Wednesday, November 16, 2011

The Relief Market Goes Nuts

Last week, reports surfaced that the Phillies were nearing an agreement with representatives for their free agent closer, Ryan Madson. Madson’s deal was said to be for $44M over 4 years and pending only the approval of team CEO David Montgomery. Those reports either turned out to be inaccurate or Montgomery never put his stamp on the contract, because less than a week later the Phillies penned former Red Sox stopper Jonathan Papelbon to a four year deal that, at $50,000,058 is the largest total ever guaranteed to a reliever. At $12,500,014.5 per year, the contract’s average annual value falls short of only Mariano Rivera’s last two extensions. Including Papelbon and Rivera, eight of the top ten contracts for relievers in average annual value have been signed in the last four offseasons (now including 2012 with Papelbon). Teams engaged in a bidding war for late-inning arms have driven up the price of the market, to the point where I believe most clubs would be better served using arms they can develop or acquire through trades and allocating their free agent dollars elsewhere. Several factors combine to make it very tough to believe that going after the top relievers on the market remains a good investment.

Total Impact
Simply put, relievers don’t have the opportunity to influence games that players at other positions do. No reliever pitched more than Alfredo Aceves’ 93 innings in 2011, and the vast majority of relievers were in the 60-80 IP range. While most relievers on average are most effective than starters per inning pitched, the gap in total innings means they can’t produce close to the same value. National League Rookie of the Year Craig Kimbrel led all relievers with 3.2 WAR; the next lowest position-leading total was Mike Napoli’s 5.6 WAR, best among backstops last season.

Market Competition
Over the last few years, the market for elite relief pitchers has blown up to drastically overstate the value of these relievers. Last season, ten relievers signed contracts for more than $10 million in guaranteed money, led by Rafael Soriano’s $35 million deal. In addition, many of these relievers cost their new teams a draft pick as a result of being Type A free agents under the Elias free agent ranking system. Since relievers tend to receive shorter deals, many more of the relief pitchers that hit the free agent market are ranked in the top 20% or the 20% below that, the cutoffs for Type A and B free agency. As a result, seven of the relievers signed in 2010 cost their new team a selection in the 2011 Rule IV Draft, out of a total 17 Type A free agents that signed elsewhere. Teams’ spending on the last couple drafts suggest that they now value their draft picks much more highly, so this is an important consideration for any team looking to bring in a free agent.

Volatility in Production
Largely because they pitch fewer innings and therefore produce a much smaller sample of data, reliever production is much more volatile than the production of players at other positions. This manifests itself as teams have a very difficult time determining which relievers are worth signing to multiyear deals for large amounts of guaranteed money. Of the ten relief pitchers who signed for more than $10 million last offseason, only three (Mariano Rivera, Joaquin Benoit, and J.J. Putz) were among the top 30 WAR producers last season. The only relievers who appeared in the top 10 WAR producers in both 2010 and 2011 were Sean Marshall and John Axford, suggesting that it’s very difficult to accurately predict which relievers will produce consistently from year to year and which ones are likely to stumble.

For payroll-conscious teams, I believe there are three main options. First, develop young talent to populate the back of the bullpen. Complimenting Kimbrel with the dominant arms of Jonny Venters and Eric O’Flaherty, the Braves are the current poster child for this strategy. Second, teams can look to the trade market to acquire back-of-the-bullpen talent. Besides signing Putz to a $10 million deal, Diamondbacks GM Kevin Towers traded for David Hernandez and Kam Mickolio last offseason and Brad Ziegler at the trade deadline, meaning the turnaround of the Diamondbacks’ relief corps can at least partially be attributed to this strategy. Finally, teams can exploit the general over-reliance on save numbers and sign strong relievers with little or spotty closing experience, confident that their success in the seventh and eighth innings will carry over to ninth-inning duty. Before this season, Kyle Farnsworth had 27 career saves in 11 seasons, and only one since 2007. However, the Rays saw Farnsworth’s underlying numbers and identified a potential closer, signing him to a $3.25 million deal and solidifying their bullpen.

Overall, the Papelbon deal presents too much risk from a team perspective to be considered a shrewd move. From the unpredictability of reliever performance to the large money guaranteed to players who impact a relatively small number of at-bats, the market for the most effective free agent relievers has become so expensive that it essentially removes most of the potential value of signing these players because of the large chunk of a team’s payroll that signing would require. By using a creative solution to fill their closing role and using their free agent dollars on players at more impactful positions, teams maximize the value of their payroll and give themselves a better chance to contend.

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