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The Thome Contract, sabr-style

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[editor's note, by Alex Falzone] This article was originally written on August 3, 2005.

The trade deadline has come and gone, and it looks increasingly like the Phils? big first-base decision?Thome or Howard??will be put off until after the season. Which slugger to keep and which one to deal likely will be determined by what clubs offer for both, other moves the Phils might make, and, inevitably, the PR ramifications of moving the team?s signature player.

But there?s another way to approach the question as well: What is Thome?s contract worth?

For this article, I borrowed very heavily from Nate Silver?s recent BP article. Silver?s article analyzed the future contract value of Manny Ramirez and what would be considered an acceptable return for the BoSox in extricating themselves from his considerable salaries over the next couple of years. I decided to do the same for Jim Thome, since his injuries this year have awakened phans to the realities of his remaining contract, which has some ready to Wally Pipp him out of Philadelphia. As you can see, I followed Silver?s methodology , just to try to nail down Thome?s value so that we have a starting point to talk about.

 

The following chart lists Thome?s annual salaries for the remainder of his contract. This includes both Thome?s prorated amount for the rest of the 2005 season and the $3 million dollar buyout he?s likely to collect in 2009, since it?s highly doubtful anyone would be willing to pay him the $13 million salary in lieu of the buyout. His actual salaries can be found in the first column, courtesy of Dugout Dollars.

In the second column, you?ll find Thome?s Marginal Salaries. Marginal Salary is a concept that the late Doug Pappas brought to the forefront a few years ago: since the minimum MLB salary is $317,000 and would have to be paid to a player filling that roster spot regardless, subtract that amount from what the player is actually making to get the Marginal Salary figure. This number represents the discretionary money that the team has decided to spend on a player, in this case Jim Thome, rather than a replacement player earning the minimum.

The third column lists the Wins Above Replacement Player (WARP) projected for the remainder of Thome?s contract (including the remainder of 2005). These totals come from Thome?s Five Year Forecast as predicted by the PECOTA system, which factors in age, skillset, comparable players, etc. to best approximate a player?s future performance. Notice that in 2009, the WARP is 0 instead of the estimated 1.4; the $3 million buyout negates any performance that year, since the team is literally paying Thome to leave.

Contract Considerations for the Future
Year Actual Salary Marginal Salary (MS) Projected WARP
2005 3,795,000 3,478,000 1.9
2006 12,500,000 12,183,000 4.7
2007 14,000,000 13,683,000 3.2
2008 14,000,000 13,683,000 2.6
2009 3,000,000 2,683,000 0
Total 47,295,000 45,710,000 16.3

Now we get into the analysis. Each WARP was found to equal about $2,140,000, per Nate Silver?s study during the last offseason; that is, the 47 free-agent contracts that teams doled out before the 2005 season paid a bit over $2 million per future WARP. Thus, if you multiply the projected WARP totals by the $2.14 million value, the product will provide an approximate Market Value amount for the coming years. For example, let?s look at Orlando Cabrera?s deal. He signed with the Angels for four years and about $28.6 million. His projected WARP over those four years is 13.3. Divide the WARP into the salary, and the 2.15 figure that?s generated is the amount, in millions, that the team is paying for his expected future performance. This Market Value number is found in the first column in the chart below.

In the second column, you?ll see the Net Value amount, which we get by simply subtracting the Marginal Salary amount from the Market Value amount for each year. Positive numbers indicate that the Phillies received more actual value, in terms of WARP, from Thome than what they actually paidhim; negative numbers indicate the opposite. Unfortunately, you?ll notice a lot of negative numbers in this column.

The third column takes the Net Value amount and applies a 5 percent discount rate, since $1 today will be worth more than that same $1 in the future. Silver used the same rate, and while researching to find out whether this was an accurate figure, I discovered that it was, so I used it as a nice round estimate to get a present-day value.

Marginal Salary vs. Market Value for the Future
Year Market Value (MV) Net Value (MV-MS) Discounted Value
2005 4,066,000 588,000 588,000
2006 10,058,000 (-2,125,000) (-2,018,750)
2007 6,848,000 (-6,835,000) (-6,493,250)
2008 5,564,000 (-8,119,000) (-7,713,050)
2009 0 (-2,683,000) (-2,548,850)
Total 26,536,000 (-19,174,000) (-18,185,900)

Taking into account the rest of 2005 and the $3 million buyout in 2009, the Phils stand to ?lose? just over $18 million over the rest of Thome?s contract, provided he exhibits a slow decline in performance. Of course, after suffering through this season with injuries, his future performance is anything but clear. I tend to think that he?ll bounce back next year to perform reasonably well, probably something a little below his 2004 performance; this thought aligns with PECOTA?s projections as well. However, if he does not return to some semblance of the 2003-2004 Thome, then the numbers above probably drastically underestimate the extent to which the Phillies would get burned on this contract.

 

Having looked at Thome?s future performance above, let?s consider the value that the Phils have received from Thome thus far. The following two charts follow the same framework as the two above, but instead list only the results to date.

Past Years of Thome's Contract
Year Actual Salary Marginal Salary (MS) Actual WARP
2003 9,500,000 9,183,000 7.8
2004 10,500,000 10,183,000 5.7
2005 7,700,000 7,383,000 0.8
Total 27,700,000 26,749,000 14.3

 

Marginal Salary vs. Market Value in the Past
Year Market Value (MV) Net Value (MV-MS)
2003 16,692,000 7,509,000
2004 12,198,000 2,015,000
2005 1,712,000 (-5,671,000)
Total 30,602,000 3,853,000

As you can see, the Phillies made out pretty well in the first two years of Thome?s deal. But the first 2/3 of this year drag the numbers down overall. Still, up until the trading deadline, the Phils had received almost $4 million in performance over what they had paid Thome (and that?s with his awful numbers so far this year). Looking a little farther out, the break-even point for the Phillies appears to be 2006. Assuming that Thome meets PECOTA?s projections in 2006 (4.7 WARP, or a little less productive than he was in 2004), the Phils will actually still come out ahead (about $1.8 million) on Thome?s deal because they only stand to lose about $2 million in 2006. But let?s not forget that PECOTA?s prediction of 1.9 WARP for the rest of 2005 is probably too high. Assuming that Thome rebounds to put up a 1.0 WARP (which isn?t out of the question if he comes back within a couple weeks and performs at something close to his former level), the Phils will lose a couple million more this year, so that would probably even out all the money.

Of course, this is a lot of assuming. No one can predict what will happen to Jim Thome. Will his back/elbow/hand injuries recur? Even if they don?t recur, will he still be able to swing the lumber as menacingly as he?s done in the past? Unfortunately, for all the good will that Thome?s arrival brought to the Phillies? franchise, it appears that the time has come to consider moving him.

So what does this all mean? Well, if Jim Thome stands up and offers the Phillies to buy him out for $18 million, the Phils should make like Kris Kross and jump at the opportunity. Of course, Thome won?t do that. So should the Phils look to move Thome this offseason, which most phans agree is a logical thing, then the Phillies should look at paying no more than $18 million (38%) of Thome?s remaining total salary. This would be the ultimate sunk cost. Of course, it?s not unreasonable to expect that in any deal for Thome, the Phils would be receiving some players in return, as it?s unlikely that Thome is D-U-N done. So the better players that the Phils are offered, the more money the club can dangle for another team to take on Thome.