Wednesday, November 24, 2010

Rangers Interested Signing Hamilton Long Term

Earlier today, ESPN Dallas's Tim MacMahon reported the Rangers are interested in locking up Josh Hamilton to a long term deal this offseason.  This shouldn't be a surprise to anyone.  Hamilton not only won the AL MVP award in a landslide this season, but also led his team to it's first World Series appearance.  To say Hamilton was at the top of his game is an understatement.  MacMahon offered an interesting perspective for the upcoming negotiations:
"...Hamilton wants to be paid fair market value. How much is that for an amazing physical specimen who played a major role in winning the franchise’s first AL pennant? The debate on the financial value of Hamilton, who is entering his second year of arbitration eligibility, is complicated by his age (29), unique off-field issues and durability concerns.

But he’s still arguably the best player in baseball. It’s likely to take a deal in the high eight figures to lock up Hamilton for the next five years or so."
Hamilton's off-field issues are well documented.  While it's understandable the Rangers would factor this into the equation when determining Hamilton's value, it almost seems a little unfair.  The man has conquered some very serious demons, and one hopes he would remember the hell he went through in breaking his addiction.  That said, there's always a chance a recovering addict relapses.  Drug and alcohol addiction is a powerful force that no addict ever truly gets over.  (Just ask a former smoker if they ever miss smoking, even if it's rare.  The urge never fully goes away.)  The Rangers would be foolish not to protect their investment whether it's with a contract clause or a reduced offer.

My biggest concern with Hamilton is neither his past, nor his age.  It's his durability.  Since entering the major leagues in 2007, Hamilton's missed 180 games, and has made multiple trips to the disabled list.  For those of you who aren't quick with math, that's one full season plus an additional 18 games.  That's a lot of missed action in a four year period.  His injury problems didn't just start once he made it to the majors.  He suffered through serious injury issues while in the minors during 2001 and 2002.  I don't want to call Hamilton the Rangers version of J.D. Drew, but if the shoe fits...  Hamilton, like Drew, is a supremely talented player, but talent only gets you so far when spend 30-45 games a season on the DL each season.  Plus, injuries tend to become more frequent as a player ages.  The Rangers durability concerns will need to be factored into any contract offer the they present to Hamilton and his team.

Josh Hamilton had a career year in 2010.  Assuming he's healthy enough to do so, I wouldn't be surprised to see him put up another couple of 5-6 WAR seasons.  That said, we shouldn't expect to see a repeat of his .390 BABIP, especially since his 2010 batted ball rates were nearly identical to his rates from 2007-2009 (BABIPs of .315, .333, and .319).  I expect to see him regress back to his career norms in 2011, at least when it comes to his batting average on on base percentage.

So what will Hamilton be worth over the next five seasons?  Based on my initial 2011 projections, Hamilton will be a 5.5 WAR player.  In years two and three, I'll set the regression rate at 0.5 WAR per season, and in years four and five at 0.75 WAR per season.  As with my previous examples, I will assume a 5% increase in the value of a win on the free agent market over each of the next five seasons.

                Age       WAR        Value      
2011          30         5.5         $22.6M     
2012          31         5.0         $21.5M     
2013          32         4.5         $20.3M 
2014          33         3.8         $17.9M  
2015          34         3.0         $14.7M 
Total                      21.8        $97.0M

(All monetary values in millions.)

Based on my projections, Hamilton will be worth $97M over the next five years.  Does that mean the Rangers should start the negotiations at $19-20M?  No.  The difference between Hamilton and the other examples I've presented (Lee, Crawford, Jeter, Beltre, etc.) is that Hamilton is not eligible for free agency.  This distinction is incredibly important.  The values I've presented above are based on the average cost of a win on the free agent market.  Since Hamilton is still two years away from free agency, he doesn't have the option to auction his services to the highest bidder; therefore, it's unlikely he'll be able to negotiate a contract that's in line with his true value.  In all likelihood, he'll end up signing a contract for 25-35% below his estimated free agent value of $97M.  Based on his 2010 salary ($3.25M), position in the arbitration process, and recent MVP honors, I believe a 5 year $70M contract is a fair market value for a player of Hamilton's talents. 

This contract not only gives Hamilton the financial security he desires, but also provides the Rangers a significant margin for error should Hamilton struggle to meet expectations.  Under the current scenario, Hamilton would only need to provide 15.7 WAR (instead of 21.8 WAR) over the next five seasons, in order to justify his contract.  This is definitely doable unless he suffers from a multitude of injuries.  All in all, this looks like a winning option for both parties involved.

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