoto
AL MVP Mike Trout led all players with 7.8 WAR this season.

Now that the MLB offseason has begun, many fans anticipate that their teams will sign players to large contracts. It is an exciting time of year; fans can forget about their teams’ terrible 2014 seasons and hope that they get the right players for 2015. Of course, many teams will fall short of meeting their fans’ lofty expectations for the offseason, but most fans will never know the methodology behind the decisions that their teams make. The first step is understanding how players get paid in today’s free agent market.

Wins Above Replacement (WAR) is the go-to statistic for the sabermetrically inclined fans. WAR holistically measures player performance (including hitting, defense and baserunning performance) to estimate how many wins a player contributed to his team above the lowest value of production a team can tolerate. There are certainly flaws with WAR, the largest of which is that there is no standard  formula, so different publications all calculate WAR in different ways. Still, each calculation comes close to approximating how many more wins a player provides his team than a replacement-level player. Since WAR encapsulates a player’s production in terms of the value he provides to his team more directly than any other statistic, it is a statistic on which it would be reasonable for teams to base their contract offers. Another way to think about using WAR to predict free agent contracts is the idea that teams have to buy wins, and WAR is the best proxy available to evaluate how many wins a player adds. Thus, from a fan's perspective, we can estimate how much money players should be making in any offseason by just looking at WAR.

In his article “Methodology and Calculation of Dollars per WAR,” economist and sabermetrician Matt Swartz estimated the dollars per WAR point for free agents since 1985. From these estimations, it is pretty apparent that the amount players get paid in terms of WAR production over time is highly dependent on the year. Dollars per WAR point can be approximated by a quadratic time trend. Using this trend to extrapolate results for 2015, free agents should be getting paid approximately $8.2 million dollars per WAR point on average this offseason.

To understand the scale of WAR points, consider this range: Mike Trout, the American League MVP, led all players with a 7.8 WAR in 2014, and Corey Kluber, the AL Cy Young, led all pitchers with a 7.3 WAR, while a league average player produces approximately 2 WAR in a season. This means that Trout added approximately 5.8 more wins to the Angels last year than a league average outfielder would have and 7.8 more than the replacement outfielder. So, if Trout went on the free agent market today and was expected to produce at the same level as he does already, he would be expected to be worth about $64 million per year, while a league average player can be expected to be worth $16 million every year of his contract, assuming that his production level stays constant.

In reality, though, $8.2 million is just an expected average. Individual players can get very different deals. For instance, better players tend to have higher dollars per WAR value. When considering only players who received qualifying offers in the last two seasons, the average dollars per WAR point rises to $10.7 million. This may seem a bit counterintuitive; if the price of a win for a team is approximately $8.2 million, why would a team pay an average of $10.7 million per win for a player? The reasoning behind this is that WAR points across the league are a scarcity, so any player that gives a team the ability to store a lot of wins at one position demands a premium, while in reality, having everyone on your team producing 1 WAR is equivalent to one player producing 9 WAR and the rest producing 0. During any one offseason, it may be hard for a team to find enough 1 WAR players. By having the 9 WAR player, a team does not need to rely on the talent that is available in the market at any particular time.

More generally though, there are reasons beyond rational economics for why player contracts differ from the $8.2 million dollars per WAR framework. The dollars per WAR model is exactly that, a model. Teams have much more information available to them than fans do. With thorough scouting reports, better data and medical reports, teams can make more informed decisions than fans can by just using a simple model looking at one  statistic. For individual cases, WAR may not be telling the complete picture. Running a baseball team is not like running a fantasy baseball team. General managers make informed decisions based on hundreds of hours of evaluations from all parts of their baseball operations and scouting departments.

The media will criticize contracts this offseason, often as a result of specific contracts deviating far away from the $8.2 million dollars per WAR figure. However, we have to remember that the public knows so much less than individual teams, and a deal that may look ridiculous today could be the deal that looks brilliant a year from now. Predicting future performance has a margin of error associated with it, and it is likely that a team, with more information and better experts, gets it right more often than the public.