“At some point, ownership has to lead the revenue,” Gerut said. “It doesn’t always occur where your players first start to win and then you start to build around it. Sometimes the ownership has to lead that first. There’s ancillary stuff that I probably know nothing about. I know sometimes that if you build it, fans will come. It doesn’t always have to work out the other way. You don’t always have to get guys at absolute steals in order to keep them.” – Jody Gerut, in a FanHouse article by Tom Krasovic
As the San Diego Padres have continued to surprise the baseball world with a National League best 28-18 record, the near constant questions of Adrian Gonzalez’s future have calmed. He’s a Padre, for now, and not many people are thinking about a deadline deal at this point. Gonzalez is still working on a fantastic – from San Diego’s perspective — four year, $9.5 Million deal, and is signed for $4.5M this year. The San Diego Padres have a $5.7M option for next year, which is the biggest no-brainer in all of baseball.
So, there is no rush. However, in terms of trade value, as each day passes, Gonzalez loses some. It all about surplus value – the value that a player brings in above and beyond what he is being paid. The two aspects that determine surplus value, then, are performance and salary. Take a look at the chart, an estimation of Gonzalez’s surplus value through the remainder of his contract:
I’m estimating Gonzalez as a 4.8 WAR player, currently, based on his performance since 2007. One could argue either way, but I think it is good enough for blog-work. Using $3.5M per marginal win in 2010 and $4M in 2011, we can estimate Gonzalez’s value on the free agent market ($10.9M for the rest of this season and $19.2 for all of next year). His surplus value is the difference between his estimated free agent worth and his actual contract, which comes out to $21.3M.
The longer the Padres wait to trade Gonzalez, the less surplus value, and thus trade value, he offers to other teams. If San Diego bypasses this year and holds onto Adrian, the argument could be made for simply holding onto him and his tremendous production, and letting him walk as a free agent, while picking up some draft picks.
Of course, there’s a third option, which because of the San Diego market and the current ownership situation often seems unlikely, which is to resign Gonzalez to a long-term deal and make him the face of the franchise for the foreseeable future. In other words, taking Jody Gerut’s advice, quoted at the top of this page, to heart.
Base lining Gonzalez’s future worth
If the Padres are to consider extending Gonzalez, it is imperative that they evaluate what kind of production he is going to give them. Let’s assume, if signed long-term by the Padres, he signs a six year deal, from 2012 through 2017. Let’s try to figure out, in a rough estimate, how much Gonzalez is worth on the free market in that time period:
|Year||Estimated WAR||Estimated value of a Win||Estimated FA Worth|
Again, these are just rough estimates of his performance, and the impending free agent market. I’m assuming Gonzalez will retain his current level of play through 2013, his age-31 season. After that, he’s declining at .5 WAR per season. This is, by no means, a conservative projection, and I think, if anything, is slightly favorable to Adrian (though certainly reasonable). Projecting one of the best players in baseball, right now, to be worth about 4 WAR per season, for his age-30 through age-35 season, is pretty reasonable – if somewhat optimistic.
To estimate the marginal value of a win, I’m taking Tango’s advice, which is to start at $4M in 2011 and increase by $.5M each successive year (to account for inflation). So, a fair estimate for Gonzalez’s worth, from 2012-2017, is a six year, $133 million contract (or $22M per year).
Interestingly, Ryan Howard just signed an extension with the Phillies for 5 years and $125M, with an option for $23M (about $25M a year). While slightly higher than my estimated contract for Gonzales, it is at least in the same ball park.
One could argue that Gonzalez has established himself as a better player than Howard and is a few years younger, so he should expect more than Howard. However, one could also argue that the Phillies are the ones who resigned Howard, and his extension is specific to their current situation – not the Padres’.
Can the Padres afford it?
The Padres payroll has hovered around $40 million for the last two years. Paying Gonzalez in the ballpark of $20 million per year is either going to substantially increase their total payroll, or make them be even more stingy with the rest of the roster.
One large advantage the Padres have when considering Gonzalez is that they have literally no players locked up for high dollars from 2011 and beyond, as this chart from Cot’s Contracts shows. Payroll will likely increase as some players enter their late arbitration years, and others begin arbitration, but overall the Padres have a lot of payroll flexibility.
The question of whether or not the Padres can afford Gonzalez hinges on at least two important factors. One, how much the ownership group plans to spend on payroll. And two, how competitive they expect to be.
With the ownership transition still in progress, it is difficult to determine how much money the Padres plan to spend on payroll for in near future. More interestingly, however, is where the Padres currently stand in terms of competitiveness. Resigning Gonzalez to a mega-deal would make little sense if the Padres don’t plan on competing, year-in-year-out, from 2012 through 2017.
