The Price of Price v. Lester

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dhappy42

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Reading a lot of stories about how the Price overpay is the result of last year's Lester low-ball, so I compared their contracts and salary year-by-year. Lester's contract is usually stated as 6/115, but that omits his $30 million signing bonus and option year. I've included those. The asterisks denote option years.

Year......Lester......Price
2015......$30m......
2016......$20m......$30m
2017......$20m......$30m
2018......$25m......$30m
2019......$25m......$31m*
2020......$25m......$32m*
2021......$25m*.....$32m*
2022.....................$32m*
Total......$170m....$217m

So Price's contract is worth $47 million more than Lester's or $6.7 million per year, ignoring option values.

$6 million is the approximate value of 1 WAR. Let's change the dollar values of the contracts to WAR.

Year......Lester......Price
2015......5 war
2016......3.3 war... 5 war
2017......3.3 war... 5 war
2018......4.2 war... 5 war
2019......4.2 war... 5.2 war*
2020......4.2 war... 5.3 war*
2021......4.2 war*...5.3 war*
2022......................5.3 war*
Total.....28.4 war....36.1 war

2015 is water under the bridge. Looking forward, does anyone think Price is unlikely to be 1-1.7 WAR better than Lester over the next three-to-six years? Over the last six years, Price has averaged 5.2 WAR compared to Lester's 3.9.

Doesn't seem like much of an overpay looked at that way.
 

Bowlerman9

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No one calls Lester's contract 6/$115. It's been widely reported as 6/$155 and that includes all guaranteed money.

The fact that you're analyzing a player option and a team option the same way makes this apples to oranges.

If both players flame out, Lester makes $155M and Price makes $217M, a difference of $62M. The Cubs can decline the team option but the Sox have no control over Price's.
If Lester is awesome, the Cubs can pick up the option and effectively pay him $170M over 7 years, and that decision doesnt need to be made until the first $145M have been paid.
If Price is awesome, he can choose to opt out and either leave entirely or force the Sox to pay him more money.

The difference between a team option and a player opt-out are significant.
 

jk333

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In addition to the comments about the club option by Bowlerman, why are the WAR values going up for each pitcher as they age? They should regress, especially for their final contract years.

Lester is projected for 4.4 WAR next year, Price is 5.0. They should both regress from there, at least for projections.
 

doweaver

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Dec 3, 2015
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In addition to the comments about the club option by Bowlerman, why are the WAR values going up for each pitcher as they age?
Those aren't projections - they're just dollar values translated to WAR, at ~$6 million/1 WAR.
 

dhappy42

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No one calls Lester's contract 6/$115. It's been widely reported as 6/$155 and that includes all guaranteed money.

The fact that you're analyzing a player option and a team option the same way makes this apples to oranges.

If both players flame out, Lester makes $155M and Price makes $217M, a difference of $62M. The Cubs can decline the team option but the Sox have no control over Price's.
If Lester is awesome, the Cubs can pick up the option and effectively pay him $170M over 7 years, and that decision doesnt need to be made until the first $145M have been paid.
If Price is awesome, he can choose to opt out and either leave entirely or force the Sox to pay him more money.

The difference between a team option and a player opt-out are significant.
I'm not analyzing the options the same way. I'm assuming both options are executed. I was trying to avoid the option-value quagmire as much as possible.

There are obviously other scenarios and player injury/underperformance is always a risk.

If both Lester and Price perform to expectation, i.e. Lester is roughly a 4.0/3.5/3.0 WAR pitcher and Price is a 5.0/4.5/4.0 WAR pitcher over the next three years, then yes, Price executes his option and the Sox either pay up or he walks to greener pastures. But that's a 2nd-best-case scenario for the Red Sox. Maybe 1st best. They get the services of Price for three years at $90 million. If yesterday's headline was "Red Sox Sign Price for 3 years, $30 million" everyone here would be pissing their pants with glee.

Realign the contracts by age and year:

Year...... Lester......Price
Age 30......$30m......$30m
Age 31......$20m......$30m
Age 32......$20m......$30m
Age 33......$25m......$31m*
Age 34......$25m......$32m*
Age 35......$25m ....$32m*
Age 36......$25m*....$32m*

At what age do pitchers typically begin a sharp decline? At what age does their injury risk shoot up? Usually around 33-34, after Price's option year. (Ask yourself this: Would this be a better or worse contract if the option year was in year two? Or year four?)

