The Weekly Rant: Arbitration and Bullpen Construction

There has been a ton of recent discussion about teams over/undervaluing closers. Most of this comes from the high-profile bullpen additions made by the Tampa Bay Rays and the Oakland A's. Some have asked if the Rays/A's know something we don't know about relief pitching. Others have concluded that these teams were paying at or slightly below market rate for players that could readily improve their rosters.

That's a pretty reasonable conclusion to reach if you look at the acquisitions in isolation. Grant Balfour on a 2-year, $12 MM deal is rock solid with his projected WAR. Jim Johnson on a 1-year $10 MM contract in exchange for Jemile Weeks? Seems reasonable. A couple of duds for set-up men? That's what win-curve sensitive teams should do when they can't upgrade their roster easily at other positions, right?

I think all of that is logical, and in itself could explain these uncharacteristic relief expenditures. But I also think something else could be going on here. We should probably take another factor into consideration when considering these deals. Here's what Matt Swartz wrote on MLBTradeRumors about arbitration eligible relievers:

Relievers get paid by role. An elite closer with a history of saves gets paid far more than a set-up man, who gets paid far more than a middle reliever, even with similar performances. Andrew Bailey is slotted for $3.5MM this winter, but turn his 24 saves into 24 holds and he’d only get $2.1MM with the same elite ERA of 2.07. Even with his 51 career saves prior to 2011 still on his record. Take all those saves and holds away, and he’d get under $1.0M with 174 career IP of a 2.07 ERA.

According to his model (This was written in 2011, so the model has changed since then. Also, the dollar figures are a little low.), changing a pitcher's usage for one year from a closer to a set-up man could save the team $1.4 MM. Those savings would persist throughout the pitchers arbitration seasons, meaning a small role change could mean real money over the period of team control. This applies to a lesser extent to pre-arbitration eligible pitchers, whose career stats influence their salary during their first run through arbitration.

This is a definition of a market inefficiency. The arbitration process overvalues the differences in leverage between relievers. Arbitrary stats(holds and saves) largely account for the differences in salaries of relief pitchers in arbitration. Additionally, the arbitration process lags behind the market in valuing closers, meaning guys with big save numbers aren't coming at a discount through arbitration. It will take some years for the relatively diminished free agent market value of closers to trickle down and influence prices for arbitration players. Until then, elite closers will continue to make more than good starters.

So how would a team take advantage of a situation like this? The answer would be keeping the pre-arbitration pitchers and especially the arbitration eligible pitchers out of the closer role (and to a lesser extent, the set-up role). Bumping these "role-sensitive" pitchers as far down the bullpen pecking order as possible would result in the biggest cost savings.

So if there is a "proven closer" on the market for a reasonable price who is equal to or better than your best reliever, he's going to be worth significantly more than the improved performance of the bullpen. He could save the team a couple of million dollars on the team's "closer-in-waiting" arbitration eligible player in the future. And the trickle down goes all the way down the bullpen. Guys who were in the set-up role are now not getting holds. Read what Swartz says about the savings for that potential pitcher:

Tyler Clippard had 38 holds this year for the Nationals, which boosts him up to a $1.7MM salary estimate. Take away 33 of those 38 holds to make him a middle reliever, and he only projects to get $1.3MM.

And remember, these savings are basically carried over every additional time a player goes through arbitration. Depending on the service time makeup of a team's bullpen, adding a free agent closer for just one season could save the team several millions dollars each year come arbitration season. A free agent "proven set-up" man could mean a few more hundred thousand dollars in savings.

Everybody wants their team to have an awesome young pre-arbitration eligible bullpen. But that pre-arb bullpen would get very expensive, very fast. Adding a good closer through free agency could pay off even before considering marginally better performance.

Overall, I don't think the effect on other reliever's future salaries is getting enough consideration when analyzing free agent reliever deals. In fact, I think the potential cost savings in arbitration could be a driving force in bullpen construction. The Nationals signing of Rafael Soriano on a big 3-year deal makes a lot more sense when considering the cost savings on their talented young bullpen.