Vince Gennaro, in his excellent book Diamond Dollars, makes it abundantly clear that a team’s level of competitiveness has a dramatic impact on the value of each of its players. A team’s specific situation is everything. As he shows in a chart on page 79, the impact of a six win player on a 75 win team (without player in question), is about $4 million (figures from 2007). On a 87 win team, however, the same player’s value would be worth $18 million. That is a $14 million difference for the same exact player, simply because of the team’s location on the win curve.
If the Padres are competitive each year with Gonzalez, his added wins will help them reach the playoffs, and perhaps World Series, and those wins have a premium. Because reaching the playoffs peaks around 88-95 wins, and reaching the playoffs has an added revenue bonus that is significant (well into the millions — both in the current and future seasons), the Padres must be relatively comfortable that they are going to be near this range to sign Gonzalez.
If the Padres are going to be competing for the fourth spot in the division, Gonzalez’s value will still be present, but it will be decreased substantially. To simplify the past few paragraphs, Adrian Gonzalez has a lot more value on good Padres teams than on bad or mediocre ones. Evaluating the expected performance of not only Gonzalez, but the rest of the Padres players, is extremely important as the Padres consider extending Adrian.
Gonzalez’s value goes beyond simply his performance on the field. Gonzalez, a star player and the face of the franchise, carries an added bonus value, a marquee value. Again, Gennaro discusses marquee value in Diamond Dollars (highly recommended, by the way). He measures marquee value using four factors; personal qualities, performance factor, continuity factor, and team brand value.
Personal qualities he further breaks into four categories; positive image, recognizable, assessable, articulate. It is safe to say that I think Gonzalez scores highly in each category under personal qualities. He hasn’t been involved in any steroid scandals and or run ins with the law. He’s been a model citizen in his time in San Diego, a true role model. He’s easily recognized as the face of the franchise, and to many non-Padres fan, the only big-name player on the team. He’s accessible to the media, and a smart, thoughtful guy.
While personal qualities are a component of marquee value, the player still has to have star talent to really qualify, and Gonzalez clearly does. He’s also been on the team for almost his entire career and is already one of the senior members of the organization. Furthermore, he grew up in San Diego and his Mexican heritage further identifies him with a large portion of the fan base.
If you were to draw up an idealized marquee player, Adrian Gonzalez –much like Derek Jeter to the Yankees or Pedro Martinez to the Mets, – is a near perfect model. Putting a dollar value on marquee value is not easy, and I’m not sure I’m entirely comfortable with Gennaro’s methodology. However, it has to be considered when estimating Adrian’s total value to the Padres. Not only does he significantly add to the team’s on-field performance, but he also goes a long way in selling the Padres brand as a whole.
Back to Gerut
As Gerut alludes to in his interesting thoughts on the situation, there are essentially two ways to produce revenue: spend money and win or try to be stingy and win. The latter is generally required for small market teams like the Padres. To compete, they have to be shrewd with their free agent signings, rarely handing out a mega-deal, they have to make excellent trades. and most of all they have to get production from home grown players.
The Padres have had mixed luck over the past decade, trying to win as a mid-to-low-level payroll team. Great trades like the one for Gonzalez and draft steals like Jake Peavy have helped lead to some very good seasons. However, at the same time, draft busts, highlighted by Matt Bush, have stalled their success.
Gerut is urging the Padres to build a winner with what they already have. Rather than trading Adrian Gonzalez and trying to start over, a model popularized most by the Oakland A’s, they should instead pay Gonzalez and build a winner around him. With a winning team in place, revenue from high-win seasons and the large playoff bonus, should begin to pour in, at least in theory.
There is cause for concern, of course. In a year where the Padres are leading the entire National League, attendance is actually still slightly down from the prior season, which saw the Padres finish with 75 wins. The responsiveness of the fan base to a winning ball club has to be called into question. Furthermore, in 2004 after Petco Park opened, the Padres went on to winning records for four straight seasons, and there was a gradual decline in attendance. It is not easy to get a read on how Padres fan will respond to a winner, and ultimately that is a large factor in how much money could be invested into Gonzalez.
Furthermore, tying up such a large percentage of a team’s payroll in one player can really make winning difficult, especially if Gonzalez gets injured or doesn’t perform up to expectations. Take Nomar Garciparra as anecdotal evidence. In 2001, he was coming off a string of four sensational years. He was hit by a pitch on the wrist early in season, a freak injury, and despite putting up more productive years, was never the same again. The Padres aren’t like the Yankees or Red Sox, and would be virtually unable to compete in the long term without a healthy Gonzalez (while still owing him some $20M).
In the end, the question of what to do with Adrian Gonzalez is far too complicated to be answered in a blog post, or at least by this author. Hopefully, though, we have shed some light onto some of the possible factors that go into determining his worth, and whether or not the Padres can, and should, keep him in San Diego beyond 2011. It will be fascinating to see how it unfolds.