If both Price and Lester's arms fall off at age 33, which contract is better for the team? Sox.
Cubs will pay $145 mil for about 10.5 WAR or $13.8 mil per WAR.
Sox will pay $90 mil for about 13.5 WAR or $6.7 mil per WAR

If both Price and Lester's arms fall off at age 32, which team has the better contract? Cubs, but not by much.
Cubs will pay $145 mil for about 7.5 WAR or $19.3 mil per WAR.
Sox will pay $217 mil for about 9.5 WAR or $22.8 mil per WAR.

If both Price and Lester's arms fall off at age 31, which contract is better for the team? Cubs.
Cubs will pay $145 mil for 4 WAR or about $36 mil per WAR.
Sox will pay $217 mil for 5 WAR or about $43 mil per WAR.
Both of those eventualities are catastrophic, but both are very unlikely.

Obviously, there are a lot of other scenarios. Pitchers' arms don't usually fall off. Sometimes they simply struggle for one reason or another. The point is that unless Price screws the pooch, for whatever reason, over the next three years, this contract isn't that much more risky than the one the Cubs gave Lester.

I'd argue that it's less risky because Price seems lie a more durable pitcher to me and a lot less likely to decline quickly BEFORE [edit] age 33. Also, Price's fastball is 4-5mph faster than Lester's. Velocity is one of the first things an aging pitcher loses. Price is probably two- three- years "younger" than Lester in fastball years.

The real "apples to oranges" comparisons are the ones that compare a healthy Lester to a broken Price or vice versa.
 
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dhappy42

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Isn't the value of one win closer to $8 million now?
Isn't the value of one win closer to $8 million now?

Even better.

Year......Lester......Price
2015......3.8 war
2016......2.5 war... 3.8 war
2017......2.5 war... 3.8 war
2018......3.1 war... 3.8 war
2019......3.1 war... 3.9 war**
2020......3.1 war... 4.0 war**
2021......3.1 war*...4.0 war**
2022......................4.0 war**
Total.....28.4 war....36.1 war


*Cubs team option year. Buyout is $10 million.
**Price's player option years.
 

Bowlerman9

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I'm not analyzing the options the same way. I'm assuming both options are executed. I was trying to avoid the option-value quagmire as much as possible.

The real "apples to oranges" comparisons are the ones that compare a healthy Lester to a broken Price or vice versa.
Isn't that what you are doing? For Lester's option to be exercised, he will have to be good at the end of the 6th year. For Price to not exercise his opt-out (or, better spoken, to opt-in), he'll have to be worth less than $32M after his 3rd year.

And for the record, Lester is guaranteed $155M, so your $145M number you used repeatedly above is incorrect.
 

dhappy42

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Isn't that what you are doing? For Lester's option to be exercised, he will have to be good at the end of the 6th year. For Price to not exercise his opt-out (or, better spoken, to opt-in), he'll have to be worth less than $32M after his 3rd year.

And for the record, Lester is guaranteed $155M, so your $145M number you used repeatedly above is incorrect.
The original comparison assumes both Lester and Price are healthy and decline normally.

Yes, the Cubs will probably only exercise their 7th-year option if Lester (age 37) is healthy and they believe he'll be worth $25 million in 2021.

And yes, Price will "opt-in" in 2019 (age 33) only if he (or his agent) believe he can get a better contract than 4/$127.

Cots says Lester's contract is "6 years/$155M (2015-2020), plus 2021 option." The option is $25M guaranteed if Lester pitches 400 innings in 2019-20. The club has a $10M buyout.
The $145M I used in the analysis didn't include the $10M buyout. If you include that, and I should have, then the Price contract looks slightly better (team-wise) relative to Lester's contract. If both pitchers crash-and-burn in their age-31 seasons, the Sox will pay $4M/WAR for Price than the Cubs will pay for Lester. If both pitchers crash-and-burn in their age-34 seasons (much more likely) then the Sox will have paid Price $6.7M/WAR (assuming he opted-out) and the Cubs will pay Lester about $12M/WAR.

The main point here is that pitchers who rapidly decline as they age tend to decline AFTER age 33-34. When Lester turns 34, the Cubs will still owe him a guaranteed $60 million. When Price turns 34, he'll be playing for the Dodgers or Yankees.

