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January 7, 2010

Checking the Numbers

Low Risk, Any Reward?

by Eric Seidman

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Back in my sabermetrics infancy at the "Statistically Speaking" blog, one of the first articles I wrote shared the title above and investigated low-risk pitcher signings from 2002-07 in an attempt to determine how frequently these moves positively affected teams, as well as the rate of dollars per win doled out to the players in question. The article was published in SABR's By the Numbers, and in the most recent Baseball Research Journal. The initial finding was that the wins provided by low-risk pitchers cost approximately $2 million, against the expected expense double that (if not more) per win. Those who signed at minimal risk in terms of contract value but who came with greater risk in terms of expected performance were better buys than the supposed sure things.

Looking back on it recently, I realize the initial article suffered from a few easily correctible flaws, which make for a much more accurate depiction of the low-risk free-agency market. (There were also a bit more substantial than calling the 2004 Expos the Nationals, which someone belatedly informed me of in an odd call at 9:34 p.m. last Wednesday.)

Before diving into the pitchers, let's step back and review: What are low-risk moves? Consider a liquidating video store, like the Blockbuster near my house, where I purchased 24 DVDs for $41 this past weekend. Some of the movies will be clunkers, but given my habit of watching nearly a movie per night, the potential for entertainment upside surely outweighed the risk of plopping down $1.19 for Flash of Genius with Greg Kinnear, or $0.75 for August with Josh Hartnett, both of which could be wastes of time. Movies of this ilk don't ooze Academy Award credentials, but they are certainly viable alternatives to the Comcast On Demand Free Movies library; the low cost involved earned the DVDs an invitation to my drawer, even if they never leave their boxes.

That thinking works in baseball as well. When the Rockies bring aboard a guy like Glendon Rusch, the hope is that he becomes a useful part of the staff, but the underlying expectation is that signing him barely dents your bank account; should he live up to his best-case potential, the team earns plenty on its investment. In baseball, low-risk purchases are those one-year deals with little guaranteed money involved, or a cheap option for a second year, minor-league deals laden with incentives, nabbed on a waiver claim, or some combination of these. The players themselves are risky; their contracts are not. Players ineligible for free agency are not included, though there are situations where non-tendered players merited inclusion, like Scott Olsen when I revisit this piece around this time next year.

Admittedly, my definition is fairly loose and subjective, but I manually sifted through all of the moves made before and during the 2009 season. For instance, Scott Eyre signing a $2 million deal to be the Phillies' lefty specialist out of the bullpen does not qualify, while the Mariners inking of Russell Branyan to a $1.4 million deal with incentives would qualify. The rationale here is that Eyre will wind up involved in a very small percentage of team events compared to an everyday player like Branyan, and similar pitchers could be found for less. Unlike the original article, which dealt specifically with pitchers, I checked this time around for all low-risk moves, finding 68 in total, with examples that included the Cardinals signing Trever Miller, the Rangers signing Eddie Guardado, and Bruce Chen signing with the Royals.

One of the flaws in my first attempt involved incentives. Russell Branyan didn't sign for just $1.4 million; he was also capable of earning up to $350,000 in playing time bonuses. I'd initially ignored incentives, because the goal was to gauge intent in signing a player, which lent itself to including just the base. This was and is incorrect, as some of the risk shifted to the player though incentive-laden contracts should be accounted for. So, I implemented an expected value method, in which the rate of incentives triggered out of total possible incentives was applied to the individual maximum incentive amount for each player. Last year, 15.38 percent of the available incentives to this specific group was triggered, so for a player like Branyan, on a guaranteed major-league deal, the effective salary would be equal to the formula: Eff$ = Base + (0.1538*Max Incentive Amount) or, more specifically, $1.4 million + (0.1538*$0.35 mil) = $1,453,830. Even though Branyan triggered all of his incentives, the expected rate suggests he would have received $53,830 as opposed to $350,000, with the former shifted back to the team.

