Holliday signs

After much discussion in the blogosphere and elsewhere, Matt Holliday signed a seven year, $119 million contract to return to the St. Louis Cardinals today. Holliday was courted by the…well, we’re not exactly sure who courted Holliday prior to signing with the Cards. We know that Boston offered Holliday a five year, $82.5 million contract to play left for the Sox before turning their attention to John Lackey and Mike Cameron. Aside from that, the Orioles were rumored to have shown some interest in Holliday, though rumors of them offering the free agent outfielder an eight year, $130 contract were shot down by O’s brass.

Aside from the Sox, the O’s, and the Cards, no one else has seemed to have shown much serious interest in the ex-Rockie, Athletic, and Cardinal. There’s this recession going on, you see, and teams are wary of nine-figure contracts and/or dealing with superagent Scott Boras. Even the Yankees, considering the potentially bountiful 2011 free agent class and the relatively negligible marginal value that Holliday would bring to the team, steered clear of the top free agent on the market.

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**There’s little doubt that the Holliday signing should help make the Cardinals a strong competitor for the next several seasons.** (Icon/SMI)

There will be a great deal of debate about the size of Holliday’s contract but what’s inarguable is that the Cardinals have gotten a legitimate middle-of-the-order hitter to place behind Albert Pujols in the Cards lineup which helps to make the team a playoff contender for the next several years. That fact, along with Pujols’ godlike status in the Gateway City, will help encourage Pujols to extend his contract with the Cardinals for the remainder of his career (provided the team will be able to come up with the necessary booty now that they’re giving Holliday $17 million per year through 2016). Still, what is the likelihood that Holliday lives up to his Zito-like contract?

The value of one win above replacement level has been estimated at about $4.4 million on the free agent market. The question then becomes, “how well will Holliday perform during the seven years Holliday wears the birds on the bat?”. Over the last three seasons, Holliday has been worth 8.0, 6.3, and 5.7 wins, respectively. Assuming his value declines by half a win per year, we can expect him to be worth around 5.2 wins in 2010. At $4.4 million per win, that puts Holliday as being worth $22.88 million in 2010, a five million dollar surplus to the Cards. Holliday will be 30 next week, however, and we should expect some regression as he ages. If we assume his value declines by half a win per year, we can expect him to be worth 2.2 wins in 2016, the final year of his contract. Assuming a seven percent inflation rate for players’ contracts, Holliday would be worth $14.5 million in the final year of his contract, about $2.5 million what the team is paying him.

What if, however, Holliday isn’t quite as good as those projections suggest. After all, how many 36 year old outfielders were worth at least 2.2 wins last season? Answer: Three. Ichiro Suzuki, Mike Cameron, and Raul Ibanez. Sean Smith’s CHONE projections have Holliday as approximately a 4.5 win player in 2010 and Matt Klaassen at Fangraphs has Holliday as a nearly identical 4.6 win player this season. If we use Klaassen’s 4.6 win number, Holliday’s total value to the Cards over seven years is about $113 million, just six million dollars shy of the amount the Cards will pay him.


































































Holliday’s projected WAR through 2016
Year WAR $ Value/Year Total Value Team’s Annual Surplus
2010 4.6 $4.4 M $22.88 M $5.88 M
2011 4.1 $4.7 M $19.30 M $2.30 M
2012 3.6 $5.0 M $18.14 M $1.14 M
2013 3.1 $5.4 M $16.71 M -$0.29 M
2014 2.6 $5.8 M $15.00 M -$2.00 M
2015 2.1 $6.2 M $12.96 M -$4.04 M
2016 1.6 $6.6 M $10.57 M -$6.43 M
Total 21.7 —- $112.91 M -$6.09 M

Most people will say that coming up short by just six million dollars is a small price to pay for Holliday’s production today, the increased likelihood that Pujols signs with the team, and the increased likelihood that the Cardinals will win championships during the early part of the contract. After all, flags fly forever, right? All that’s true, of course and it’s unlikely that the Cardinals will end up burdened with a Barry Zito or Vernon Wells-like contract down the road. Klaassen makes an excellent point, however, that “paying average market value for a win isn’t necessarily a ‘dumb’ move, but it isn’t ‘smart’ either.” Though Holliday’s contract appears to pay him what he’s worth, this is only an “average contract” from the team’s perspective.