----- corrected with Lester's 6/$155 gurantee:

If both Price and Lester's arms fall off at age 34, which contract is better for the team? Sox.
Cubs will pay $155 mil for about 13 WAR or $11.9 mil per WAR.
Sox will pay $90 mil for about 13.5 WAR or $6.7 mil per WAR

If both Price and Lester's arms fall off at age 33, which contract is better for the team? Sox.
Cubs will pay $155 mil for about 10.5 WAR or $14.8 mil per WAR.
Sox will pay $90 mil for about 13.5 WAR or $6.7 mil per WAR

If both Price and Lester's arms fall off at age 32, which team has the better contract? Cubs, but not by much.
Cubs will pay $155 mil for about 7.5 WAR or $20.7 mil per WAR.
Sox will pay $217 mil for about 9.5 WAR or $22.8 mil per WAR.

If both Price and Lester's arms fall off at age 31, which contract is better for the team? Cubs.
Cubs will pay $155 mil for 4 WAR or about $39 mil per WAR.
Sox will pay $217 mil for 5 WAR or about $43 mil per WAR.
Both of those eventualities are catastrophic, but both are very unlikely.
 

dhappy42

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The short, no-math version of what I'm saying is that the Price contract is as good as or better than the Lester contract unless you think Price is going to suck for three years in a row, from 2016-2019 when he's 30-31-32, often a pitcher's prime years.
 

smastroyin

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I agree with your point, but still find the "let me manipulate the opt-out in a way that makes it most favorable to the Red Sox" to just be regurgitating the argument of how the opt-out benefits the team. Your points make the most sense if it were a team "opt-in" rather than a player "opt-out" in that the team could choose not to take a chance on Price's later years depending on performance and market conditions.

The problem with this scenario is let's say Price is good and wants to opt-out, now the Red Sox have to pay 2018 prices for his replacement. So if the market has adjusted such that David Price's contract doesn't look good to him, it means the Red Sox will have to pay a lot more to replace him.
 

snowmanny

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And of course the Red Sox could have signed Lester for less than 6/155 before or early in the 2014 season.. He flat out said he'd take the offer the Tigers made to Scherzer (6/144) and I don't believe it's unreasonable to presume an offer at or a little under 6/132 would have closed the deal in the spring. Most people who wonder about Price instead of Lester aren't looking at 6/155, they are wondering about something like 5/115 or 6/126-132.
 

Papelbon's Poutine

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And of course the Red Sox could have signed Lester for less than 6/155 before or early in the 2014 season.. He flat out said he'd take the offer the Tigers made to Scherzer (6/144) and I don't believe it's unreasonable to presume an offer at or a little under 6/132 would have closed the deal in the spring. Most people who wonder about Price instead of Lester aren't looking at 6/155, they are wondering about something like 5/115 or 6/126-132.
Are we pretending that Lester was the kind of pitcher you make that offer to, prior to 2013? Because he certainly didn't seem to be that guy. He had a nice finish and obviously a great postseason, but heading into 2014, I think they would have been foolish to offer him 6/$132. They obviously f'ed up with the $70M offer but there is a vast sea between those two.
 

snowmanny

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Well you can go back to the thread where I said I'd pay up to 6/144, so I'm not pretending, but I'll grant that most of you were way under that price.

Edit:

I actually had a post from May 2014 summarizing posters' recommended offers. I said I'd go "near"
Scherzer's rejected offer of 6/144. There were a lot of posters who were at or over an AAV of 20Million.

http://sonsofsamhorn.net/index.php?threads/extending-lester.1076/page-9#post-476268
 
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dhappy42

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Your points make the most sense if it were a team "opt-in" rather than a player "opt-out" in that the team could choose not to take a chance on Price's later years depending on performance and market conditions.
I think it's obvious that a team option is better for the team than a player option.


The problem with this scenario is let's say Price is good and wants to opt-out, now the Red Sox have to pay 2018 prices for his replacement. So if the market has adjusted such that David Price's contract doesn't look good to him, it means the Red Sox will have to pay a lot more to replace him.
The same would be true if they just signed Price to a three-year, $90 million contract.
 

dhappy42

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And of course the Red Sox could have signed Lester for less than 6/155 before or early in the 2014 season.. He flat out said he'd take the offer the Tigers made to Scherzer (6/144) and I don't believe it's unreasonable to presume an offer at or a little under 6/132 would have closed the deal in the spring. Most people who wonder about Price instead of Lester aren't looking at 6/155, they are wondering about something like 5/115 or 6/126-132.
Not saying Price today at 7/217 is better than Lester in 2014 at 6/144.

