CJ Wilson and Yu Darvish are by most accounts the top two starting pitchers on the market this offseason, and their on-field performance has been discussed ad nauseum. Since I don’t have much to add to the already thorough discussions of the two pitchers, I thought I would take a look at the economics of the two potential contracts, to see how they might compare on the financial side.
There are a number of factors to be examined here, not just contracts, but also other factors such posting fee, luxury tax, and draft pick compensation, to see what the overall actual cost of these two players will be. It is admittedly speculative at this point because nobody knows what kind of contract Wilson or Darvish will get, or what the winning bid will be to negotiate for Yu Darvish’s services. However, using historical comparisons, I will attempt to make a reasonable estimate.
I will start with Wilson first, because his situation is a little simpler. He is probably due for a contract similar to that of AJ Burnett or John Lackey in recent years: a 5-year deal in the $80-90 million dollar range. I’ll split the difference and call it a 5-year $85 million dollar deal ($17 million per year), a big contract to be sure, but one befitting the only frontline starter on the free agent market. Add in the 40% luxury tax that the Yankees will pay on the deal, and we are looking at a total expenditure of $119 million. It is possible his contract could wind up a little lower due to his playoff struggles, but I can’t really estimate that effect, and he’s clearly a better pitcher than either Burnett or Lackey was when he hit the market.
The second factor associated with Wilson is the loss of a first-round draft pick, since the Rangers will almost assuredly offer arbitration. According to research by Victor Wang from a few years ago, the value of the Yankees’ first round draft pick (#30) is somewhere between $6.5 million and $3.4 million, so I’ll call it $5 million for the sake of simplicity. This comes out to a total of $124 million for 5 years of CJ Wilson, a hefty price tag, but certainly one that the Yankees could afford if they think Wilson’s 2011 performance (5.9 WAR) is sustainable.
As for Darvish, things get a little more complicated because it requires estimating both the posting fee and the contract. The Red Sox paid a $52 million posting fee to the Seibu Lions for the rights to negotiate with Matsuzaka, outbidding the competition by more than $10 million. Given the perception of Matsuzaka as a major bust (even though he had some success), I am not sure I see the posting fee climbing that high for Darvish (even though he is clearly a better pitcher). As a result, I will estimate that the winning bid for Darvish will be around $45 million.
As for contract, one can’t really compare Darvish to a pitcher on the free agent market. As a result, Matsuzaka is once again the most logical comparison. Matsuzaka received a 6-year $52 million contract (including many perks). I would guess Darvish gets a slightly bigger deal, say 6 years and $60 million. With luxury tax, the total cost of the contract would be $84 million, which added to the posting fee (which is not subject to luxury tax), the total outlay would be $129 million. Darvish may also make money for the Yankees via Japanese marketing, but from what I recall hearing about Matsuzaka, it does not amount to much more than a few million per year (if anyone has more precise numbers, let me know). I’ll put it at being worth $10 million over the length of the contract (a conservative estimate), which brings Darvish’s cost down to $119 million.
In terms of total dollars, the two players look to have a relatively similar total cost, though on a per-annum basis Darvish is a better deal because of his 6-year contract ($24.8 million vs. $19.8 million). Ultimately, the difference is not big enough to outweigh talent, so the Yankees should go after whoever they like best if they decide they want to spend big. Darvish is a slightly cheaper option with both a higher ceiling and a much great risk (because he is switching leagues). However, Wilson is no sure bet to continue his success due to his relative inexperience at starting and his older age. From this analysis, the finances do not clearly favor one over the other since Darvish’s actual talent is unknown, but I would still lean toward Darvish.
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