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April 1, 2013

Transaction Analysis

The Tigers Make Justin Verlander Baseball's Highest-Paid Pitcher

by Ben Lindbergh


DETROIT TIGERS
Team Audit | Player Cards | Depth Chart

Signed RHP Justin Verlander to a five-year, $140 million extension with a $22 million vesting option for 2020. [3/29]

Extensions, as a rule, are anticlimactic. They often involve superstars, and enormous sums of money, so it seems like they should be more interesting than they are. But the only way to assess their impact is to take the long view. Before signing this extension, Justin Verlander was committed to the Tigers through 2014. After signing it, he’s still committed to the Tigers through 2014. The difference is that now, he’ll continue to be a Tiger from 2015-2019. That's nice for Tigers fans, but it sounds a little less interesting when you put it like that. There’s always the chance that we’ll get hit by an asteroid before this contract kicks in, in which case discussing the extension is just wasting what time we have left.

Free agent deals are different. Zack Greinke signing a six-year, $147 million deal with the Dodgers is much more exciting than Verlander signing an extension that brings his guaranteed earnings to $180 million over the next seven seasons. Greinke isn’t as good, and there aren't as many total years or dollars in his deal. But its effects were immediate, and there was so much more to say: Greinke was with the Dodgers, which meant he wasn’t with the Angels, or the Rangers, or any of the other teams that expressed interesting in signing him. How would pitching in Los Angeles affect Greinke? How would getting Greinke affect the Dodgers? How would missing out on Greinke affect everyone else?

We can’t ask those questions about Verlander or the Tigers, who are just as likely to have successful seasons and win the AL Central as they were a week ago. So that makes this more about the money. And it’s not our money; it’s Justin Verlander’s and Mike Illitch’s money. Verlander is already rich, and Illitch is richer. If Verlander signed a below-market contract, he’d survive. If Illitch gave him an above-market contract, he might not survive, but only because, according to the U.S. Social Security website’s Life Expectancy Calculator, an American male who is 83 years and eight months old can expect to live another 6.5 years. So Illitch literally might not survive a seven-year extension, actuarially speaking, but if he does, he won’t miss a few extra million. This Transaction Analysis just took a morbid turn.

Enough predicting when people will die; time to summarize the signing. Verlander was already under contract for a total of $40 million over the next two seasons. This extension adds $140 million over the five years after that, which works out to $28 million per additional season. There’s also a vesting option for an eighth year that would bring the contract’s total value to $202 million. The option vests in the unlikely event that Verlander finishes in the top five in Cy Young voting in 2019, so if anything, it sweetens the deal for Detroit; $22 million would be a steal for a top-five pitcher in 2020, even if he is 37.

If we can’t ask the kinds of questions we would about a move that makes an immediate on-field impact, we can say, at least, what we always say about long-term extensions or signings like this one: Player X is an excellent pitcher. No wonder Team Y wants to keep him in town! But even excellent pitchers can break without warning, and so there’s a significant chance that this contract will turn out to be a disaster. It’s easy to summon examples of pitcher commitments at least seven years long that went wrong: Kevin Brown, Barry Zito, Mike Hampton, or, going all the way back, Wayne Garland. You know the names.

So what we want is a way to tell whether this particular long-term contract for this particular pitcher will be one of the bad ones. Verlander has been durable for six years, dominant for four. Since his rookie season, when he missed a couple weeks with “right arm fatigue”—understandable, given that he’d topped his previous peak professional innings total by 70 or so (Verducci Effect!)—the only two entries on his injury ledger are for food poisoning and a broken callus. And that’s despite throwing 1380 (regular season plus postseason) innings over that span, more than anyone but CC Sabathia and Roy Halladay.

So on the one hand, Verlander has a ton of innings on his arm. On the other, those innings haven’t taken a visible toll. If you believe that every pitcher has a certain number of pitches in his arm, well, Verlander has used up 25,424 of his (though we don’t know how many he had to begin with). But if you believe that the best predictor of a pitcher’s ability to be healthy in the future is how healthy he’s been in the past, it’s hard to come up with a better long-term bet than Verlander.