I'm saying Price today at 3/90+4/127 player option is not much worse than Lester last year at 6/155+1/25 team option...

...unless you think Price will melt down or blow up in 2016-17.
 

smastroyin

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I think it's obvious that a team option is better for the team than a player option.

The same would be true if they just signed Price to a three-year, $90 million contract.
Yes, the same would be true and I would fucking love it if they had signed Price for 3/90. But they didn't. They also took on the risk that he won't be worth his contract in the 4th year, etc. That has cost to the Red Sox and value to David Price and willfully ignoring it is infuriating. Even as someone who agrees with the general premise that they are largely equivalent deals, it drives me crazy that you don't understand what people are saying to you, or worse that you do but you choose to ignore it because reasons.
 

dhappy42

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Yes, the same would be true and I would fucking love it if they had signed Price for 3/90. But they didn't. They also took on the risk that he won't be worth his contract in the 4th year, etc...
What do you think the probability of Price not being worth his contract in 2018 will be? 10%? 50%? 90%?


That has cost to the Red Sox and value to David Price and willfully ignoring it is infuriating.
Henry made his fortune as a quantitative analysis commodities trader. The Red Sox have been playing moneyball as long as anyone. I'm 100% certain management did not ignore the value of the option. I wouldn't be surprised if the player option was entirely their idea. It's a clever way of getting Price for what should be his three peak-performance years, then letting him walk after year three, when he becomes a much bigger injury/decline risk, and still signing a contract that has "seven years" written on it.

There's a lot of chatter about how the Red Sox have abandoned their "don't sign pitchers over 30 to long contracts" principles. The player option is a sneaky way of signing Price to a three-year contract that looks like a seven-year contract. Did they take on additional risk? Sure. If Price gets hurt in years 1-2-3 the contract really is a seven-year contract. But that's not a age-decline risk.


Even as someone who agrees with the general premise that they are largely equivalent deals, it drives me crazy that you don't understand what people are saying to you, or worse that you do but you choose to ignore it because reasons.
What makes you think I don't understand what you're saying?
 

4 6 3 DP

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I wouldn't be comparing Lester to Price. (I know, the point of this thread).

Lester got 26 a year last year for 6 years, Porcello got 22 a year for 4. The Red Sox picked Porcello over Lester plus one year of Cespedes or his trade value elsewhere. That's the algebra as far as I'm concerned. Price is a different evaluation for a different player.
 

benhogan

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Henry made his fortune as a quantitative analysis commodities trader. The Red Sox have been playing moneyball as long as anyone. I'm 100% certain management did not ignore the value of the option. I wouldn't be surprised if the player option was entirely their idea. It's a clever way of getting Price for what should be his three peak-performance years, then letting him walk after year three, when he becomes a much bigger injury/decline risk, and still signing a contract that has "seven years" written on it.

There's a lot of chatter about how the Red Sox have abandoned their "don't sign pitchers over 30 to long contracts" principles. The player option is a sneaky way of signing Price to a three-year contract that looks like a seven-year contract. Did they take on additional risk? Sure. If Price gets hurt in years 1-2-3 the contract really is a seven-year contract. But that's not a age-decline risk.

What makes you think I don't understand what you're saying?[/QUOTE]

-----------------------------------------------------------------------------------------------------------------------------------

If Price's age decline starts after next year, with your line of thinking, they should have offered opt-outs to Price after year 1 and year 2.
Because 1 year @ $30MM > 2 years @ $60MM > 3 years @ $90MM ... Right?
 

dhappy42

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I wouldn't be comparing Lester to Price. (I know, the point of this thread).

Lester got 26 a year last year for 6 years, Porcello got 22 a year for 4. The Red Sox picked Porcello over Lester plus one year of Cespedes or his trade value elsewhere. That's the algebra as far as I'm concerned. Price is a different evaluation for a different player.
I agree with you, but a lot of folks are saying, "we could have kept Lester for so much less than we're paying for Price!" My point is that the Price contract is better than the Lester contract unless Price gets hurt in years 1-3 and never recovers.

