Over at Pinstripe
Alley readers were asked to come up with a post about possible Yankees
trade targets, including Nolan Arenado, a player general manager Brian Cashman
has been rumored to covet. In a vacuum, I would think that any fan of the team
would love to have Arenado don pinstripes. The issue is baseball players do not
exist in a vacuum; players compete on the diamond and in return receive an
agreed upon salary. The issue with Arenado is two-fold; his contract is large
compared to most of his peers (he has been guaranteed the sixth largest contract
amongst active contracts, per Cots Contracts) and he can opt out of his
contract after the 2021 season. The opt-out clause makes valuing Arenado in a
trade tricky. With that being said, I wanted to try to find a fair way to value
Arenado and construct a deal with would potentially make sense for the Yankees,
if possible.
As I alluded to above, Arenado is guaranteed a lot of money.
To be precise from 2020 through 2026 he is set to receive 234 million dollars
from the Rockies, per RosterResource. Now, using the methodology for valuing
players I described here
(a quick summation if you want to avoid the link: I use a simple aging curve combined
with a Monte Carlo simulation of a players WAR total and cost of a win in free
agency to get a distribution of possible dollar figures for a player) and using
his Depth Charts win projection of about 4.86 WAR this coming year, I projected
Arenado to be worth about 265.57 million dollars over the next seven seasons,
so about 31.57 million dollars in surplus over seven years. The following is a distribution
of his seven-year value, in millions of dollars:
The column headers correspond the percentiles. 95 percent of
the time, he is expected to be worth at least 113.09 million dollars. Overall,
Arenado’s contract is reasonable, without considering the opt-out clause.
I should note, if any of you may have forgotten, we are
living in the middle of a global pandemic and the structure of the MLB season
has been substantially altered to the tune of 60 games. As a result, Arenado
will paid a prorated share of his 35 million dollar salary, which comes out to
12.96 million dollars. So, shave off 22.04 million dollars from 234 million and
about 26.01 million dollars from his 50th percentile outcome. From Craig Edwards
research into prospect value Arenado would be worth either a 55 FV pitcher
or 50 FV position player without the opt-out clause, or some combination of
players that would yield a similar result if the Rockies value quantity over
quality.
Without the opt-out clause, I would end the analysis here. But
the option is arguably the most important and valuable component of the
contract from Arenado’s side. Before I put a dollar value on the option, let’s
first look at Arenado’s value assuming he opts out after the 2021 season. Under
normal circumstances he would be due 70 million dollars over the next two
years. Using the methodology from above, here is a snapshot of his distribution
of possible outcomes:
On average, he would be worth 7.06 million dollars in
surplus, or about a 45+ FV prospect for two seasons. Given the Arenado’s
stature as a player, this is surprising and speaks volumes on how well Arenado
and his representation made out in their negotiation with the Rockies. Like we
saw above, we need to consider the circumstances of the pandemic and the fact
that if the Yankees were to trade for Arenado at the deadline on August 31st,
they would only get him for about 30 games plus a potential playoff run. When
accounting for his prorated salary over 30 games and his full salary next
season, he is owed 41.48 million dollars over two years. The snapshot of his
possible value distribution is as follows:
On average he will provide just a bit more than one million
dollars in surplus. If the Yankees were to operate under the assumption that opt-out
with 100 percent certainty, it would be hard to argue they should give up
anything of substance to bring Arenado into the fold. Now, this fails to
consider that the value of WAR is not linear and the value of the great players
is higher because concentrating WAR into one roster spot gives teams the
opportunity to be flexible with rest of the roster, but I did not think it was
worth getting any more into the weeds.
The real issue underlying all of this is the team cannot
value Arenado as if he will definitely play out all seven years under contract
nor can it assume he will definitely opt-out. Given the economic uncertainty brought
on by the pandemic, I would tend to think Arenado would be more likely to opt
in to the remaining five years on the deal. But let’s assume that the free agent
market does not change as a result of the pandemic (which one might say is a foolish
assumption, but I think provides a more interesting thought exercise). Let’s
also assume that Arenado will opt out of his deal if he is projected to be
worth more than 164 million dollars he is owed over the final five years of the
deal starting at age 31. Using my Monte Carlo simulation function and assuming
his projection is about half a win less at age 31 as it is at age 29, Arenado
would be worth at least 164 million dollars about 57 percent of the time. There
are two ways to account for this in the valuation of the contract. The first is
to look at how much he is worth when he opts in, account for that in the
valuation and take a weighted average of his surplus value when he opts in and
out, where the weights are the percent chance he makes each decision. Using
this methodology, if he opts in he would be worth on average 129.26 million
over five years putting the contract 34.74 million dollars underwater at the
end. Remember, over the first two years with the pandemic, he is worth 1.31 million
in surplus. Taking the weighted average of the two figures yields a valuation of
his contract being worth 14.15 million in the red.
The other way of accounting for the opt out clause is to
isolate the value of the clause on Arenado’s end of the deal and add it to the
total money guaranteed to get the value of the combination of the opt out clause
and the guaranteed salary. When Arenado opts out of the deal, he is worth on
average 208.14 million dollars on average. Since he opts out 57 percent of the
time, you can value the opt out as the additional money he would make by
hitting the open market multiplied by the percent chance he goes to the market.
Since he would be worth 208.14 million over the five years, we will assume he
would receive that amount on a contract. This would be a net gain of 44.14 million
dollars (164 subtracted from 2018.14). Multiplying 44.14 by 57 percent and you
get 25.16 million dollars. Add the 25.16 million to the 234 million he is owed
and you get a seven-year value of 259.16 million dollars. Remember from the beginning,
he is projected to be worth 265.18 million dollars over the seven-year period,
not accounting for the pandemic, so the contract is worth 5.99 million in
surplus, which is microscopic relative to the size of the deal. Obviously, I am
not considering the pandemic in this scenario but not much changes when you do
so. When accounting for his smaller prorated salary this year and the value he
will provide in the shortened season, the total surplus does not change much.
So, what did we learn from all of this? Well Arenado and his
agency (he was represented by Wasserman Media Group) did great work in
negotiating this deal. They got him an opt out early which gives Arenado the
chance to hit the free agent market if the Rockies do not move in a direction
he is comfortable with and the opt out makes it difficult for the Rockies to
move him for a decent return. When I consider the opt out clause and the probability
that he exercises it, his contract is either a slight negative or a slight
positive on the team end. Given the player-friendly nature of the deal (which I
do not mean to paint as a negative, just a negative when looking to trade for
Arenado. I love seeing players going out and negotiating deals in their favor)
and the uncertainty derived from the player option, I would be weary of dealing
anything of value for Arenado. If the Yankees are truly interested in his
services, I would rather see the team wait a couple of seasons and try its luck
in free agency.
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