Over his last four seasons, from age 26 through age 29, Verlander has amassed 20.6 PWARP. Only four other pitchers whose careers began in 1950 or later have posted at least 20 PWARP over the same age range: Pedro Martinez, Sandy Koufax, Roger Clemens, and CC Sabathia. That’s about the best company imaginable. Three of those pitchers are widely considered to be among the best of all time, and Sabathia has a pretty good chance of being a Hall of Famer himself. If we lower the bar to 15 PWARP over those same four seasons, 21 non-Verlander pitchers make the cut. (You can see the whole group here.)

Sabathia, Johan Santana, and Roy Oswalt are still active, so we can subtract them from the sample (though Santana and Oswalt don’t appear to have many wins left in their arms). The remaining 18 pitchers were worth 18.0 PWARP from ages 26-29, and 16.7 PWARP from 30-36. Essentially, they were slightly less valuable over the seven seasons after turning 30 as they were over the four seasons before.

Of course, there’s a wide range of outcomes within that group. There’s Randy Johnson, who was worth well over twice as much from 30-36 as he was from 26-29, and Jim Bunning and Roger Clemens, who also aged well. And then there’s Koufax, who retired after age 30, and Jose Rijo and Sam McDowell, who lingered a little longer but whose years as valuable pitchers were essentially over at the same point. Seven pitchers who had at least 15 PWARP from 26-29 accumulated under 10 from 30-36, and seven earned over 20.

There are good reasons to think that Verlander is more likely to join the latter group than the former. To qualify for the 15-plus WARP club, all of these pitchers had to be both effective and durable. But Verlander has been more effective and more durable than most, at least by the standards of his day. Since he was better than the average pitcher in that group from 26-29, we’d expect him to be better than the average pitcher in that group from 30-36.

There’s also the fact that we haven’t seen any warning signs. McDowell was even better than Verlander at ages 26 and 27, but comparatively fragile and hittable at ages 28 and 29. It wasn’t a complete shock that he fell off a cliff at 30, since he was already dangling over the edge a year earlier. Verlander, though, has been just as good over the past two seasons as he was in the two before that.

A week ago, Brian Cashman recalled that he strongly opposed trading for and extending Johan Santana after the 2007 season, despite pressure from ownership, because (among other reasons) Santana’s declining velocity and slider usage suggested that he’d be a “high-risk player going forward, health-wise.” Santana then, like Verlander now, was a year removed from winning the AL Cy Young Award, and coming off a strong season (albeit not quite as strong as the Cy Young year). But his average fastball velocity, according to Baseball Info Solutions, had ticked down from 93.1 in 2006 to 91.7 in 2007, and his slider rate had fallen from 16.5 percent to 11.6 percent, a decline of roughly 30 percent.

Verlander’s four-seamer lost a little speed last season, but only 0.65 miles per hour, not the 1.4 Santana’s had surrendered. He also threw sliders at a career-high rate in 2012. In Verlander’s case, it’s hard to say whether velocity loss reflects physical degradation or an alteration in approach. As Jeremy Greenhouse noted two years ago, Verlander has a rare ability to throw harder as the game goes on, which suggests he’s a pro at pacing himself. His performance hasn’t suffered in recent seasons, so maybe he’s simply finding ways to conserve his strength. When he needs to dial it up over 100, he still can: his peak PITCHf/x readings are about as impressive as ever.

There’s another important point to consider: Both McDowell and Santana were traded before their age-29 seasons. While that may have been more because of payroll pressure than performance concerns, it’s still something meaningful that sets them apart from Verlander. Research indicates that players who re-sign with the same teams age better than those who ink elsewhere. Teams know their own players better than their competitors do, so the fact that the Tigers were willing to guarantee Verlander $28 million at age 36 is another data point that suggests the extension will work out. That doesn’t work so well before the fact, since it’s not a self-fulfilling prophecy; Dave Dombrowski couldn't have said, “I've decided to extend him, because if I do, it will mean he’ll age well!” But as we evaluate the deal after it’s done, we should keep the Tigers’ confidence in mind.