Moreover, the contract appears to include a clause that will trigger an automatic eighth year if Holliday finishes in the top 10 in the MVP voting in year seven. Of course, if Holliday plays well enough to finish that high in the MVP voting, he’s likely to be pretty productive in year eight as well. Still, one can’t help but wonder why, with the ostensible lack of competition for Holliday’s services, Cards’ GM John Mozeliak was willing to guarantee a seventh year and offer up the eighth year option. Boras had already declined the Red Sox’ offer and, though the Orioles seemed interested, there were all sorts of signals out that Holiday preferred to play for a competitive team, stay in the National League and with the Cardinals. Couldn’t Mozeliak have signed Holliday to a six year, $102 million offer — thus beating Jason Bay‘s average annual value and saving the team the seventh, and least valuable to the team, contract year? When Boras insisted on the seventh year and the vesting option for the eighth year, couldn’t Mozeliak have just dared Holliday to go play for the Orioles instead? Isn’t it likely that Boras and Holliday would have blinked and settled for the six year deal?

Though it appears as though Boras did manage, once again, to get a GM to bid against himself — thus increasing his client’s contract — if the worst thing we can say about the contract is that the team unnecessarily is on the hook for one additional year, this is unlikely to be a horrible contract from the team’s perspective. The team is better today than it was yesterday. The signing won’t cost the team a first round draft pick, though neither will it net them two had Holliday signed with anyone else. The fact that the team is more likely to be competitive throughout Pujols’ golden years should give him one more reason to extend his contract with the team rather than waiting to see how many millions the Yankees, Red Sox, or Mets would throw at him. The Cardinals have to be considered the favorites to repeat as champs of the NL Central. After all, flags fly forever, right?

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Comments

  1. Pat said...

    You can say the Cardinals bid against themselves, but I don’t think so.  Even if there were no other bidders.  You mentioned some of the reasons why already.  But another reason is you want the player you sign to feel good about the signing.  If Mo had played hardball and let supply-demand dictate the final contract, for sake of argument, let’s say you could get the average value down to $15 million and 6 years.  Even if you are inviting other teams in at this point (which probably wouldn’t happen even at this price), Holliday might feel he is getting screwed.  So what, you say?  Well, I think it’s important to sign a player and have him feel good about it, and thus feel good about the team he is playing for.  He will be more productive if he thinks he is valued.  That’s true for any job.  Awwww, poor pampered player only making $17 million, some will say.  But the psychological implications do exist, whether people want to acknowledge it or not.  And Mo knows that.  He paid fair market for Holliday, and it was a good signing.

  2. Red in Chicago said...

    The presumption about bidding against oneself is not necessarily accurate. The Cardinals original offer, if the reports are to be believed, was $16 million. It is plain that regardless of how many other suitors were interested at that level or beyond, that Jason Bay’s $16 or $16.2 million deal created a mental floor for Holliday. Bay’s deal is known as a “comparable.” Texeira’s deal was sold as a comparable by Boras as well, though it wasn’t fully subscribed to.

    So if two comps put Holliday in the $16 to $18 million range, it’s very difficult to say fair value was exceeded. Chuck’s analysis actually bears this out. A $6 million delta on $120 million is roughly 5 percent. Valuation ranges are typically at least this high for companies. In the case of a scarce ballplayer, this should be considered very reasonable. Additionally, we could see substantial inflation over the next decade, making this deal look like more like a bargain.

    But in the end, the club bid what it felt was the right amount for a player who is almost Pujolsian at Busch Stadium. It’s entirely possible he is actually worth a good deal more to the Cardinals than the Mets, Red Sox or Yankees for that reason alone.

  3. rat said...

    Pat: I trust that someone with an adult’s intelligence can see that if there are negative psychological connections with a place or employer, not to commit to working there for the next seven, maybe even eight, years. If he didn’t feel good about it, don’t sign the contract.

    That there wasn’t another similar offer on the table just shows how ridiculously the Cardinals were bidding against themselves. If he didn’t have another offer north of 100MM, that’s a HUGE problem in terms of Mozeliak’s negotiation skills.

  4. rat said...

    “t is plain that regardless of how many other suitors were interested at that level or beyond, that Jason Bay’s $16 or $16.2 million deal created a mental floor for Holliday. Bay’s deal is known as a “comparable.””

