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Potential equilibrium in the MLB free agent market

Posted by Andrew Mooney  December 26, 2012 02:18 AM

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Last week, I wrote a post attempting to put a price tag on what MLB teams are willing to pay for an additional win in free agency. In 2009, Dave Cameron of FanGraphs conducted the same sort of analysis, with a little bit more rigor than I used. Instead of using just one year, Cameron averaged the WAR from a free agent’s past three seasons, then multiplied by 0.95 to correct for age-related decline to arrive at a team’s “expectation” for the value he would produce the following season.

The dollars per win figures that Cameron arrived at for 2002-2008 can be found in his article linked above. As Cameron notes, each successive year brought with it about a ten percent increase in the market rate teams have paid for an additional win, topping out at $4.5 million in ’08.

But, combining this with the findings of my previous post, it appears the price of a win on the free agent market has remained essentially the same since 2008; I found that an additional WAR cost teams about $4.6 million on average in this year's Hot Stove season.

To be sure, I redid the analysis using Cameron’s method—three years of WAR and a correction for aging—and came to roughly the same result: as of last week, teams paid $453 million for an expected 95.5 WAR in 2013, which comes out to $4.75 million per win. The prevailing market rate has risen just 5.6 percent in the last four years, a marked contrast to the ten percent annual increases in the seven years that preceded them.

What does this mean exactly? Has the free agent market reached an equilibrium of sorts, in which teams feel they have efficiently priced free agent talent, and annual contract sizes rise only with inflation? This seems hard to believe in a world where Anibal Sanchez scores a five-year, $80 million deal and the move is regarded as sensible, but I suppose it wasn’t so long ago that the same was said for John Lackey.

But blockbuster deals like those received by Albert Pujols and Prince Fielder are outliers, at the extreme end of the distribution. The slowdown in contract inflation might say less about the biggest deals given out each year and more about those signed by mid-level free agents, who make up the majority of each free agent class. It might be that teams have regained a little sanity in the way they evaluate the Melky Cabreras and Russell Martins of the world.

Of course, there may be other factors at work here that don’t show up in simple dollars and cents; perhaps players have started bargaining for more years instead of more dollars recently, or some other confounding factor has caused wages to stop rising so steeply.

The answer to this question might be clearer after investigating the free agent markets from 2009, 2010, and 2011, but at least one source suggests that last year’s free agent pool was paid similarly to this year’s. In my next post, I’ll dig a little deeper into the past few years to see if the trend has remained steady.

This blog is not written or edited by Boston.com or the Boston Globe.
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Stats Driven is powered by David Sabino, who over the last two decades has been a source of statistical analysis on the pages of Sports Illustrated, New York Times, and Chicago Tribune. David has written about all seven recent Boston-area championships for Sports Illustrated Presents commemorative issues, was the creator of such long time features as SI’s Player Value Ranking, NBA Player Rating and long running fantasy football and baseball columns.

He has also authored or made contributions to many books, including the Sports Illustrated’s 100 Fenway: A Fascinating First Century.

Now living in Marblehead, he’s focusing his attention on the Boston sports scene, specifically delving into the numbers affecting the Red Sox, Patriots, Celtics and Bruins, with the goal of informing and entertaining real fans. You can follow him on Twitter at @SabinoSports.

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