Magglio’s Millions

The Tigers have made a signing that smells like summer armpits, tastes like sun-dried mayonnaise, and sounds like John Kruk’s unreleased album of Cyndi Lauper covers. Awarding Magglio Ordonez a possible $105 million, as Dave Dombrowski and company have just done, is the Ben Affleck film festival of free agent signings. Detroit has just proudly volunteered to clean the bathrooms at a frat in the aftermath of a party. It doesn’t get much worse than this.

Now that we can state unequivocally that the Tigers have done something terrible, let’s move on and consider why the Tigers have volunteered themselves for the full Samuel Taylor Coleridge treatment. Clearly, this contract has its roots in the Tigers incompetence in evaluating and projecting baseball talent. I look at Ordonez and see a player who’s just below average defensively and hangs out on the hitter’s side of the defensive spectrum; while his offense projects to be worth about two and a half wins above average, overall he’s only worth about one and a half wins per season above the average right fielder. And that’s assuming he’s fully healthy.

In general, an average full-time player is worth $4 million and each additional win is worth about $2 million. Those baselines would lead us to believe Detroit is paying a $7-$8 million premium for Ordonez for this season alone. Factor in that Ordonez is on the wrong side of the aging curve, and the Tigers figure to be paying at least a $70 million premium over seven years to get Ordonez.

Now, the Tigers do get an out clause. If Ordonez’ left knee injury recurs and causes him to spend 25 or more days on the disabled list in 2005, then the Tigers can void the rest of the deal. The best case scenario for the Tigers is if Ordonez has a great season but misses a month to his knee injury, leading Detroit to cut ties with him in the offseason. In that case, Ordonez would be worth his $6 million salary, and reportedly his $6 million signing bonus would be nullified.

Given that it’s unlikely that a recurrence of his knee injury would cause at least 25 days to be spent on the DL but not keep him sidelined for a much longer period of time, that’s not a best case scenario anybody can reasonably expect. As such, the out clause is probably more likely to figure as a question of whether the Tigers throw away a few million in one season or a ton of money over five to seven seasons. The Tigers will be on the hook for $63 million for 2006-2009 with another $30 million in gaudy club options for 2010 and 2011 which become guaranteed if Ordonez meets somewhat modest playing time thresholds.

You may quibble with the notion of calling that the best case scenario since Ordonez could always break out and be a top 5 player over the life of the contract, but the odds of him doing so aren’t substantially larger than the odds of any other possible acquisition having a breakout of roughly equal proportion. Ordonez does not have any unique upside.

On top of that, the Tigers don’t really have a need for a slow, right-handed corner outfielder. They already have Craig Monroe, Bobby Higginson, and Rondell White on hand, and if Detroit would platoon Higginson and Monroe then they’d have average overall production at right field due to Higginson’s very good defense. Since they’re not likely to find any actual takers for Higginson and his bloated contract, Ordonez’ actual value added is quite low.

Now, this could mean the Tigers will move Higginson to center, where he’d be an adequate defender, and would essentially be paying for the difference between Ordonez and Alex Sanchez. That puts the upgrade more on the order of four or five wins, so $12 million for 2005 is close to reasonable. Two problems, though. First, it doesn’t appear the Tigers will do the right thing anyway; they’ll likely use this as an opportunity to bench Higginson out of spite. Failing that, White could be traded with Higginson moving to left to platoon with Monroe.

The upgrade from White to Ordonez is ~3 wins though, with the $9 million salary difference likely not worth it since White will probably yield the Tigers some variety of bilge water in trade. We’ll probably see more of Alex Sanchez and his high batting average and stolen base totals since his extreme lack of plate discipline (not to mention power) doesn’t influence the Tigers’ thinking too much. And in any event, the specter of Nook Logan still looms.

Second, there’s still the matter of all the future seasons when Ordonez will be overpaid by nine or ten million dollars. The specifics of the Tigers situation in 2005 can make Ordonez worth the cash, but we cannot expect his relative value in future seasons to be nearly so high.

