As some of you might know, Dave Cameron recently posted an article with the same title at fangraphs. He was attempting to discover how much Gregory Polanco could expect to earn in the years the Pirates' reported 7/25 contract would have bought out. He did this by figuring out how much similarly-rated prospects had earned in their first seven years. Unfortunately, he made a pretty crucial counting error that drastically distorted the results, and since some people are using this article as evidence that the Pirates' offer was "nutty" (to use Cameron's phrase), I thought I'd just go ahead and re-run Cameron's study without the mistakes.
First of all, it's important to note two things. One is that the Pirates' offer would have guaranteed only Polanco's team-controlled years. The three (reported) options would have bought out his first three free agent years.*
* This can be a little difficult to understand, because it's entirely theoretical, but the Pirates controlled the decision about when to promote Polanco, so they controlled the decision to bring him to the MLB to start 2014, making him a free agent after 2019, or to hold him in the minors, making him a free agent after 2020. If he'd signed the extension, he very well might have begun the season in MLB. But that doesn't change the fact that, by controlling the decision, the Pirates controlled him through 2020. I hope that makes sense; I know it's kind of a brain-twister.
The second thing to understand is that you can't just assume that Polanco will be a star. In other words, you can't just look at what top prospects who became MLB stars made during their first seven years. We don't know whether Polanco will be a star or not. All we know is that he's a really, really good prospect. We have to compare him to other really, really good prospects, even if some of those prospects ended up being busts.
So far, so good for Cameron. He understands both of these points and creates a good comp list for Polanco. All the players on his list were ranked between #9 and #13 on a Baseball America top 100 prospect list between 2003 and 2007. Polanco was #10 this year. By seeing what these players have earned in their seven team-controlled years we can start to understand what Polanco would be giving away by signing over his first seven years.
As I mentioned, Cameron goofed up the tallies when he tried to run the numbers. Here's what his list should have looked like:
|player||First-seven earnings (in MM)|
On average, Polanco's peers earned $20.4M. The median was $17M. The Pirates offered Polanco $25M.
You could argue, however, that we don't really care about the players who signed team-friendly extensions buying out their arb years. We're interested in what Polanco will earn if he *doesn't* sign an extension. The players with asterisks after their names on the above list did not sign long-term pre-FA contracts. If you look at only those players, their average earnings were $19.36M. So that doesn't really change the conclusion at all.
Of course, these players are already into their free agency years, and inflation has and will change the economic picture by the time Polanco is eligible for arbitration and free agency. There needs to be some accounting for that reality.
Unfortunately, there's no way to predict the economic future with any accuracy, so there's no way to know exactly how much inflation to calculate for. The Pirates offered 20% more than the average of what the above players made, so that's obviously their inflation adjustment. You can argue that that's too little. I don't know.
Cameron says that Polanco should expect to make $40M in his years of team control. That would mean 100% inflation. That seems high to me, but again there's no way to know.
One way to get a feel for how inflation is moving would be to look at more recent prospect lists and see how those guys are doing as they start to get into their arb years. Looking at the 2009-11 lists, the #9-11 spots (because Polanco was #10 this year), we get eight distinct names. Of those, four have reached their arb years. Those players are Neftali Feliz, Carlos Santana, Madison Bumgarner, and Trevor Cahill. Those players all earned between $2.9M and $3.75M in their first years of arbitration. That's an incredibly small sample, but the prima facie evidence is that inflation isn't all that drastic in arb salaries. I would bet against 100% inflation by the time Polanco hits arbitration.
Another way to look at what Polanco is worth is to see what types of contracts comparable players are signing at comparable points in their careers. The only true comp in this case is Evan Longoria. Like Polanco, he was a top prospect with minimal MLB experience when he signed. He got 6/17.5 plus three option years. His first option year was valued at $7.5M, but with a $3M buyout included in the guaranteed total. With the extra $7.5M but without the $3M buyout, Longoria got $22M for his first seven years. The Pirates are offering to pay Polanco more ($25M) as well as guarantee that seventh year. In return, they are asking for control of an extra year through a team option. The extra money (about 14% more) and the extra guaranteed year are the cost the Pirates are putting on inflation. Again, you can argue that it's too little. I don't know.
Another way to look at it would be to look at what other valuable young pre-arb outfielders are signing for. It just so happens that the Pirates have two examples on their roster: Andrew McCutchen and Starling Marte. McCutchen signed for 6/52 after 2+ years of service, with the team getting an option for the seventh years. Overall, if the option is picked up, they will pay McCutchen $66M for his first ten years. Marte got 6/32 after 1+ year of service. The team got two options in that deal. Overall, if both options are picked up, they'll pay Marte $53M for his first ten years.
The Polanco offer is obviously comparable. They (reportedly) offered 7/25 when Polanco had zero service time. The three option years, if exercised, would (reportedly) have brought the total to $50-60M for Polanco's first ten years. That's a little more in line with Marte's deal, so let's use that as a comp. Basically, the Pirates offered to pay Polanco the same as they're paying Marte, except that they wanted three options instead of two to account for the increased risk that Polanco's inexperience presented.
As I've said many times, whether this is fair or not is a matter of opinion. It's very difficult to properly account for future inflation or for the many different variables that make each player unique. My own opinion is that the Pirates' offer to Polanco was very fair, though I also understand why Polanco wouldn't want to sign it. He believes he's more like Justin Upton than Lastings Milledge, and he expects to be paid accordingly. I'm glad he has that kind of confidence.
But my point here is not to "prove" that the Pirates' offer was fair. I just want to show that it wasn't "nutty" or "greedy", which is how Cameron characterized the situation. The Pirates offered 20% more than what similarly-rated prospects have made in their team-controlled years. Whether or not that's enough of an adjustment for inflation I can't say, but it does show that the offer was serious and respectable.