If someone were to offer you:
a) Price for 3/90, plus a player option for 4/127
b) Lester for 6/125, plus a team option for 1/25

Which would you prefer? I think those propositions are roughly even.
 

The Boomer

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What do you think the probability of Price not being worth his contract in 2018 will be? 10%? 50%? 90%?




Henry made his fortune as a quantitative analysis commodities trader. The Red Sox have been playing moneyball as long as anyone. I'm 100% certain management did not ignore the value of the option. I wouldn't be surprised if the player option was entirely their idea. It's a clever way of getting Price for what should be his three peak-performance years, then letting him walk after year three, when he becomes a much bigger injury/decline risk, and still signing a contract that has "seven years" written on it.

There's a lot of chatter about how the Red Sox have abandoned their "don't sign pitchers over 30 to long contracts" principles. The player option is a sneaky way of signing Price to a three-year contract that looks like a seven-year contract. Did they take on additional risk? Sure. If Price gets hurt in years 1-2-3 the contract really is a seven-year contract. But that's not a age-decline risk.




What makes you think I don't understand what you're saying?
I've thought this all along but didn't articulate it like this. The odds are strong that Price will be worth his money for the next 3 years. If he is, I don't see the Sox making the Sabathia mistake of the Yankees. Pitching up to or even exceeding expectations when he should doesn't mean that the extension Price will command after the first 3 seasons will be worth it. The money that they won't spend on Price at that point could well be used to extend Ed Rod, Betts, Bogaerts (Boras willing), Swihart and any other deserving home grown cost controlled younger players. By then, it's possible that the Sox could have homegrown aces in Ed Rod and Anderson Espinoza to lead them into the next decade.
 

dhappy42

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If Price's age decline starts after next year, with your line of thinking, they should have offered opt-outs to Price after year 1 and year 2. Because 1 year @ $30MM > 2 years @ $60MM > 3 years @ $90MM ... Right?
Yes, but I don't think anyone expects Price's age decline to start at age 31. That's typically a pitcher's peak.

According to my thinking, you want the option year to be the year before the player starts to significantly decline. For most starting pitchers, that's about 34. Price will have just turned 33 when his option becomes available.
 

kieckeredinthehead

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Henry made his fortune as a quantitative analysis commodities trader. The Red Sox have been playing moneyball as long as anyone. I'm 100% certain management did not ignore the value of the option. I wouldn't be surprised if the player option was entirely their idea. It's a clever way of getting Price for what should be his three peak-performance years, then letting him walk after year three, when he becomes a much bigger injury/decline risk, and still signing a contract that has "seven years" written on it.

There's a lot of chatter about how the Red Sox have abandoned their "don't sign pitchers over 30 to long contracts" principles. The player option is a sneaky way of signing Price to a three-year contract that looks like a seven-year contract. Did they take on additional risk? Sure. If Price gets hurt in years 1-2-3 the contract really is a seven-year contract. But that's not a age-decline risk.

What makes you think I don't understand what you're saying?
-----------------------------------------------------------------------------------------------------------------------------------

If Price's age decline starts after next year, with your line of thinking, they should have offered opt-outs to Price after year 1 and year 2.
Because 1 year @ $30MM > 2 years @ $60MM > 3 years @ $90MM ... Right?[/QUOTE]

Or they believe that age-related decline is non-linear.
 

geoduck no quahog

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Also, there's no reason to assume Price will simply fall off a cliff in his golden years. If he comes back to earth enough so that the opt-out isn't worth it, there's another couple of years where we watch him go from #2 in the rotation to #4. It isn't all or nothing (barring career ending insurance-provoking injury or a check in to rehab).

edit: put another way, what will the value of a #4 pitcher be in 2021? (hey, the way things are going it could be $32M)
 

Papelbon's Poutine

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Wow, now Anderson Espinoza - currently 17 yo - is going to be an ace to plan on helping replace Price leaving in three years? Thank god people are being rational.
 

koufax37

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Are we pretending that Lester was the kind of pitcher you make that offer to, prior to 2013? Because he certainly didn't seem to be that guy. He had a nice finish and obviously a great postseason, but heading into 2014, I think they would have been foolish to offer him 6/$132. They obviously f'ed up with the $70M offer but there is a vast sea between those two.
Complete agreement here. I am a particular student of left handed pitcher (got paid to be one for a lot of years, enjoy studying performances, tendencies, mechanics, etc). I was very in the anti-Lester camp even as he hit his hot streak at the end of 2013. I clearly missed and underestimated his rebound and future, but he was showing no signs of elite command and dedication to his craft that you need to perform at an ace level into your 30s.