So in terms of performance analysis, the Tigers have done a cringe-inducing job. But let’s make peace with that; the Tigers don’t seem to get how to evaluate talent. The interesting topic, for me, is the merit of the economic strategy behind the move.

The Tigers also spendthrifted themselves into a 2 year, $12 million deal with Troy Percival. Perhaps ironically, the Percival deal would have been about what Ordonez deserved. Percival’s value, on the other hand, isn’t a safe bet to be worth half of that. Given that the Tigers have said in the past that they’re willing to overpay for talent because they need to, this should come as no surprise. The question is, how willing should they be to overpay?

To answer that question, we need to know where the Tigers budget would go if not spent on player contracts. If Detroit doesn’t donate $105 million to Magglio Ordonez’ favorite causes, what happens with that money? More to the point, who determines what happens to that money?

By appearances, it seems the Tigers have set a high payroll threshold and are sticking to it even if it means overpaying both now and in future seasons. At face, this seems like an inefficient way to distribute the organization’s resources; why invest in winning now at 40 cents on the dollar when that same money could be spent to improve the team in the future?

There is something to be said, however, for having top-down budgeting. If I were to own a major league team, I’d certainly be skittish leaving the decision of how to allocate all of the team’s money to just the general manager. GM’s have a lot on their plate, and expecting them to make the decision about how to allocate all of the team’s resources is problematic, in part because expecting them to do the research to allocate it properly may be too much of a burden and in part because general managers will base the decisions on their own interests rather than the team’s interests. If a GM of a middling team wants to hold on to the job for a few more seasons, the GM will probably overspend for marginal talent and atrophy the farm system. If a GM of a different middling team wants to hold on to the job for a few more seasons and can’t attract enough talent, the GM might just dump the money into the farm system and say the team is investing in the future since his hands were tied. It’s just as easy to overspend on young talent and misallocate development resources as it is to overspend on free agents, doing little to help the team in the long-run and punting the short-term.

That being said, it’s absolutely ridiculous to set budgetary limits without conducting extensive research on the value of the investments in question, and I suspect that that’s the case with many organizations in baseball and probably the Tigers.

A Hardball Times Update
Goodbye for now.

The Tigers do appear to be investing a good deal in player investment. Hiring David Chadd as scouting director should improve things, and the Tigers have several Latin American academies and have a history of being less than stingy with bonus money. Certainly, spending for Magglio Ordonez isn’t preventing them from investing in player development; it’s taking away money that could be added to the amount spent on player development.

Let me ask a practical question here: if, as we’ve established, we don’t think much of the abilities of the Tigers to properly evaluate major league talent, why should we expect them to be much better at doing it with younger players? If you give Detroit $20 million to spend on player development and say “Do with it what you will; all that matters is that you spend it,” there’s nothing inherent about investing in player development that makes it so that money will be spent more efficiently than the money allocated to Magglio. If a team’s not willing or unable to research the type of return a Magglio Ordonez will bring, than how are they going to be able to research the return they’d get on coughing up extra cash for a “tough sign” fifth-round pick with first-round talent? How are they going to be able to research the returns they’d get on hiring a dozen amateur scouts away from other teams or building a new academy somewhere? You can blow ten million dollars on player development just as easily as you can blow ten million dollars on 31-year-old right fielders.

So if the Tigers are locked into converting their money into baseball capital, they are almost certain to face diminishing marginal returns. That begs the question: why don’t they just invest that money outside of baseball and save it for a less rainy day? Why not just hold onto it and then spend big time when they’re set up to contend? If limiting the investment options to just baseball won’t provide much return, broadening the domain of investment should do the trick, and eventually that capital can be converted back to baseball when the value of a baseball investment will be stronger.

If the Tigers did that, then in a couple years when their homegrown talent is ready, they can, theoretically, buy up all the big free agent pieces and make a nice run.

