Salvador Perez Contract Breakdown

Salvador Perez signed a 5 year deal with the Royals yesterday for $7M with 3 club option years that total up to $19.75M. Here are his base salaries and incentive total:

Year 1: $0.75M
Year 2: $1M
Year 3: $1.5M
Year 4: $1.75M
Year 5: $2M
Year 6: $3.75M - option
Year 7: $5M - option
Year 8: $6M - option
$5M in unknown incentives

To begin with, the Royals would have to pay Perez ~$0.5M for Years 1, 2 and 3, for a total of $1.5M without even signing the extension. The Royals are basically paying $5.5M for years 4 and 5 of his contract which was $0.5M less than the Royals paid for Kendall's 2 years of service.

To determine how much value Perez needs to produce in those two guaranteed years, a few assumptions need to be made. Around 3 years from now, the dollar cost for each free agent WAR a player produces should be around $6M to $7M (assume $6M to be conservative). In year 4 of the cost controlled years, a player usually makes 40% of the free agent $/WAR value and 60% in year 5. The Royals just need Perez to produce over 1 WAR in those 2 years to break even. In 39 games in 2011, he produced 1.4 fWAR or 1.1 rWAR. Bryan Pena was able to squeak out 0.5 fWAR in 2011 with a rather disappointing 0.625 OPS. Unless Perez is completely unable to take the field in years 4 and 5, this deal has almost no downside. With the $/WAR near the $6M to $7M range at the end of the contract, the Royals can easily break even if he is near or above 1 WAR for the 3 option years.

The chances for upside do exist. Here is a look at how some people project him. Oliver projections at the Hardball Times projects him with 0.8 WAR in 2012 and going up to 1.4 in 2013. The Fans at Fangraphs, which have similar number to ZiPS, have him at 3.3 WAR for 2012. Generally, projection systems place him around the 2 WAR/season value.

The one huge advantage for Perez is that he is only 21-years-old. It is rare for a 21-year-old catcher to be in the bigs and hit as good as he did last year. I queried the top 21-year-old catchers with over 100 PAs since 1980 ranked according to their rWAR. There was no real need to look for the top ones. Only 9 catchers met the criteria and here they are:

Name: rWAR in age 21 season
Ivan Rodriguez: 2.7
Joe Mauer:1.5
Salvador Perez: 1.1
Dioner Navarro: 0.8
Rich Gedman: 0.7
Brian McCann: 0.5
Yadier Molina: 0.5
Mike Scioscia: 0.3
Orlando Mercado: -0.7

It is not a bad list when only Pudge and "Head and Shoulders" are the only catchers ranked higher than Perez. Here is how the 8 others did in the 8 years from age 22 to 29

Name, rWAR
Ivan Rodriguez: 40.5
Joe Mauer:38.8 (in 7 years)
Dioner Navarro: 1.7 (in 6 years)
Rich Gedman: 10
Brian McCann: 19.5 (in 6 years)
Yadier Molina: 13.6 (in 7 years)
Mike Scioscia: 16.2
Orlando Mercado: -3.2

In total, they generated 137.1 WAR in 58 season (2.4 WAR/season or 18.9 WAR for the eight seasons). The average catcher from this group looks to be between Mike Scioscia and Brian McCann.

I will make the assumption that Perez will be a 2 WAR catcher over the life of his contract even though some numbers say he may be worse or better than the 2 WAR. A 2 WAR catcher is basically a league average catcher.

To determine the value of his contract, I set my salary projection worksheet to these following values:

Dollar per win: 5
Inflation Amount: 1.05
Current Age: 21
Current Value (WAR): 2
WAR aging factor >= 28 and <= 32: 0.5
WAR aging factor > 32: 0.6
WAR aging factor < 28: 0

Assuming the Royals pick up all 3 option years, he will generate 15.5 WAR or $92M in value. Considering the Royals will spend anywhere from $21.75M to 26.75M for all 8 years, the surplus value of Perez's contract compared to picking up a free agent catcher, looks to be between $65.25M and $70.25M. Here are the surplus values assuming he is at different levels of production with all 3 of his option years picked up and he makes $25M total:

0 WAR (Mercado): $-25M ($-7M)
0.5 WAR (Navarro): $-5M
1 WAR (Gedman): $19M
2 WAR (Scioscia/Molina): $67M
3 WAR (McCann): $115M
4 WAR (Pudge/Mauer): $162M

One assumption that can be made is that Perez's options will not be picked up if he is a 0 WAR catcher. If his options are not picked up, the Royals would only be down $7M.

These values were compared to a free agent catcher. Now here they are assuming the Royals just kept Perez for his 6 arbitration years and then signed him to a 2-year free agent contract

0 WAR (Mercado): $-25M
0.5 WAR (Navarro): $9.5M
1 WAR (Gedman): $34.5M
2 WAR (Scioscia/Molina): $42.5M
3 WAR (McCann): $75.5M
4 WAR (Pudge/Mauer): $108.5M

The break even point for the Royals for offering the contract, versus him not signing it, is just below the 0.5 WAR level.

The contract offered to Perez is an example of the chance the Royals need to take on a player. The Royals are basically on the hook for $7M. If he happens to turn into a league average catcher, the contract looks to be great deal. If for some reason Perez happens to be an above average catcher, the contract may end up being one of the best team friendly contacts in the league. Good job Dayton Moore