Another issue involves players not at all like Branyan in this group: players signed to minor-league deals without guaranteed major-league contracts, and with a much higher rate at the big-league level with incentives. Players of this type won't receive their full major-league salary if they are rostered but a portion of the time, so their big-league contracts must first be prorated. Rodrigo Lopez signed one of these deals with the Phillies worth $650,000 at the major-league level, with possible incentives totaling $3.05 million. The former Orioles hurler only played for the Phillies for around 41 days, and while the team did not know with any certainty how long his stint would last, prorating his salary makes much more sense than simply plopping it into the study at the full base, as I did in the original article. Taking his actual days spent rostered and dividing by 185, we get 22 percent to be applied to the base salary, netting $143,000, before running through the aforementioned incentive calculations. All told, Lopez's effective salary for this study totaled $613,144, as he was expected to earn much more in the way of incentives than he actually did.

The final issue to tackle involves effective salary and marginal salary, the latter of which describes money used in dollar per win calculations paid out above what would be paid to a player making the league minimum. If not Lopez, the Phillies could have used any of a number of freely available players at the replacement level, to be paid $400,000, so the true way to determine the rate of dollars per win would be to prorate the league minimum based on the actual days rostered and subtract that from the effective salary. Using Lopez as an example once again, a replacement level player at the league minimum would have made $400,000 * (41/185), or $88,640 in his place, a figure subtracted from the previously stated $613,144 to bring his marginal 2009 salary for these purposes to $524,495.

Onto the results, the group produced 21.1 WARP3 in the aggregate, which broke down to 16.1 wins across 40 hitters, and just five wins from the 28 pitchers; the average low-risk hitter signing produced 0.4 wins, while the average pitcher halved that mark, coming in at 0.2 wins. We're clearly not talking about world-beaters here; how could we be with group members like Kip Wells, Mike Hampton, and Russ Ortiz? The next question focuses on how much such players were paid for their meager contributions. The group totaled $50,133,085 in marginal dollars, equating to $2.38 million/win via WARP3, which broke down to $1.94 million per win for hitters, and $3.78 million win for pitchers. So, hitters were more productive and more of a bargain than pitchers, but the pitcher's rate wasn't necessarily poor given that teams did not value them any more than the perceived can't-miss free agents.

It might seem counterintuitive to suggest that the market is still efficient if the better-bet free agents sign for $4-6 million and these low-risk pitchers are not far behind. What would make this assertion false is if their rate exceeded that of the others, but that didn't occur last year. Thus far, we've been using WARP3 as the win-based metric. What if we use rWAR (developed by Sean Smith), which uses a much higher replacement level? Keeping in mind previous research that free agents are signing for $6-7 million per win measured by rWAR, the $6.35 million/win rate using Smith's stat casts low-risk signings in a less friendly light: now they border on inefficient. The free agents falling out of the low-risk category tend to sport a higher expected level of performance, meaning the same amount of money could be better spent on players with a much more guaranteed range of possible productivity.

Productivity was something this group largely lacked: just eight of the 68 members exceeded the 1.5 WARP3 threshold, with four besting 2.5 wins: Fernando Tatis, Branyan, Juan Uribe, and Craig Counsell. (None of them pitch.) The low rate of solid performers here suggests, as I did in the original article, that signing players to low-risk deals is a great strategy as long as a team is not built around such players; bring in Glendon Rusch on a flier, not with the expectation of 30 starts and 180 innings. While certain diamonds in the rough can be found, as with Branyan and Uribe (or Watchmen and Catch A Fire in my DVD expedition), the general rule I came up with the first time around still applies: for every Chris Carpenter coming back from injury, there are five Bruce Chens.

Low-risk signings constitute a solid strategy given that teams rarely have to guarantee anything, and they can simply shuffle through various pieces until the one that fits emerges, but when the rate of dollars per win inches closer to that of the wider group, the risks of these moves can actually be more damaging than merely bringing up replacement-level players for the minimum. Suggesting that a low-risk move could be risky may sound like a play on words, but teams need to become more selective with their bargain-bin hunting.

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

Related Content:  Year Of The Injury,  Incentive

23 comments have been left for this article. (Click to hide comments)

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Patrick Ferrington

It may not have been your purpose, though I think it is, I applaud you for working to respond to the comments on the state of prospectus.

You deemphasized the gritty caclulation details, got a bit more personal, and pulled in an outside statistic. My guess is it felt a little awkward but I applaud the effort.

