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Picking Up the Option on Billy Butler

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To pick it, or not to pick it, that is the question

Jamie Squire

Billy Butler is having the worst season of his career. That's a hard truth and a tough pill to swallow given the eternal love that Royals fans have for him. You may think he's an overweight, double play inducing, no fielding, slow running bat only player. You'd be mostly right, but that hasn't stopped him from being one of the best hitters in not only Royals history but in baseball the past few years.

From 2009 to today, here are the list of batters with more hits than Billy Butler:

Robinson Cano

Miguel Cabrera

That's it. Two players.

Here's the list of batters in that same time span with more doubles than Billy Butler:

Robinson Cano

Miguel Cabrera

Again...that's it.

Butler has been one of the best hitters in baseball. He hits for average, doesn't strike out at a high rate, walks at a decent clip, and hits for moderate power (even if it's just doubles). Unfortunately for both Billy and the Royals he's been terrible this year. I don't like to use that word a lot, but he has been. His strikeouts are up, his walks are down, his OBP is down, he's hit for no power, he's chasing outside pitches, he's swinging at more pitches, and he has a wRC+ of 96. That's not a bad wRC+ for a shortstop or a middle infielder, but Butler is the designated hitter and first baseman. The average designated hitter wRC+ this year is 101. The average for first baseman is 110.

That 96 is his wRC+ for the year. His wRC+ for designated hitter appearances only is 78. The next highest is David Ortiz. He's at 122. When he plays at 1B he has a 154 wRC+. The best in the major leagues (minimum 60 plate appearances).

Billy Butler is having the worst season of his career and it couldn't have come at a worse time for him or perhaps best time for the Royals.

The Royals have a $12,500,000 club option for Butler this winter with a $1,000,000 buyout.

I'm a finance guy and I sometimes try to equate things to finance related ideas.

Contract options are identical to equity options. From a club point of view, a club option is like buying a call option, it gives the buyer (the club) the right to call/buy the stock (player) but not the obligation. A player option is like writing a put option, it gives the buyer (the player in this case) the right to assign the stock (player) to you. A mutual option is...well I don't know what that would be like. Any equity swap? Index option? Regardless, I think I got the analogy right.

Like contract options, equity options carry an intrinsic or underlying value. Let's say XYZ company is trading at $10.00 per share and you buy a call option (the right but not the obligation to buy the shares) on XYZ  with a strike price (salary) of $12.50. Suddenly the stock price of XYZ rises to $15 per share. You're sitting there "in the money." You have the ability to buy XYZ at $12.50 per share when it's trading at $15 per share on the open market. Not factoring in the premium (the fee you paid the writer of the option to purchase the option), you've made $2.50 in profit. (Side note: option contracts come in 100 shares per contract so you really made $250).

On the other hand, if the per share value of XYZ dropped to $10 per share you would just let the option expire worthless and walk away (you'd lose money because you paid the premium I spoke about earlier).

Billy Butler is XYZ, his $12,500,000 2015 salary is the strike price, and his $1M buyout is the premium.

Here is the history of  primary designated hitters age 28 seasons:

Season Name Team G PA HR wRC+ WAR
2005 Travis Hafner Indians 137 578 33 166 5.3
1988 Kent Hrbek Twins 143 586 25 146 4.3
2004 David Ortiz Red Sox 150 669 41 147 4.2
1974 Hal McRae Royals 148 607 15 142 4.1
2002 Shannon Stewart Blue Jays 141 641 10 116 3.3
1992 Cecil Fielder Tigers 155 676 35 116 2.5
2007 Jack Cust Athletics 124 507 26 145 2.5
2005 Jay Gibbons Orioles 139 518 26 117 2.4
1979 Lamar Johnson White Sox 133 526 12 120 2.1
1987 Harold Baines White Sox 132 554 20 119 1.7
2003 Erubiel Durazo Athletics 154 645 21 113 1.6
1976 Tom Grieve Rangers 149 600 20 108 1.4
2005 Lew Ford Twins 147 590 7 93 1.3
1997 Reggie Jefferson Red Sox 136 524 13 112 1.1
2011 Edwin Encarnacion Blue Jays 134 530 17 113 1.1
1977 Don Baylor Angels 154 645 25 112 0.8
2000 Brian Daubach Red Sox 142 549 21 88 0.6
1992 Luis Polonia Angels 149 635 0 86 0.2
2014 Billy Butler Royals 118 471 7 96 -0.4
2010 Jason Kubel Twins 143 582 21 102 -0.4
1988 Larry Sheets Orioles 136 504 10 83 -0.7

That's not a long list for something that dates back 40+ years.

Here's how those guys did in their age 29 season:

Season Name Team G PA HR wRC+ WAR
2006 Travis Hafner Indians 129 564 42 176 5.8
2005 David Ortiz Red Sox 159 713 47 157 5.1
2012 Edwin Encarnacion Blue Jays 151 644 42 150 4
1989 Kent Hrbek Twins 109 434 25 141 3.8
2003 Shannon Stewart - - - 136 644 13 115 3
2004 Erubiel Durazo Athletics 142 578 22 139 2.9
1978 Don Baylor Angels 158 677 34 127 2.2
2001 Brian Daubach Red Sox 122 472 22 119 2
1975 Hal McRae Royals 126 547 5 123 2
2008 Jack Cust Athletics 148 598 33 131 1.8
1980 Lamar Johnson White Sox 147 596 13 102 1.4
1988 Harold Baines White Sox 158 674 13 109 1.3
1993 Cecil Fielder Tigers 154 672 30 119 1.3
1998 Reggie Jefferson Red Sox 62 219 8 128 0.9
2011 Jason Kubel Twins 99 401 12 109 0.7
2006 Jay Gibbons Orioles 90 378 13 105 0
2006 Lew Ford Twins 104 255 4 58 0
1989 Larry Sheets Orioles 102 338 7 82 -0.6
1977 Tom Grieve Rangers 79 255 7 68 -0.9
1993 Luis Polonia Angels 152 637 1 76 -2.6

Year to year changes of those guys:

Name Difference
Edwin Encarnacion 2.9
Brian Daubach 1.4
Don Baylor 1.4
Jason Kubel 1.1
David Ortiz 0.9
Travis Hafner 0.5
Larry Sheets 0.1
Reggie Jefferson -0.2
Shannon Stewart -0.3
Harold Baines -0.4
Kent Hrbek -0.5
Jack Cust -0.7
Lamar Johnson -0.7
Cecil Fielder -1.2
Erubiel Durazo -1.3
Lew Ford -1.3
Hal McRae -2.1
Tom Grieve -2.3
Jay Gibbons -2.4
Luis Polonia -2.8


All but seven had worse seasons than the previous years and seven were at least one win worse.

One other problem with Butler's option is that it's not cheap. It's a $12,500,000 salary which would be the most the Royals have ever paid Butler in a season and is a nearly 50% increase year over year. If Butler were a productive DH like say Victor Martinez (who's making $12.5M), Nelson Cruz (who's making $8M), or Chris Carter (making $500,000) then Butler would have a shot at being worth $12.5M. That would put him roughly at a two win player. Butler has only been a two win player twice in his career (2010 and 2012) and only once has he been worth at least $12.5M (2012). So far this year Butler has been worth negative $2M. It's hard to see Butler being worth $12.5M next year or anything close to that.

Now there are a lot of things that factor into the intrinsic value of an equity option (time until expiration, underlying stock volatility etc...), but it seems like at this point it's best for the Royals to eat the premium, walk away being "out of the money", and buy the stock player at market price. A market price that is considerably lower.