Tuesday, October 04, 2011

Free Agents

We have reached the off-season where every free agent will become a potential target for the Twins to sign. But free agents are only rarely good investments. There are several problems with most evaluations of this option.

Quality free agents are looking for a multi-year contract. Many fans think in terms of annual payroll, but smart general managers evaluate contract costs based on the total amount guaranteed.

A couple examples from current Twins players make this clear. Carl Pavano is notorious in New York for how little value the Yankees got from his multi-year contract. They paid him over $40 million to compile 145 IP. The Twins paid Joe Nathan $47 million to compile a total of 180 IP.

By contrast, the Twins paid Pavano $7 million in 2010, based on arbitration, for 221 IP. Re-signed as a free agent, he has produced 221 innings so far on his contract worth $16.5 million with one season to go. Even if he is hit by a car in the off-season and never pitches again, the Twins have got more value from him than the Yankees did at a much lower cost.

The second problem with signing free agents on the open market is you are almost guaranteed to overpay. If the only thing you have to offer a player is more money, then you are paying more than any other team in baseball is willing to offer. Chances are actually pretty good that you are overvaluing the player unless your circumstances are VERY unique.

If you look at the winners in the free agent market it is usually guys like David Ortiz who are undervalued because of injuries or poor performance. They are players with very few suitors and are looking for opportunity more than money.

So when people criticize the Twins for grabbing players in the bargain bin of free agents, realize that those are usually the players who will bring the greatest value at the lowest risk. That is a "moneyball" strategy.

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