Carleton: Why do teams overpay for free agents?

From Russell Carleton at Baseball Prospectus on November 18, 2013:

It’s free agent season, which means it’s time to complain about whom your favorite team is signing. Or not signing. Or reportedly thinking about signing. Or reportedly thought about signing and whom you would have complained about if they had signed him, but now that you know that they are not signing him, you’re angry that they didn’t have the courage to do it. In the eyes of their fans, all 30 teams will do so much to damage their potential for a World Series championship in the next three months. And they’re mostly right. There will be 29 teams that will fail to win the World Series next year. Teams are really bad at this.

This winter, someone will do something big like signing Robinson Cano or Clayton Kershaw to a contract that will end when my oldest daughter is a tween and that has more money in it than the entire annual GDP of the nation of Kiribati. And someone will do something silly like giving a four-year contract to a 30-something-year-old player that will pay him as if he were assured to be a four-win player for those years, even though he’s showing sure signs of decline and hasn’t been worth four wins in three years. It’s easy to look at every signing and declare it an overpay, especially when the only guideline for a “proper” amount of payment is the handy “5 or 6 million per win” rule. If only things were that simple.

I worry that the rule of $5 million has gotten a little too ingrained in analysis of free agent contracts. It’s not a horrible shortcut, but like any shortcut, it’s bypassing consideration of a lot of other important factors. So, as we enter the heart of free agent season, let’s look at the rule of $5 million and why it seems that teams are always “overpaying” for free agents.

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Originally published: November 18, 2013. Last Updated: November 18, 2013.