By Chris Bruce
Big news hit the baseball world yesterday as the Los Angeles Angels announced a $254 million, 10-year contract for 31-year-old Albert Pujols, a strikingly large contract for such an old player, even if Pujols is still a perennial all star and MVP-candidate. It’s pretty clear that the contract is long and a lot of money for a player so late in his career, but just how much is he getting overpaid? Let’s take a look.
To get a sense of what the rest of Pujols’ career will look like we can examine how other top players’ performance typically drops off at the end of their career. Looking at other top first basemen from the past, we can map out a typical trajectory for a player in Pujols’ position, and then make a reasonable estimate of what will happen for him. We use Wins Above Replacement as a proxy for overall production (not a perfect proxy, but a good estimation of each player’s value to the team – FYI, we use Baseball Reference‘s version of WAR). On average, top first basemen start to decline precipitously after age 32. Using this trajectory, we can expect Pujols to contribute approximately 47 WAR over the rest of his 10-year contract. (Here we are generous in assuming that he won’t have any wrist, or other, issues and will be able to bounce back to a high level this year like his counterparts from the past instead of continuing his decline from the past few years. There is a bit of sample bias here in Pujols’ favor because we have used as comparables other Hall of Fame / MVP / All Star caliber players who played out their career and did not see it cut short by injury. We also assume he’s actually 31-years-old… unlike some people)
(Note: it’s strikingly difficult to find a large sample of first basemen who ended their career recently, performed at a near-MVP level and haven’t been suspected of steroid use. I used the group consisting of Jeff Bagwell, Frank Thomas, Mark Grace, John Olerud, Jim Thome, and Will Clark – not all perfect comparables to Pujols, but they still should provide a good sample of how performance degrades over time, including some players that transitioned to DH to extend their productivity)
So how much is 47 WAR worth? Many writers cite a value of $5 million for a marginal win on the free agent market today, implying that Pujols’ remaining years should be worth approximately $235 million to over $254 million depending on salary inflation – right around his contract with the Angels. However, looking at the 2011 salaries and performance of all non-pitchers in the league (excluding those who did not play), teams will pay, on average, $600,000 for a replacement level player (WAR = 0) and $3 million for each incremental win above replacement (including players on pre-arbitration salaries). Given these market values and annual salary increases of about 2.7%, the Angels should theoretically be able to find the performance that Pujols is bringing to the team over the next 10 years with $159 million – overpaying by a whopping $95 million. [Additional note: this does not include the fact that having Pujols would free up talent coming up through their farm system to be traded, so the net overpayment would be somewhat lower.]
This has also just looked at the baseball side of things. It’s also possible that the Angels expect to garner significantly more ticket sales or merchandise revenue from Pujols’ arrival besides just what he is adding on the field. To look at Pujols like the Angels’ front office, additional revenue would need to be considered, not just WAR. But a gap of up to $95 million is a large gap to fill, especially if you only expect another 3-4 quality years from him. (Additionally, the market rates we’ve used to calculate the market value of a WAR should already take into account teams “overpaying” to get additional off-the-field revenues).
Albert Pujols is an extraordinary player, and it’s certainly possible that he could extend his career and play at a high level longer than others have in the past, but if using history as a guide and being a little less rosy about how his career will progress, the Angels could end up being stuck with a $100 million mistake.