The other way to take advantage of this would be to extend young relievers before they rack up saves and holds. Once they are cost controlled, the team can use them however they wish without affecting future payroll. Again, the Nationals may have been ahead of the curve on this, locking up Craig Stammen for two arbitration years before last season.

Not all teams have the right pitchers to take full advantage of this market inefficiency, but generally, the interconnectedness of arbitration costs and bullpen construction needs to be examined thoroughly for any transaction.

ILRSBS Goes to Phoenix: Part III

The team taking in the beautiful Phoenix skyline.

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, and click here to read Part Two.)

When all was said and done, Hudson, Mike, and I were happy with our research and preparation. As we went to sleep at 3am, Phoenix time the night morning before presenting, we knew we had put all the effort possible into the case. Using an already overused sports analogy, we left it all out on the field.

Our team was scheduled to compete first that morning, at 9:30 sharp. In front of three judges from teams such as the Texas Rangers and Cleveland Indians, we were ready to make our pitch as part of a 20-minute presentation and 10-minute Q & A. Perhaps the most eye-opening part of the trip was just being able to stand in front of a room of extremely intelligent people and watch them as they listened to what we had to say. They truly did care, and the passion they have for the game was on full display. Often times we have these “epiphany” moments in our lives when we say, “How sweet was that?” I know I can speak for the three of us that one day, looking back; this certainly may be one of those moments.

Our team wound up finishing as the runner-ups in the Undergraduate division, as the eventual champions from NYU took first place. In the graduate/law division, Pepperdine University took top billing. For a three-man team, we were extremely proud of our accomplishment, and while we would’ve loved to win, the experience and learning we were able to participate in was recognition enough.

In addition to the Diamond Dollars Competition, the three of us were fortunate enough to interact up close and personal with some of the leading minds in the entire industry. Through various panels, and networking sessions, Hudson, Mike and I were able to meet top executives in Jed Hoyer, Rick Hahn, and Jerry DiPoto. Brian Kenny of MLB Network was one of the panel moderators, and throughout the conference we were able to connect and speak with various professionals from companies such as Fangraphs, Baseball America, Baseball Prospectus and other Major League clubs such as the Colorado Rockies, Texas Rangers, Cleveland Indians, and more.

Executives Daniels, Hoyer, and Hahn.

Perhaps the highlight of our week, however was getting to meet a fellow Cornellian that each of us one day hope to aspire to. Speaking with Rangers General Manager Jon Daniels was surreal. His advice was not only invaluable and thoughtful. Our two takeaways from him for were to watch as much baseball as possible, and to stay humble. As he put it, the game isn’t big on “self-promoters.”

The three of us with fellow Cornellian, Jon Daniels.

When all was said and done, the three of us had an amazing time. After a quick red-eye flight home, accompanied with a daylight-savings-time-change, we found ourselves back in reality of Cornell life.

As the inaugural Cornell case competition team members, a certain sense of pride exists in what we were able to accomplish. We look forward eagerly to next year when we send a few more students and continue to prove that the Ivy League knows its baseball.

Here are quick takes of our trips from my team members:

“It was a tremendous opportunity to be able to go to the SABR Conference and present our case in front of a group of highly regarded individuals within the baseball community. The conference itself was much more intimate and laid-back than others I had been to which allowed me the opportunity to speak with several Major League GMs, MLB Network Analyst Brian Kenny, members of the baseball analytics community, and a host of executives within Major League baseball. The only drawback to the conference, or more plainly the city of Phoenix in general, was the dearth of carne asada steak” –Mike Parnell

Outside the beautiful Chase Field in Phoenix.