    Then offer him an AAV above 16MM, say, 17-18MM, but for a similar number of years. Maybe similar to Bay’s contract but with the 5th year guaranteed and an option for the 6th.

    The AAV is not what’s off, its the years that’s troubling.

    It is assumed that if you are extending the number of guaranteed years, you are reducing the AAV.

  5. revpauld said...

    Rather than bidding against themselves, the Cardinals were bidding what was needed to get this deal done now, as opposed to six weeks from now, when players will be reporting for Spring Training. They were unwilling to go much further not knowing the outcome of this negotiation, and Holliday and Boras were unwilling to sign for less. But Chuck, don’t you think it’s a pretty harsh assumption that Holliday will decline at the steady rate of .5 WAR over the course of this contract? It’s entirely possible, perhaps even likely, that with a better lineup around him, his value will actually increase the next couple of years, then gradually decline on the back end, don’t you think?

  6. jb said...

    One other point you creep up to but don’t address on the eighth year: If Holliday is in the top 10 in MVP voting in year seven, that means your projections of his out-year WAR numbers are too low, thus increasing the value of the contract to the Cardinals.

  7. Jim C said...

    Does Scott Boras bring a gun to these negotiations? How do the Cardinals justify paying Holliday this kind of money when no one else was bidding, and when there own fan base us suffering about 15% unemployment? They will have to raise ticket prices, and I doubt if they will sell out all their games next year.

  8. John Bales said...

    It seems when you said the Cardinals were bidding against themselves, you were simply referring to the length of the contract. Hopefully, the average price per year is right (and I feel a bit shaky there when Holliday went from an 8 to a 5 in a two year span) but the big possible negative is the last two years of the contract when the Cards were the lone bidder.  I still feel that Holliday lacks somewhat the necessary bonafides.

  9. Jake said...

    Another forgotten point:

    We totally lucked out that a fabulous player was uncompeted-for.  The market for Holliday could have been hot-hot-hot and we would have just barely escaped with our dignity to have won him at 120/7 under that scenario.  So we paid a fair price in a down market – good!  Being clever works when you CAN be; when you cannot be clever, then trying to do so certifies failure and degredation.

  10. John Bales said...

    You’re right, Jake.  What happened to the Angels on this one?

    Still, it is somewhat like the lucky guy who got the first dance with the belle of the ball.  “Now what have I got myself into?”  Like John in the comment just above you, we will just have to wait and see.  Could be an exciting year.

    Who said Holliday could be competing for MVP in 2010?  That and a World Series appearance is getting to be too much for an old man’s ticker.

  11. john said...

    You can use all the stats you want to figure out who is worth what and when. And just what if he should win an MVP one year, a batting title another, The point is, those are just numbers.
    In time we will see what Holliday and everyone is worth. My god, what about Albert ?? What is he worth ?????  NUMBERS !

  12. Steve D said...

    1st, according to recent reports, $2M per year of the $17 is deferred.  So the deal is more like $15M/year when looking at yearly team payroll projections.

    2nd, what’s the inflation adjusted value of $17M in years 5,6,7?  Assuming 3% inflation, that’s between $14.6M in 5 years and $13.7M in 7 years.  In your terms, you would need to raise the value per WAR over the course of 7 years.  This effect basically negates your $6 million dollar deficit.

    3rd, I agree with prior posters who state year 8 would be a nice problem to have and would most likely further counter your assumed rate of decreasing WAR.

  13. Chuck Brownson said...

    Steve—thanks for your feedback.  To your first point, we can dispute whether this is a $17 million contract or a $15 million contract but the Cards (and every other team in baseball) would calculate it as a $17 million contract, regardless of when the money is actually received by Holliday.  It compares to other contracts the way any other player who receives deferred money’s contract does.  Therefore, it’s not calculated as a $15 million contract.

    2nd—the value of WAR is indexed by 7% per year, as the table indicates.  It goes from $4.4 M per year to $6.6 M per year.  7% has been the average increase in WAR’s value over the last several years. 

    3rd—you’re probably right, and it’s a point I made in the piece as well.  That assumes that year 7 is a good one and that other years are good as well.  By that I mean, the 8 year option is no good if year 7 is the only one of the first 7 that’s a good year, but that’s unlikely.

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