Not that I was all that concerned about your articles before mind you, but I appreciate your effort here.

Jan 07, 2010 09:50 AM
rating: 0
 
ScottyB

Flash of Genius is a good movie- well worth the $1

Jan 07, 2010 09:55 AM
rating: 0
 
BP staff member Eric Seidman
BP staff

For some reason here at work the Post Reply button isn't working, but Patrick, I appreciate the comment although the article was not written as a direct response to comments in the SotP article. One of my goals moving forward has always been to, more often than perhaps I did this past year, tell a story using statistics, not about statistics, although there are certainly occasions where a statistic is the driving force behind an idea, perhaps to prove or disprove a common creed or myth. And I've never been afraid to use an outside statistic -- nothing felt awkward at all. I do believe that personalizing helps develop a stronger bond with the audience, however, and I bet a whole bunch of readers don't even know about my movie background, which would be a fun discussion perhaps for another day.

Jan 07, 2010 10:11 AM
 
Juris

Eric: in reworking the replacement level application, have you considered the FAT (freely available talent) concept?

http://baseballprospectus.com/article.php?articleid=4891

Jan 07, 2010 10:22 AM
rating: 0
 
pbconnection
Other readers have rated this comment below the viewing threshold. Click here to view anyway.

I find it sad to see a Seidman article without at least a small graph or aside with stats, so I'll a small stat block.

I find that the number of comments left by BP readers for an article can often be a good indication of how thought provoking that article is. Clearly there are exceptions, like the State of BP where they asked for feedback, or Sheehan's last article where people want to say goodbye.

# of comments on previous Eric Seidman articles (# of those by BP staff):
Dec 28, 2009 - 4 (2)
Dec 18, 2009 - 5 (2)
Dec 11, 2009 - 8 (1)

Just a thought... any other thoughts on as to why these are coming up short on comments?

Jan 07, 2010 10:40 AM
rating: -9
 
NYYanks826

How is this comment even the least bit relevant?

Can I please have the 20 seconds of my life back that I spent bothering to read your comment?

Jan 07, 2010 11:15 AM
rating: -1
 
pbconnection
Other readers have rated this comment below the viewing threshold. Click here to view anyway.

I feel exactly the same way... About this article.

Jan 07, 2010 11:59 AM
rating: -7
 
Schere

I don't agree that "the $6.35 million/win rate using Smith’s stat casts low-risk signings in a less friendly light: now they border on inefficient."

They appear to be efficient, in the aggregate, given your comment that "free agents are signing for $6-7 million per win measured by rWAR."

Or am I missing your point here?

Jan 07, 2010 11:35 AM
rating: 1
 
Schere

hmmm...was meant to be under the article, not under this comment, which is now hidden! ack!

Jan 07, 2010 11:43 AM
rating: 0
 
BP staff member Eric Seidman
BP staff

Schere - I didn't say they were inefficient, but that they look closer to that area than under WARP3. Still efficient with rWAR, but close to inefficient.

Jan 07, 2010 11:36 AM
 
Tarakas

Eric,this article makes some nice points. I think using headings would help make articles a bit easier to read. Reading onscreen is harder, and also, some people might want to skim. Something like "Methods," "Results," and "Conclusions" would go a long way.

Jan 07, 2010 12:30 PM
rating: 4
 
Schere

I don't agree that "the $6.35 million/win rate using Smith's stat casts low-risk signings in a less friendly light: now they border on inefficient."

They appear to be efficient, in the aggregate, given your comment that "free agents are signing for $6-7 million per win measured by rWAR."

Or am I missing your point here?

(repeat comment - was mis-placed under another, hidden, comment before.)

Jan 07, 2010 13:16 PM
rating: 0
 
BP staff member Eric Seidman
BP staff

Yep, I replied to it already, two comments above this. Cut and pasted below:

Schere - I didn't say they were inefficient, but that they look closer to that area than under WARP3. Still efficient with rWAR, but close to inefficient.

Jan 07, 2010 13:28 PM
 
eighteen

The article spoke in general terms about the value of a Win, but I wonder what conclusions might be drawn if we used team-specific Win values.

