Clemens: Valuing Gerrit Cole’s opt-out

From Ben Clemens at FanGraphs on December 11, 2019, with mention of SABR member Jay Jaffe:

Last night, Gerrit Cole signed a record-breaking contract with the Yankees. Jay Jaffe broke down the signing, and mentioned one important part: the contract includes a player option after five years. In a contract as lengthy and lucrative as Cole’s, an opt out might seem like mere ornamentation. That’s not the case, though: as Stephen Strasburg’s earlier contract shows, sometimes the market in the future is simply better for a pitcher than we think. With that in mind, I took a stab at valuing the player option.

We use two player projection systems here at FanGraphs, and I ran both of them through the option pricing tool, as well as a hybrid. First, let’s take a look at the most optimistic: Steamer projects Cole for 6.3 WAR this year. From there, I applied a standard 0.5 WAR/year aging penalty and ran the numbers. You can read the methodology here, but as a quick refresher, I take an aging-inclusive projection, then bump each year by a random, normally distributed number to account for fluctuations in talent level.

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Originally published: December 12, 2019. Last Updated: December 12, 2019.