Swartz: The dollar value of recent opt-out clauses

From SABR member Matt Swartz at MLB Trade Rumors on January 5, 2016:

Following a wave of multi-year club options attached to deals, players and their agents have begun to request and receive player options in recent years as well. David Price, Johnny Cueto, and Jason Heyward have each received them this winter, meaning that quantification of such deals is essential for careful team building. (Editor’s note: this article was written before the Dodgers reached an agreement with Scott Kazmir.) Everyone up to the commissioner has expressed concern that these “opt-out” clauses have been included in deals, and some feel teams simply should not give them. However, this is akin to saying that teams should not pay players above the league minimum salary—of course teams would like to do this, but you need to give players compensation to sign them. An opt-out is a way to lower the cost in dollars to the team, because the player will want more money otherwise.

Each of these three deals would be substantially more expensive without opt-out provisions—each opt-out clause is worth around $20MM, by my calculations. To test this, I looked at how a rough weighting of previous years’ WAR would affect a future projection, and compared this to how that projection would crystalize as it got closer. This led to an estimate that a very rough projection of future value 2-3 years in advance would change by about 1.0 WAR over the following 2-3 years. A more sophisticated system would probably change by about 0.7 WAR as it gets closer—and dollar value would probably change by about $7MM per year after accounting for overall uncertainty in salary levels. (The relationship between dollars and WAR utilized in this post is explained at this link.)

Read the full article here: http://www.mlbtraderumors.com/2016/01/the-dollar-value-of-recent-opt-out-clauses.html

Originally published: January 5, 2016. Last Updated: January 5, 2016.