Speier, as usual, does a great job looking at a potential Lester extension:
http://www.weei.com/sports/boston/baseball/red-sox/alex-speier/2014/01/27/life-after-30-what-will-jon-lester-be-worth-du
Seems to me that folks are too easily choosing to ignore or explain away the downside risk here.
Some of the years and AAVs being mentioned, even if considered to be a “discount”, make me nervous.
Consider the work Brian MacPherson did to sketch out what a Lester extension might look like given the FanGraphs worldview of the current market -- not necessarily the world of Ruben Amaro signings, but the one where contracts are considered based on expected value:
Again, consider that the above should be viewed as a market-rate contract for a pitcher in free agency, not one who is under contract for another year and who has expressed an interest (willingness? desire?) to take a discount in order to stay in in Boston.
So, let’s consider what a discounted deal might look like (baseline assumes $6MM/win, a .5 win decline each season, 5% salary inflation). A simple 3-2-1 weighting of the last three years' WAR produced the same 3.8 WAR projection for next year that ZIPS came up with to use as a baseline moving forward, so that's what you see here (rather than the rounded up 4.0 WAR MacPherson started with in his piece)...
[tablegrid= Lester ]
| YEAR | WAR | AAV |
| 2014 | 3.8 | $22.8 |
| 2015 | 3.3 | $20.8 |
| 2016 | 2.8 | $18.5 |
| 2017 | 2.3 | $16.0 |
| 2018 | 1.8 | $13.1 |
[/tablegrid]
Consider that, then, to be the "market" for wins, as projected over the next five years and applied to Lester's expectations. Six years seems just crazy to me, so let's focus on four and five year deals, and see what we've got:
4/$78.1
5/$91.3
Again, using the assumptions laid out above, that's what we could expect a Lester deal could be worth assuming free agent market prices. Alas, Lester has said he's not interested in holding out for that type of contract -- "I understand you're going to take a discount to stay. Do I want to do that? Absolutely."
So, about that discount, what could we reasonably hope for and/or expect?
Just a quick look at a few different scenarios, applying a range of different discounts to the "market rate" baseline above:
[tablegrid= Possible Lester Discounts? ]
| 4 years | 5% discount | $74.2 |
| 5 years | 5% discount | $86.7 |
| | | |
| 4 years | 10% discount | $70.3 |
| 5 years | 10% discount | $82.1 |
| | | |
| 4 years | 15% discount | $66.4 |
| 5 years | 15% discount | $77.6 |
| | | |
| 4 years | 20% discount | $62.5 |
| 5 years | 20% discount | $73.0 |
| | | |
| 4 years | 25% discount | $58.6 |
| 5 years | 25% discount | $68.4 |
[/tablegrid]
But wait...there's more! What type of discount have other pitchers who had expressed a desire to take a hometown discount actually signed for when they carried through on their stated desire?
A few years ago, Jered Weaver signed 5 year/$85M extension with LAA over the objections of his agent, Scott Boras. What type of discount did he take?
Using the same method outlined in the first table, let's look at what the market for Weaver contract could have reasonably looked like using his projections at the time (in this case, however, give that it was a few years ago I marked the value of a win at $5M, rather than $6M)...
[tablegrid= Jered Weaver ]
| JW WAR | JW AAV |
| 5.4 | $27.0 |
| 4.9 | $25.7 |
| 4.4 | $24.2 |
| 3.9 | $22.6 |
| 3.4 | $20.7 |
[/tablegrid]
So...
4/$99.6
5/$120M
Instead he signed a deal worth 5/$85M -- a thirty percent discount on what he reasonably could have expected to achieve via free agency.
So, what would a Lester contract look like if he gives the Sox the same hometown discount that Weaver gave the Angels?
[tablegrid= Lester Weaver Discount ]
| 4 years | Weaver discount | $55.2 |
| 5 years | Weaver discount | $64.5 |
[/tablegrid]
The different tables and projection took a little tinkering, but I think my math carried through for each. In any event, I tried to show my work, so tweak as you see fit.