“Participating in the SABR Case Competition was a great experience. The opportunity to spend a few days working on such a fascinating case was awesome, and getting to present our work to MLB industry leaders was truly amazing. The conference brought together hundreds of forward-thinking baseball brains, and so many people brought great ideas to the discussion. Being a part of that conference was so much fun, and although we didn't win the competition, I can’t wait to go back next year.” –Hudson Belinsky 

Oh, and we also got to take in a few WBC games!

We hope you all enjoyed this look into our trip to Phoenix. We look forward to making this event a key part of the organization moving forward. For any questions, comments, or suggestions, please email me at gmc74@cornell.edu.

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.

ILRSBS Goes to Phoenix: Part I

Hello, Phoenix. Hello, SABR.

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

Just two weeks ago, three members of ILRSBS were able to take part in a unique opportunity. The 2^nd annual Diamond Dollars Case Competition in Phoenix, Arizona provided a platform for Mike Parnell, Hudson Belinsky, and myself to showcase just what Cornell and the Sports Business Society is all about.

Held as part of the SABR (Society for American Baseball Research) Analytics Conference, our case tasked us with developing, answering, and presenting our recommendations for a real-life baseball operations question. Last year, the case dealt with a “buy or sell” type question surrounding the Washington Nationals. This year, the focus was all on one of baseball’s most intriguing players: Mike Trout.

Yes, baseball’s most popular, mystifying and perhaps soon-to-be loved player was the focus of our entire case. You can imagine the excitement that came over our three-man team upon learning that we would be tasked with developing an appropriate contract extension for Mr. Trout. How fitting it was that days earlier, the real life Angels decided to renew the reigning AL MVPsuperstar at just $20,000 above the league minimum. As you can imagine, our first recommendation was simply, don’t do that!

Mike, Hudson, and Gabe working on the plane.

But in all seriousness, after receiving our case on Sunday morning, Mike, Hudson and I had four days to put together a cohesive 20-minute presentation on which to be judged. In the case, which was actually set following the 2013 season, Mike Trout went off for a 8.4 WAR season in which the Angels fell to the world champion Nationals in six games. In this scenario, the Angels would have one more season of Trout under cost-control as well as three years of control in which he would be arbitration eligible. Trout would become a free agent in 2017.

Placed in a position to advise Jerry Dipoto, the Angels GM, our team had to develop a contract proposal. Our three options were to trade Trout, to extend him over the short-term, or to provide him with a long-term extension. Playing into this decision would be our expected production of Trout, the value in dollars that he would be worth, the construction of the team around him, and the risk involved in such a contract. With the facts established, we set out to develop the best decision possible.

Through the next 4 days, we slogged through the massive amounts of data and processes needed to make our case to Mr. Dipoto. I’ll spare you the details, and just hit on two of the major highlights in our process.

The first is the manner in which we decided to project Mike Trout’s production for the next ten seasons (through age 32). As a team, we developed models for players similar to Trout in the three facets of the game, hitting, base running, and defense. Our samples were different for each of these categories, but they included players that met specific criteria for a player of Trout’s caliber and production. After developing an “aging curve” for a player such as Trout, we developed a Monte Carlo simulation to help predict the results for 10,000 seasons of Trout based on the previous three seasons’ production (weighted 45%, 30%, 25%). We continued the process until we wound up with ten seasons of Mike Trout production. What we got was one of the best players of all-time. To boil the numbers down a bit, Trout put up the following WAR (Wins Above Replacement) totals for the years 2014-2024: 8, 11, 11, 8, 11, 9, 9, 8, 8, 8, 7. Wow. Just. Wow.

Yes, Mike Trout, you are that good.

After we took Trout’s production value, we then assumed each win to be worth $4.5 million on the open market. Multiplying this number by his production we determined his value to be worth approximately $440,000,000 over the course of ten seasons.

Of course we couldn’t reasonably give Mike Trout $440,000,000, could we? Check back later this week to find out how we accounted for risk, what our final proposal was, what the judges thought, and how we spent the rest of our time in Phoenix!