ILRSBS Goes to Phoenix: Part II

This is Part Two of a three-part series following the ILRSBS Case Competition team's trip to the SABR Analytics Conference in Phoenix, Arizona. (Click here to read Part One.)

As mentioned previously, in projecting Mike Trout, we had an amazing talent on our hands. Looking at his WAR totals gave us a Hall of Fame type player, someone who would continue to produce at an MVP level into his early 30s. It became pretty clear to us that there would be no team with the resources available to trade for this type of player, so we turned our focus to figuring out what type of contract offer we could confidently extend to Trout.

$440,000,000 was the value of Trout’s production value to the Angels, yet, this number failed to account for risk. In any long-term agreement, each side takes on inherent risk. There are many circumstances in which the deal could turn out poorly. Injury, and lack of performance are the two main factors, yet in this case we also needed to account for the value of making life-changing money. Essentially it all boiled down to the guarantee of big money in the face of various risk factors.


After trying a couple different strategies, our team decided on generating a regression equation to determine a “discount rate” to Trout’s production value. We compared recent (since 2000) contract extensions, and examined the service time that each player had accumulated at the time of signing. After looking at the player’s production value ($4.5 million x WAR total = Expected Production) we plotted a regression against the service time at the time of extension. Our belief was that the more service time, or the more “established” a player was, the closer the player’s actual contract would be to his expected production value.

The extension data that helped us create our Regression.

Using the regression data we came up with the following equation: Discount Rate = -0.14511x + 2.000839. Plugging in the service time, we were able to establish a fair contract offer for Trout. Our offer to Trout would be eight years for $140 million, yet we would be willing to accept an offer up to $204 million over that time. With an agreement in this range, the Angels would lock-up an (projected) MVP-caliber player into his age 32 season. They would secure a face of the franchise, and they would not have to break the bank or mortgage their future success or payroll flexibility. From Trout’s perspective, he would get life-changing money, his first big contract that would now be guaranteed, even in the face of injury or lack of performance. 



Like the old game, Deal or No Deal, the more risk present, the more of a discount applied. By examining recent extension data, we confirmed our intuitive belief that this was the case. While players may be leaving some money on the table by taking extensions early on in their careers, they do so in order to receive security and peace of mind. In the end, the “Trout dilemma” boiled down to this issue of tradeoffs.


Angel's owner Arte Moreno will ultimately hold the
final decision on what to do with Mike Trout.

As a final piece to our presentation, we analyzed how the Angels could reasonably fit Trout’s contract into their current salary structure and obligations. By doing this, we also found that the distribution of money to Trout could vary year-to-year. In doing this, the Angels would maintain competitiveness (as a projected 90-win team) and still be able to retain their star at a fair price.

Check back tomorrow to hear how our team did and to hear about some of the other experiences from our weekend in Phoenix.