While my own evaluation was clearly off mark and flawed, what there objectively was in the winter of 2014 was some very reasonable doubts if the resurgent Lester was a small sample size hot streak or a reversal of his downward trend and a year and a half of not so great performance. While waiting him to continue his performance into his 2014 season pushed his price up significantly, I think based on uncertainty and risk mitigation, 6/132 after 2014 was a LOWER offer than if we had offered 6/120 before the season. Not sure how much more, but there was real value to the risk he took off the table by staying healthy through 2014 AND rolling a small sample 2013 finish into a season and a half good performance trend.

So the broader point is post 2014 season Lester was worth considerably more than pre 2014 season lester, and offering him the same contract prior to the season (or even close) as after wouldn't have been smart.

We can play Monday morning QB afterwards, but the Patriots also could have used their fifth round pick on Tom Brady, but they passed on him.

In either case I still like the contact we gave Lester more than the contract the Cubs gave Lester.
 

keninten

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In 3 years who knows what the Sox will want to do with Price if he opts out. It really would depend on who is still in the rotation, who is in AAA, and free agents.

So far the best part of the deal is the discussion board. I was getting bored. Check out the yankees thread.
 

glennhoffmania

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Well you can go back to the thread where I said I'd pay up to 6/144, so I'm not pretending, but I'll grant that most of you were way under that price.

Edit:

I actually had a post from May 2014 summarizing posters' recommended offers. I said I'd go "near"
Scherzer's rejected offer of 6/144. There were a lot of posters who were at or over an AAV of 20Million.

http://sonsofsamhorn.net/index.php?threads/extending-lester.1076/page-9#post-476268
I'm sticking with my 6/120 deal. I think that could've gotten it done or been very close two winters ago.
 

dhappy42

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Washington Post's Neil Greenberg values the Price deal:

"David Price is worth a $217 million deal"

https://www.washingtonpost.com/news/fancy-stats/wp/2015/12/02/david-price-is-worth-a-217-million-deal/

"Even if Price opts out after three years, Boston still made the right move, because not only would they get good value if Price declined at a steady pace, his opting out would mean he felt he could get even more on the open market, which suggests outperforming expectations."

I disagree slightly with Greenberg's assumptions. For example, he uses Steamer's projection of 5.7 WAR for Price in 2016 then subtracts 0.5 WAR every year for age-related performance decline. I'd start with a more modest assumption of 5.0 WAR in 2016, but not begin Price's age-decline until 2020, when he turns 34 based on comps (Guidry, Santana, Viola.) Greenberg also ignores present value ($32M in 2022 is worth about $25M today) and the likelihood that the value of WAR will go up over time. He also values the first three years at $93 million instead of $90 million for some reason. Still, in general, I think his analysis is right.

I changed the assumptions, ran the numbers, and find that...

... if Price averages 3.5 WAR for three years (think John Lackey in 2015) and opts out, the Red Sox got their money's worth.
... if Price averages 3.5 WAR for three years and opts in, he'd have to be about as good as Wade Miley for the remainder of his contract for the Sox to get the money's worth.

In other words, if Price performs above Lackey-level for three years and then Miley-level for four, the Sox made a good deal.
 

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The wrong side of the bridge....
I disagree slightly with Greenberg's assumptions. For example, he uses Steamer's projection of 5.7 WAR for Price in 2016 then subtracts 0.5 WAR every year for age-related performance decline. I'd start with a more modest assumption of 5.0 WAR in 2016, but not begin Price's age-decline until 2020, when he turns 34 based on comps (Guidry, Santana, Viola.)
1) Why those comps?
2) How does a comp of Santana, who missed his age-32 season entirely and then was thoroughly ineffective in an age-33 comeback try, support decline not starting until age 34?
 

dhappy42

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Oct 27, 2013
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1) Why those comps?
2) How does a comp of Santana, who missed his age-32 season entirely and then was thoroughly ineffective in an age-33 comeback try, support decline not starting until age 34?
1) Those were the comps in the WaPo article. 2) It doesn't. I've looked into it some more and Greenberg's gradual, linear decline seems like the better model.
 

Mike F

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David Price is a Red Sox > John Lester is not.