For example, it seems to me the value of a Win to the Royals is a helluva lot less than it is for the Yankees. Therefore, "low-risk" "dumpster-diving" signings make a lot of sense for the Yankees; but not much, if at all, for the Royals.

Or is that what you meant when you said low-risk signings are "a great strategy as long as a team is not built around such players..."?

Jan 07, 2010 13:36 PM
rating: 0
 
BP staff member Eric Seidman
BP staff

Eighteen, exactly (the last line). The Yankees might sign Bruce Chen in a Sergio Mitre type of role, if that. The Royals would sign Bruce Chen in the hopes he becomes the 4th starter. It depends on the teams, and one of my next articles will actually focus on how teams would view players, either of this ilk or of the more standard free agent variety.

Jan 07, 2010 13:49 PM
 
Juris

@eighteen: To illustrate your first point, think how much different one more win would have meant to the Tigers, or one more loss to the Twins. Perhaps more than one more win for the Yankees, because getting over the hump and into the playoffs is such a significant factor in this year's revenue and next year's revenue.

Jan 07, 2010 13:43 PM
rating: 0
 
AtulofXanadu
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for the life of me, i cannot figure out why the bp staff hates the twins so much.

sure, they dont do the things the sabr-way, but at least they get (some) results, even if their way of getting there might be different from yours

still, you post an article questioning the signing of fringe players and put condrel on the picture and then dont even discuss him? i cant figure out another reason for doing that except taking another shot at a very respectable organisation (instead of a team that really deserves it)

i really enjoy almost everything about bp, but the constant nagging about the twins just makes me sick

Jan 07, 2010 15:10 PM
rating: -7
 
BP staff member Eric Seidman
BP staff

I'll be perfectly honest, I had no idea Condrey had even signed with the Twins, so nothing here was meant as a slight to anyone. I would assume Condrey was the picture because he represents the type of low-risk player that would be included in a study like this.

Jan 07, 2010 15:13 PM
 
AtulofXanadu
Other readers have rated this comment below the viewing threshold. Click here to view anyway.

sorry about that misunderstanding then :)

still, the point remains that i feel that several bp writers take an excessive amount of shots at the twins and i just cannot figure out why, since at least half the league gets worse results AND does stupider things

Jan 07, 2010 15:36 PM
rating: -6
 
BP staff member Jay Jaffe
BP staff

As somebody who's taken at least a couple of shots at the Twins, I'd suggest that it's not because they don't have some amount of success with the way they do things, but that they occasionally hamstring themselves towards having even more success. Often it's by micromanaging certain roster situations (Livan Hernandez vs. Francisco Liriano in 2008, the persistence of Nick Punto and other Replacement Level Killers in their lineup - Casilla/Tolbert is another example - and a general failure to convert their pitching surplus into useful hitters at positions of need) and thus setting their sights higher than a team that *might* win the division.

Jan 11, 2010 07:30 AM
 
jdtk99

Freely available talent is only freely available in the offseason. Signing Clay Condrey may not help the Twins win a lot more games, but the more options a team has for a position the less likely they are to be stuck with sub-replacement level play. If the Twins had signed a replacement level 2B to a minor league contract they wouldn't have had to put up with Casilla/Tolbert(-1.2 WARP3) at 2B for most of the year. I think these low risk signings are more about limiting downside and providing multiple options in case of injury/ineffectiveness.

Jan 07, 2010 15:47 PM
rating: 2
 
BP staff member Eric Seidman
BP staff

Right. Reverting to movies, if I put in Phantoms with Ben Affleck but it stinks, I can quickly remove it for The Phantom, with Billy Zane. If that stinks, I can put Phantom of the Opera in, and if that stinks, Batman: Mask of the Phantasm. The low risk moves help a team avoid being stuck with sub-replacement level players, as you said, because they can unload someone without feeling like they wasted money.

Jan 07, 2010 15:51 PM
 
blw777

I don't think the cost is entirely accounted for. In particular, there's an additional cost to signing players, which is opportunity cost. That guy is occupying a spot on the 40-man roster, or potentially on the 25-man roster.

Jan 15, 2010 01:12 AM
rating: 0
 
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