There are a few problems with that approach. For one, it doesn’t matter when you overspend for a player; if the Tigers hypothetical peak is 2007, then they’re already paying for that extra piece. In Ordonez they bought the piece that, hypothetically, will put them over the top in 2007, but signed the contract two seasons prior to the payoff. Now, there’s no question that choosing your players to overspend for a few years prior to when you’ll need them is problematic. But then again, the market may escalate in the near future, so there’s certainly something to be said for loosening the purse strings early.

In addition, there’s evidence that if the Tigers waited until the moment was upon them they wouldn’t be able to acquire those players; they treated this offseason as the moment to overspend, and they haven’t been able to sign anybody to an ostensibly reasonable deal. You might blame that on players who simply don’t want to live in Detroit for whatever reason, but there’s certainly reason to believe that had the team already established itself as a “contender” that some of the marquee free agents would have signed with the Tigers. Put another way, there’s probably a Detroit premium in play whereby Detroit will always have to overspend, but there’s also a premium that losing teams have to pay to acquire free agents. A winning team can probably get better value in free agency, so winning now does generate interest.

So while Detroit going out into free agency with $20 million to burn this offseason has entailed overspending for marginal talent, Detroit going into free agency with $70 million to burn in a few years would almost certainly entail even more overspending for marginal talent.

Detroit is probably also on the limited no-trade clause all-star team, so it’s not like they can just save up now and take on the contracts of Jason Kendall types in the future. To get to the point where Detroit can leverage their monetary advantage effectively, they’re going to have to leverage it inefficiently for a while first.

Furthermore, this probably is The Moment for the Tigers. They underperformed their Pythagorean record last season, and based on components they were roughly a .500 team last season. While we should expect some regression from that because a number of their players had very good seasons, they’re certainly not out of it in the AL Central. The Twins figure to be the best team in the division, but the difference between the Twins and the Tigers is small enough that signing Ordonez can significantly impact the Tigers’ ability to make the playoffs or improve attendance in September. With the collective “no great shakes” aura of the White Sox, Royals, and Indians, gambling on the chance that the Twins stumble is pretty reasonable.

Looking at the future of their division, this season looks like the best time for Detroit to make a run. Cleveland has a lot of young talent, and in a year or two if its ownership decides to start spending they could make a pretty strong run. Similarly, Minnesota has a stocked farm system and their best players are all a few years shy of their probable peak. In addition, the Tigers farm system is probably several years away from being strong, so if the Tigers give up on the major league level now they’re stuck with doing so for several years. As such, it’s hard to fault the Tigers for wanting to win now while their window of opportunity is still open.

The Tigers don’t have a lot of options. Their club as currently composed is built to win now, even if it’s not built in a way that’s likely to win now. If they trade Ivan Rodriguez or Carlos Guillen or Dmitri Young for prospects, is it really likely that they’ll add long-term value? Perhaps, but it’s not a slam dunk by any means, and in so doing they cost the team wins and thus money in the short-term. Less money now means smaller budgets in the future.

So all told, my hunch is that the Tigers are going for the right strategy and have simply chosen a lousy way to execute it. Going 7 years/$133m for Carlos Beltran, for example, would cost an extra $4m per but would be worth the difference since he roughly projects to be worth about two wins over Ordonez. Similarly, Adrian Beltre, J.D. Drew, and Placido Polanco would have been superior options, and I bet the Tigers could have had Drew for the deal they gave Ordonez, Polanco for much less, and Beltre for not much more. And someone like Matt Clement would be a better fit too.

As it happened, though, the Tigers didn’t succeed in getting any of those guys, and they didn’t have much choice in the matter of Magglio Ordonez. The Tigers hands were tied in a number of knots, and while they deserve extraordinary castigation for being in the position they were in there wasn’t a lot they could do once they were in that position.

Only God and Scott Boras know why the Tigers thought that bidding $15 million per season instead of $10-$12 million per was necessary. But if the Rangers or Mets ended up giving Ordonez $65-70 million over five years, it wouldn’t do anything to help the Tigers solve their many problems.

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