"when ifs and buts are candy and nuts
what a wonderful Christmas it will be"
Dandy Don Meredith
 

dcmissle

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Henry made his fortune as a quantitative analysis commodities trader. The Red Sox have been playing moneyball as long as anyone. I'm 100% certain management did not ignore the value of the option. I wouldn't be surprised if the player option was entirely their idea. It's a clever way of getting Price for what should be his three peak-performance years, then letting him walk after year three, when he becomes a much bigger injury/decline risk, and still signing a contract that has "seven years" written on it.

There's a lot of chatter about how the Red Sox have abandoned their "don't sign pitchers over 30 to long contracts" principles. The player option is a sneaky way of signing Price to a three-year contract that looks like a seven-year contract. Did they take on additional risk? Sure. If Price gets hurt in years 1-2-3 the contract really is a seven-year contract. But that's not a age-decline risk.

What makes you think I don't understand what you're saying?
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If Price's age decline starts after next year, with your line of thinking, they should have offered opt-outs to Price after year 1 and year 2.
Because 1 year @ $30MM > 2 years @ $60MM > 3 years @ $90MM ... Right?[/QUOTE]


The reporting now is that the option was not their idea; it was his. And the notion that the contract does not reflect a long term commitment to a pitcher 30 or older is not sensible. It's his option, not their's; the team has no way out. And that this does not reflect a shift of organizational philosophy ... Really?
 

dhappy42

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Oct 27, 2013
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The reporting now is that the option was not their idea; it was his. And the notion that the contract does not reflect a long term commitment to a pitcher 30 or older is not sensible. It's his option, not their's; the team has no way out. And that this does not reflect a shift of organizational philosophy ... Really?
Here's how I see it:

EVERY free-agent ace in his early 30s is going to ask for a six- or seven-year contract. And they'll all get one from somebody. So the only way to sign an ace is to offer them six- or seven-years.

So how does a team with a "we don't sign 30+ year-old pitchers to long contracts" compete if NO aces will sign short contracts? Give them an option after, say, three years, when odds are that they'll still have value, take their option and sign with another team during their higher-risk years.

Not saying there is zero risk in signing Price to a 3/$90M contract with a player option for 4/$127. I'm saying that's less risky than signing him to a 7/$217 contract or 7/$231 contract, which is what it might have taken without the option, or a 6/$206 contract like Greinke's.

Pick one:

a) Price at 3/$90 and a player option for 4/$127
b) Greinke at 6/$206
c) Price at 6/$210
d) Price at 7/$230

Which contract has the most downside risk for the team? Which has the least?
 

snowmanny

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The highest upside is probably with D. The highest conceivable upside is A, but it's hard to imagine how that happens without pitcher exercising opt-out.
 

dcmissle

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Depends on how Price performs and the market for SP when the option kicks in.

Everyone would agree that if Price is evaluating this solely in economic terms when he has to pull the trigger on the option, should he not decide to opt out, in his estimation, no one else would pay him a penny more. We should assume it's a relatively efficient market. That means the RS are in no better than a break even situation if he declined the option AND that the team bears the risk in the out years.

Now assume that he opts out. That would suggest that the out years represent a good value for the RS, viewing the situation ex ante. To be sure, the team he opts out for and signs with would bear the risk for those out years. However, the RS would emerge better off only if they could invest the out year dollars more effectively. Nothing in the past few years suggests the RS could do so, either internally (we have developed recently nothing approaching a #1) or externally (see, for example, Porcello and his extension).

So, in my estimation, heavy advantage Price. The RS are NOT that clever. And I like this signing.
 

dcmissle

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And finally somebody exposes the model assumption upon which the two sides can not agree.
Assuming an inefficient market, how if at all would that transform an option that pretty clearly advantages Price alone into something that advantages the RS over 31 other clubs?

I have no interest in revisiting Jon Lester. Made my views known at the time and have let it go; time will tell whether they will be better off with Price. But there seems to be an effort to argue that the RS have not changed their approach, and that this contract is a stroke of brilliance entirely consistent with their previous position. That seems to me an untenable position.

Instead, what is simple is almost certainly true. Shortly after stealing a WS in Filenes basement, they went there for SP via trades and "low" cost signings and were badly fleeced. And having nothing approaching an ace in their system, against the backdrop of several abysmal seasons, they changed their approach. I prefer to give them credit for that rather than pretend they are, and have been, smarter than everyone else all along.
 

dhappy42

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Oct 27, 2013
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Depends on how Price performs and the market for SP when the option kicks in.
You can't say the risk "depends on how Price performs." That's what risk is, not knowing how Price will perform.

