In Thursday's Kansas City Star, Sam Mellinger proposed signing Eric Hosmer to a long-term contract extension. While he didn't suggest a year-by-year breakdown of this contract, he did say it would be six years guaranteed for $25 million plus three club option years for a possible nine-year total $65 million. This would potentially buy out two free agent years and could keep Hosmer in Royal blue through 2019.
I thought I'd crunch some numbers to see how much value Hosmer might have if he played at various levels of production and hopefully analyze if Mellinger's suggestion has merit.
The methodology for determining the dollar value of a player's production is fairly simple and has been used on this site and elsewhere many times. Each year the average market value of WAR is determined by how much free agents that year were paid. For 2010 it was around $4 million. Current estimates of the 2011 value of WAR are about $4.5-5 million. Therefore, in 2011, a 3 WAR player would be worth around $13.5-15 million. To be conservative, I'm going to start with a 2011 value of WAR at $4.75 million.
But the value of WAR is not static from year to year. We are in a period of regular salary inflation, which is expected to continue, especially with the economy improving. The common estimate for MLB salary inflation is 10%, but since I'm looking at a nine-year period, I want to factor in the very real possibility that there would be a market correction at some point. So I'm going with a 7.5% rate of salary inflation.
Players in their arbitration years are not paid full market value. For the purpose of this exercise, I'm going to assume Hosmer will be a Super Two and the current Super Two arbitration procedure will be used in the next collective bargaining agreement. While there has been much debate on this site over the last week about how much Super Two's get in arbitration, I'm going to use a 30%-50%-70%-90% discount for the four arbitration years. Using 40/60/80/100 or 40-40-60-80 would lead to somewhat different results, but the differences wouldn't be huge.
The final calculation that must be made is a discount in the contract total. When a player gets a long-term guaranteed contract, he's getting safety, security and surety, while the team is buying risk. Therefore any long-term contract is going to give the player something less than his full value. As is commonly used, I'm going to discount each season where the player is getting more than league minimum by 15%.
I ran the numbers for various WAR levels (1.5, 2.0, 2.5 and 3.0) with the player totalling that many WAR over each year. I also included a fifth scenario where Hosmer starts out as merely a decent contributor at 1.0 WAR and adds 0.4 WAR every season, becoming an average player and eventually a genuinely good player.
Remember, what you are seeing above is annual WAR multiplied by the dollar value of WAR for that year, discounted for arbitration, discounted for a long-term contract. So this is not the actual value of those levels of production, but the various salaries that would be appropriate for that level of production in a long-term contract.
I think Mellinger's suggestion of a contract which guarantees $25 million over 6 years with a possibility of $65 million over 9 years makes sense if Hosmer is going to be a roughly 2.5 WAR player. But if Hosmer follows the development path represented by the "Graduated" scenario, then the Royals would be getting a hell of a deal with Mellinger's contract proposal. The $25 million guaranteed for six years would be fair, but then the Royals would clean up (with little risk) over the three club option years.
Overall, I think Mellinger's idea is sound and his numbers are fairly realistic. Now that doesn't mean that Hosmer and his agent Scott Boras will like those numbers or prefer security over the potential massive contract he could sign when hitting free agency after the 2017 season. But I do think that in order for Hosmer and Boras to take such an offer seriously, some of the option years would have to become guaranteed, or the salaries for those years would have to increase, or both. In slight contrast with Mellinger, this is what I would propose (guaranteed salaries in bold):
In my proposal, Hosmer would get an additional guaranteed year and more for each of those last three years. As long as Hosmer is at least an above average player by those years, the Royals would be getting a good deal. And, of course, the risk in the last two years is still small because they would be club option years. Would my proposed deal get done? I have no idea. Given Boras's track record, I think very likely not. But it would be worth a try.