Royals Re-Sign Master Chen to Two Year Deal

Your reference to three teams being in on Chen suggests that you misunderstood me in regard to the current “sellers’ market” for FA SP. Perhaps I was not clear, so I’ll explain.

There is a broad consensus that FA SP are scarce this year and that more such pitchers will be available on the market next year. Thus, basic rules of supply and demand suggest that such pitchers will be more expensive in 2012 than in 2013. So, the 2012 market favors pitchers who are selling their talents to MLB teams, instead of favoring those teams, who are buying that talent. That’s what I mean when I say we’re in a sellers’ market. Conversely, when the free agents hit the market a year from now, the situation will reverse, and FA SP will become a buyers’ market.

All other things being equal, it doesn’t make sense to buy in a sellers’ market when you don’t have to do so because the price will reflect the prevailing market. Dayton just bought a pitcher for two years—both 2012 and 2013. But in order to do so, he had to pay the 2012 price. In other words, he bought a 2013 pitcher at the 2012 price.

So, I don’t like that aspect of this contract. That is certainly not the biggest problem with the Chen signing, but it is worth noting. I have a much bigger problem with the fact that Dayton gave up the compensation pick for no reason…

We don’t have to wait for any “dust to set in” before assessing this signing. In fact, if we did that, someone would eventually accuse us of unfairly using hindsight to evaluate a move that the GM had to make without the benefit of such knowledge. And all of that is unecessary anyway, because we can actually see that Dayton has made a mistake using only what we know today, and nothing else.

However the FA SP market shapes up over the next few months, we already know that Bruce Chen was willing to sign for $9M guaranteed with a chance to make $11M over the course of two years. Let’s just assume for the sake of argument that that is his actual value on the open market (and, of course, if he had gotten any better offers, it is safe to assume he would have signed somewhere else). Let’s also give Bruce the benefit of the doubt and assume that he’s going to be a decent pitcher for the next two years and actually secure those incentive payments.

Now, if the Cubs or Rockies (the other teams reported to have interest) had signed this deal with Chen, and we assume that $11M was the right price to put on his services, the Cubs or Rockies would have made a reasonable (if not particularly exciting) decision. But the Royals had to give up more than the Cubs or Rockies would have given up in that deal, because the Royals had a compensation pick riding in the balance.

We’ll never know what Dayton would have done with that pick (and no amount of waiting for the dust to settle will ever provide us with that information), but we can look at history to see how valuable type-B compensation picks usually are. Two years ago, Victor Wang did that analysis on the surplus value of draft picks, and concluded that players drafted between the 31st and 45th overall picks return, on average, a net surplus value of roughly $2.63M over their team-controlled years. (And—give credit where credit is due—Dayton has done very well in the draft lately, so I expect that he’s likely to actually beat the “average” return). I would suggest that salary inflation would put that number pretty close to $3M today. And that $3M pick is part of what Dayton gave up to sign Chen. As a result, the actual cost to the Royals of signing Bruce Chen is closer to $14M for two years than it is to $11M.

So, putting it all together, if the Cubs or Rockies had given Chen an $11M deal, that would have been reasonable (based on our prior assumptions). But Dayton just gave up $14M in actual value for a pitcher who no one else would have signed for anywhere near that cost (no assumptions necessary—you know Chen would have taken that deal elsewhere if it was on the table). Thus, even if we assume that everything else about this deal was completely reasonable (and I’ve made those assumptions solely for the sake of argument… that second year really isn’t reasonable at all because of the sellers’ market I discussed above), the type B compensation still makes this a bad deal for the Royals.

Sabean obviously knew something. The dude has 2 Cy’s. If he drops dead today, it was a fuckin fantastic pick. Gotta give credit where its due.

knowledge by venturing outside your RR comfort zone every once in awhile. Just because I recently signed up, doesn’t mean I am any less informed than you on anything.

Its know-it-all assclowns like you that remind me why I usually don’t comment in SB blogs.

I get it, treat the ‘new guy’ like shit and maybe he will go away. nice.

are the smallest market in baseball.

Now, if you ask nicely, maybe someone will explain “rewind yourself.” Or maybe you can just do a quick search to figure it out on your own.

I think GMDM gets a pretty strict budget, and any $ spent/saved on Chen come’s out of Moore’s allowance.

Chen is not special. There are other middling starting pitchers in the world. I have no doubt that a two-year deal for $9M could have landed someone else of similar talent.

Why not sign that guy and keep the comp pick? Why?

There is no reason at all. The comp pick had real value to this team. Now it is gone… for absolutely no reason at all.

There is no justifying that. It’s stupid, stupid, stupid.

I’ve certainly gotten into it with him on Twitter—not in an acrimonious way—but we don’t always see eye-to-eye, and I’ve certainly gotten into protracted arguments, mostly about decorum, which is funny since I am a fan of cursing and saying somewhat inflammatory things.

That said, I don’t dislike him at all. We get along well enough on Twitter and interact fairly frequently, for whatever that’s worth.