Consider two contracts:

Contract A: 2 years/$20 million, plus a player option for 2 years/$20 million
Contract B: 4 years/$40 million

The player's injury risk is 5% in year one, 10% in year two, 15% in year three, 20% year four.

Which contract exposes the team to more risk?

Which contract has more value to the player?
 

kieckeredinthehead

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Jun 26, 2006
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Assuming an inefficient market, how if at all would that transform an option that pretty clearly advantages Price alone into something that advantages the RS over 31 other clubs?
It is interesting that, despite however many pages of this thread, the pro-opt out side can very clearly articulate the anti-opt out side, but the reverse isn't also true.
 

kieckeredinthehead

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Jun 26, 2006
8,167
You can't say the risk "depends on how Price performs." That's what risk is, not knowing how Price will perform.

Consider two contracts:

Contract A: 2 years/$20 million, plus a player option for 2 years/$20 million
Contract B: 4 years/$40 million

The player's injury risk is 5% in year one, 10% in year two, 15% in year three, 20% year four.

Which contract exposes the team to more risk?

Which contract has more value to the player?
This question is unanswerable without knowing other teams' estimates of risk.
 

williams_482

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You can't say the risk "depends on how Price performs." That's what risk is, not knowing how Price will perform.

Consider two contracts:

Contract A: 2 years/$20 million, plus a player option for 2 years/$20 million
Contract B: 4 years/$40 million

The player's injury risk is 5% in year one, 10% in year two, 15% in year three, 20% year four.

Which contract exposes the team to more risk?

Which contract has more value to the player?
Contract A has a slightly lower chance of producing negative value (stemming from the off chance that the player declines the option before sustaining a serious injury* or falling off a cliff), but a substantially lower expected yield (because the team gets the last years in B no matter what, but only gets the last years in A if they are expected to be bad).

To frame it purely as a question of "risk" without taking into account upside and overall expected yield is to be irrationally risk averse.

*5% in year one all the way up to 20% in year four? I don't know which of those extremes is more accurate for Price, Lester, or any random pitcher, but there is no way the increase is anywhere near that steep.
 

dhappy42

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*5% in year one all the way up to 20% in year four? I don't know which of those extremes is more accurate for Price, Lester, or any random pitcher, but there is no way the increase is anywhere near that steep.
Absolutely correct. My Contract A vs. B example isn't intended to represent Price's or Lester's contract or their injury risk. It's a simplified example to illustrate how, if the risk of failure increases in the latter years of a contract, a player option can reduce team risk and therefore have value to the team.

To do even a simple version of the value analysis I assume the Red Sox did, you'd have to know their estimates of injury/underperformance risk for each year. You'd also need their estimates of Price's projected WAR for all seven years. And their estimate of WAR value in dollars. And their discount rate.

My guess for those are:
WAR: 5.0, 5.5, 5.0, 4.5, 4.0, 3.5, 3.0
WAR value: $9M
Failure: 2%, 2%, 2%, 6%, 8%, 8%, 10%
Discount rate: 4%

Healthy, 30-year-old pitchers have a 2% risk of arm injury. Pitcher age-related decline starts around age 33.

If someone wants to suggest other values, I could use those instead.
 
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dhappy42

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Oct 27, 2013
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Michigan
As a signal to the player to help him make his decision, of course they do
The question isn't whether the play should execute the option. The question is:

Contract A: 2 years/$20 million, plus a player option for 2 years/$20 million
Contract B: 4 years/$40 million

The player's injury risk is 5% in year one, 10% in year two, 15% in year three, 20% year four.

Which contract exposes the team to more risk?

Which contract has more value to the player?
 

Rasputin

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It is interesting that, despite however many pages of this thread, the pro-opt out side can very clearly articulate the anti-opt out side, but the reverse isn't also true.
That's false.

The pro-opt out side is simple.

1) It can mean the difference between signing the player and not.
2) The most likely outcome is that Price pitches well and opts out making this likely a 3/90 contract.
3) As long as the Sox aren't stupid enough to sign Price after he opts out, they're not going to be paying for his horrible decline phase.
 
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