Let’s say the going price for a free-agent win in 2013 is something like $6 million, as Jonah Keri speculated last week. And let’s say that $6 million figures rises by an annual inflation rate of five percent. By the last year of Verlander’s deal, a win would be going for $8 million, with a $7 million average price tag over the length of the contract. At that rate, he’d need 25.7 WARP to make the math come out even. That’s a lot, more than 15 of the 18 elite age-26-29 pitchers we looked at had over the same age range. But it’s not crazy to think that Verlander could be worth that, given all the factors in his favor.

Of course, it’s kind of cheating to distribute Verlander’s $180 million haul equally over seven seasons. Verlander was already signed at $40 million for 2013 and 2014, so this is really a five-year, $140 extension. It’s a little harder to make that math work: if you assume a win will go for about $7.3 million over Verlander’s age-32 through age-36 seasons, he’d have to be worth 19.2 WARP in those five years for Detroit to break even (not counting the extra revenue that a star and fan favorite like Verlander contributes away from the field). That’s a pretty tall order. In fact, only six pitchers since 1950 have done it: Johnson, Bunning, Clemens, Bob Gibson, Early Wynn, and Curt Schilling. It’s scary to think that Verlander has to pitch like a Hall of Famer to justify the contract. But it’s also completely logical that he’d be paid to pitch like a Hall of Famer, because he’s pitched like one to this point.

Realistically, this is probably the smallest contract Verlander would have agreed to. Last month, Felix Hernandez signed a five-year, $135.5 million extension that will pay him $27.858 million in 2019. It’s not a coincidence that Verlander’s peak annual earnings will just slightly surpass that. Players have their pride, and a player as successful as Verlander won't settle for a salary second to anyone’s. Felix’s contract established a precedent, and now Verlander’s takes over the top spot, at least until Clayton Kershaw signs a (probably imminent) extension of his own. (Speaking of Felix and Kershaw, both they and Verlander would have hit the open market in 2014, if their prior contracts had run their course. Remember free agency? That was fun.)

Felix is three years younger than Verlander, so in that sense, he’s a lower risk. But he’s been worked almost as hard, and his stuff seems to have suffered: he lost over a mile and a half per hour from his sinker last season, and a mile per hour from his four-seamer. (His velo is down further this spring, though it’s always risky to read into spring speeds.) Hernandez has such a deep arsenal that he might manage to compensate for a slowing fastball more easily than Verlander could, but it’s still a disturbing sign—to say nothing of the injury clause that was added to his contract after an MRI turned up a possible issue with his elbow.

The most concerning aspect of Verlander's new contract—other than the risk that an important part of his arm could suddenly snap—is that this spending might just be the start. The Tigers now have $90.8 million committed to four players for 2015: Verlander, Prince Fielder, Miguel Cabrera, and Anibal Sanchez, all of whom will be 31 or 32. That’s not necessarily crippling, since all of those players could still be productive at that age, but it does mean they’ll have to pay quite a bit more to round out the rest of the roster—especially in light of their suspect farm system, which Jason Parks just ranked the second-worst in baseball.

It’s a false premise to say that if you have to sign a pitcher to a seven-year contract, Verlander is the one you’d want it to be. You don’t have to sign anyone to a seven-year contract. But if you want to keep a franchise player like Verlander—and all the marquee value that comes with one—you do have to assume this sort of risk. Because if you won’t, someone else will. The Tigers didn’t get a hometown discount, but don’t expect a disaster. Verlander’s past makes his deal as palatable as a long-term contract for a pitcher can be.

Thanks to Andrew Koo, Ryan Lind, and Rob McQuown for research assistance.

Ben Lindbergh is an author of Baseball Prospectus. 
Click here to see Ben's other articles. You can contact Ben by clicking here

Related Content:  Extension,  Justin Verlander,  Tigers

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