CJ Wilson and Yu Darvish are by most accounts the top two starting pitchers on the market this offseason, and their on-field performance has been discussed ad nauseum. Since I don’t have much to add to the already thorough discussions of the two pitchers, I thought I would take a look at the economics of the two potential contracts, to see how they might compare on the financial side.
There are a number of factors to be examined here, not just contracts, but also other factors such posting fee, luxury tax, and draft pick compensation, to see what the overall actual cost of these two players will be. It is admittedly speculative at this point because nobody knows what kind of contract Wilson or Darvish will get, or what the winning bid will be to negotiate for Yu Darvish’s services. However, using historical comparisons, I will attempt to make a reasonable estimate.
I will start with Wilson first, because his situation is a little simpler. He is probably due for a contract similar to that of AJ Burnett or John Lackey in recent years: a 5-year deal in the $80-90 million dollar range. I’ll split the difference and call it a 5-year $85 million dollar deal ($17 million per year), a big contract to be sure, but one befitting the only frontline starter on the free agent market. Add in the 40% luxury tax that the Yankees will pay on the deal, and we are looking at a total expenditure of $119 million. It is possible his contract could wind up a little lower due to his playoff struggles, but I can’t really estimate that effect, and he’s clearly a better pitcher than either Burnett or Lackey was when he hit the market.
The second factor associated with Wilson is the loss of a first-round draft pick, since the Rangers will almost assuredly offer arbitration. According to research by Victor Wang from a few years ago, the value of the Yankees’ first round draft pick (#30) is somewhere between $6.5 million and $3.4 million, so I’ll call it $5 million for the sake of simplicity. This comes out to a total of $124 million for 5 years of CJ Wilson, a hefty price tag, but certainly one that the Yankees could afford if they think Wilson’s 2011 performance (5.9 WAR) is sustainable.
As for Darvish, things get a little more complicated because it requires estimating both the posting fee and the contract. The Red Sox paid a $52 million posting fee to the Seibu Lions for the rights to negotiate with Matsuzaka, outbidding the competition by more than $10 million. Given the perception of Matsuzaka as a major bust (even though he had some success), I am not sure I see the posting fee climbing that high for Darvish (even though he is clearly a better pitcher). As a result, I will estimate that the winning bid for Darvish will be around $45 million.
As for contract, one can’t really compare Darvish to a pitcher on the free agent market. As a result, Matsuzaka is once again the most logical comparison. Matsuzaka received a 6-year $52 million contract (including many perks). I would guess Darvish gets a slightly bigger deal, say 6 years and $60 million. With luxury tax, the total cost of the contract would be $84 million, which added to the posting fee (which is not subject to luxury tax), the total outlay would be $129 million. Darvish may also make money for the Yankees via Japanese marketing, but from what I recall hearing about Matsuzaka, it does not amount to much more than a few million per year (if anyone has more precise numbers, let me know). I’ll put it at being worth $10 million over the length of the contract (a conservative estimate), which brings Darvish’s cost down to $119 million.
In terms of total dollars, the two players look to have a relatively similar total cost, though on a per-annum basis Darvish is a better deal because of his 6-year contract ($24.8 million vs. $19.8 million). Ultimately, the difference is not big enough to outweigh talent, so the Yankees should go after whoever they like best if they decide they want to spend big. Darvish is a slightly cheaper option with both a higher ceiling and a much great risk (because he is switching leagues). However, Wilson is no sure bet to continue his success due to his relative inexperience at starting and his older age. From this analysis, the finances do not clearly favor one over the other since Darvish’s actual talent is unknown, but I would still lean toward Darvish.
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Darvish
Pros: Young, has a good bit off innings on his shoulders so he could come in and be a workhorse, great stuff, great command, he’s a competitor
Cons: The baseball is different over here so his stuff might not be as good, strike zone is different here too, He’s pretty much a AAA prospect(No Major League experience), hasn’t pitched against MLB type hitters, Japanese track record in Majors
Wilson
Pros: Pretty good stuff, Major league experience, not alot of innings on his arm so he could last awhile.
Cons: His control seems iffy, Postseason track record, Draft pick compensation, Plays against A’s, Angels, Mariners. Only a two year sample size, Has Burnett written all over him
If you put a gun to my head and made me decide I would go with darvish. Wilson would be a 4th starter in the AL east. But I think the Yankees could make do with what they have this year and maybe try for a pitcher in the much deeper 2013 free agency pool
That sums it up pretty well, though I’m not sure I would consign Wilson to #4 status in the AL East that quickly.
I think the 6 years $60M contract estimate for Darvish is a little high. Traditionally the Players coming over here received a contract at roughly the same dollar value of the posting fee. So if your estimating a posting fee of $45M wouldn’t a contract more in the line of $45 to $50M be more line for 6 years. Besides considering Darvish is making the equivalent $6.5M per something between along the lines $8M per seems more reasonable. Then once he proves himself assuming a 6 year deal at the age of 31 he can really cash in in free agency. Just a thought but $90 to $95M total cost seems a lot more practical.
True, though Matsuzaka got over $8 million per year when he signed with Boston. Darvish is clearly a better pitcher than Matsuzaka was at the same stage of his career, so I imagine Darvish will ask for (and likely be given) a higher salary.
The one card the acquiring team holds if the player doesn’t agree to a contract is the posting fee gets returned and the player returns to Japan. Could be an incentive for a player like Darvish to accept a slightly smaller amount the 1st time around.
I have a feeling that you are probably ballpark correct in your estimates especially given that it is a relatively poor buying market for free agent pitching.
That said, I think at some point teams have to wise up and stop using bad contracts as comps for new contracts. How many of these big dollar free agent pitching deals have worked out for teams? I don’t think many. I was looking at the top contracts for pitchers on Cots website earlier today and most of the large deals of the last 5-10+ years look really bad. Think about some of these deals: Santana, Matsuzaka, Burnett, Lackey, Lowe, Kevin Brown,Barry Zito,Carlos Zambrano, Jake Peavey, Mike Hampton, and Jason Schmidt. Pitchers are a lot more risky than position players. If I were a GM, I’d have to be completely in love with a pitcher to want to sign him to a 5 year, big money deal. So few of them work out that I think you have to be very selective.
I hope NY passes on both Darvish and Wilson unless the market turns out to be much less rich than you expect.
Despite the Yankees’ resources, money means something to the team. Darvish is more favorable for the Yanks because his posting fee won’t affect their luxury tax/annual salary total. That means is Darvish fails, it wouldn’t have a huge impact on their ability to target free agent pitchers in a good year like 2013. Signing Wilson would.
I agree with mbonzo. Though the per year cost is close, with Darvish there is less impact to payroll flexibility, something the Yankees have less of than they should considering their resources.