Wednesday Rockpile: Examining Colorado's Arbitration WAR Surplus

This week the Rockies have been busy locking in 2011 salaries with the remainder of their six arbitration eligible players, inking Matt Lindstrom (for two years, $6.6 million guaranteedand Felipe Paulino (one year, $790,000) to deals that avoided the arbitration process. Those of you who remember my MLB Transaction Series in Purple Row Academy know that I'm not a huge fan of the MLB salary arbitration process. Here's something I wrote last year detailing the arbitration process and a few problems that I have with it. Fortunately for the Rockies this offseason, the cost of their arbitration-eligible talent won't be as steep as I had projected, though all the players will receive a healthy raise from their 2010 salaries.

In addition to Lindstrom and Paulino (who will have three more years of arbitration eligibility), Colorado has signed Matt Belisle ($2.35 million) and Jose Lopez ($3.6 million) to deals that bought out their last year of arbitration. In fact, only Jason Hammel and Ian Stewart have even made it as far as exchanging figures with the Rockies. Hammel asked for $3.7 million as a 2nd year AE player (he was a Super Two last year), with Colorado countering with $3.1 million (midpoint of $3.4 million). Stewart is asking for $2.6 million against Colorado's $2.15 million offer as a Super Two player (midpoint of $2.375 million).

What does this mean? Let me provide a little context. It is a generally accepted maxim within baseball that arbitration-eligible players are paid at a % of their free market value depending on which year of arbitration they are entering. Normally, AE players receive arbitration awards of 40% their first year, 60% the second, and 80% the third. For Super Two players who get four years of arbitration eligibility, the breakdown is often 20/40/60/80. Furthermore, using WAR as a function of player value on the open market leads to the assumption that each win a free agent player provides is worth $5 million. 

Off-topic

By that formula, here is what the Rockies believe that each player is worth on the free agent market this year (or at least the production they're paying these players for adjusted for a free market), assuming the midpoint is the contract reached for Hammel and Stewart, as well as how much WAR they are actually paying for:

Player 2011 Salary Unadj. WAR Market Salary Expected WAR WAR Surplus
Matt Belisle $2,350,000 0.47 $2,937,500 0.59 0.12
Jason Hammel $3,400,000 0.68 $8,500,000 1.70 1.02
Matt Lindstrom $2,800,000 0.56 $4,666,667 0.93 0.37
Jose Lopez $3,600,000 0.72 $4,500,000 0.90 0.18
Felipe Paulino $790,000 0.16 $3,950,000 0.79 0.63
Ian Stewart $2,375,000 0.48 $11,835,000 2.37 1.89
Total $8,196,000 3.06 $36,389,167 7.28 4.21

As you can see from the chart above, the Rockies are paying these six players for only 3.06 wins above replacement yet by the salaries they've handed out, Colorado is expecting those six players to produce 7.28 WAR in 2011 -- a surplus of 4.21 WAR, or a little over $21 million worth of value. And that's only if you take Colorado's purported valuation of these players at face value.

You might notice that most of Colorado's arbitration WAR surplus is derived from Hammel and Stewart. Well, when I projected the arbitration awards of Belisle, Hammel, and Stewart at the beginning of the offseason (the other three weren't with the team at the time), I explained my expectations of each player. I projected Hammel as a 3 win player in 2011, roughly splitting the difference between his fWAR (3.8, 3.7) and rWAR (1.8, 1.7) totals the past two years. As you can see above, Colorado is paying Hammel to be a 1.7 win pitcher in 2011. If you assume that the 3 win projection of Hammel is accurate (and that's my expectation for him in 2011), Colorado's surplus value from arbitration shoots up to about 5.5 WAR.

Stewart's case is a little more murky, as the Rockies' third baseman was a league average (two win) player in 2010 on a rate basis. Colorado is paying him to replicate that success in 2011 with a 2.37 WAR campaign, a projection that I believe he'll meet or exceed. If Rox Girl and the people making projections at Fangraphs are to be believed, Lopez will have a league average year for Colorado in 2011, adding another win to Colorado's surplus value.

The other three pitchers are a little more tricky to project, as all will likely be in the bullpen in 2011. Relief pitchers fluctuate in value so much that I'm comfortable with using the Rockies' expected WAR totals for those guys. Paulino could make a few starts this year, providing more utility to the club than he would otherwise, or he could not even break Spring Training with the club.

In all, by my count the Rockies added about 6.5 WAR of surplus value over the production that they are paying these arbitration players for. Relatively speaking (the arbitration system still sucks), Colorado made out like bandits.

What does this mean?

Well, for one thing it means that Colorado's Opening Day Payroll will be lower than what I had been projecting lately, which was as much as $88 million. Instead, Colorado will be paying about $2 million less for Hammel than I had projected, $1 million less for Paulino, and $850,000 less for Belisle. This is somewhat balanced out by a higher than expected payment to Lindstrom ($650,000) and Stewart ($125,000), but the point is that the Rockies' payroll will be around $3 million less than I had projected simply because they were able to get their arbitration eligible players under contract for cheaper than the market value.

With that new information taken into account, it looks like Colorado will start 2011 with a payroll just south of $85 million -- which is shockingly in line with my thoughts 75 days ago. That is, unless Jason Giambi and his $1 million minor league deal makes the club (and it's looking probable at the moment, which would bump either EY2 or Herrera off my roster), once again sacrificing bench defensive flexibility for offensive aptitude. In that case, the 2011 ODP will be closer to $85.5 million.

Barmes Trade Wrap

As you may have seen, Clint Barmes signed a $3.925 million contract buying out his last year of arbitration with Houston. So the Rockies in essence got Paulino and $3.135 million in salary relief for Barmes. However, when you consider that Paulino is replacing a pitcher like Matt Daley or Esmil Rogers who would be making around the MLB minimum of $420,000 in 2011, the salary relief is more like $3.555 million. Therefore, it makes sense that the Rockies spent almost exactly that much ($3.6 million) in acquiring Jose Lopez.

The final tally from where I'm standing: Colorado exchanged Barmes, Chaz Roe, the MLB use of Daley/Rogers, and $45,000 for Lopez and Paulino. I'd call that a pretty decent swap. 

Finally, make sure and stay tuned for the release of Baseball America's top 10 Rockies prospect list later today.

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