Risk vs Reward
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Disclaimer: Despite the photo, no Byron Buxtons were used in the preparation of this blog entry.
Do I have to say it? Okay, I will, just to get it out of the way: I love the Correa signing. Teams should be trying to get good players, and we just got one of the best baseball players on the planet, in the middle of what should be his prime years - a center-cut slice, as they say.
But ever since I heard about it, TWO LONG DAYS AGO, there's been something on my mind. Risk versus reward. And I don't think I've seen any of the writeups here, or elsewhere, look at it from this angle. Did we really outmaneuver the Yankees? I'm not sure that's what happened, or that New York's front office is gnashing their teeth with regret in the slightest.
Everyone's treating this like it's a one-year contract, and I agree that that's the most likely way it plays out. But it's not a one-year contract - the Twins committed to three years. There's the saying that there's no such thing as a bad one-year contract. The converse is that (because team budgets don't carry over from year to year) everything longer than one year requires the signing team to put its neck into a noose, to one degree or another.
So, what's the risk with this contract, and what's the reward? The risk is pretty obvious and pretty easy to define - Correa could get hit by a meteor tomorrow* and the Twins still would be on the hook for the full $105.3M, which by their usual accounting would apply equally to the budgets of those three years and in some way impact their ability to operate. Probably they'll pay him $35.1M for one year of service and then thank him for his service as he departs. But they've put $105.3M on the table, and are risking it. You know how you say you'd "bet your house" on some sure proposition? You don't really ever do that, because you would actually have to put the deed to your house out there to be taken if you are proved wrong, and you'd start thinking about all the ways it could indeed go wrong. It's like that here. The Twins haven't bet the (Pohlads') house, but there's a significant chunk of change on the table that wasn't there three days ago. That aspect still seems underappreciated.
Now what's the reward? Much harder to estimate. There is expected reward and then there's maximum reward. Let's focus on the maximum here, since I started with maximum risk. I'll use WAR as a catch-all for how to measure a player's contribution. If you want to skip the details, jump down to "I'll Do The Homework Later."
Carlos Correa may not yet have had his "career year" - remember what I said about us getting a center-cut slice? He might go full-MVP bananas-mode in 2022. Shohei Ohtani was MVP last year and his pitching/batting WAR on b-r.com added up to 9.0. So let's go with that. If Correa has that kind of year, he walks after the season, of course - goodbye and good luck, good sir.
Let's say he goes out and puts up "only" a season like last year, with a WAR of 7. Same outcome. He walks away, with smiles all around.
But maybe 2021 actually was his career year, and he follows up like that with an all-star level WAR of 5. Same outcome - maybe he loves his teammates here, but bidness is bidness, amirite - he leaves.
Maybe he's only above average and his WAR is 3. Probably he walks, right? Still can market himself to a big market team for a long contract, certainly for more than the $70.2M he's still owed.
What if he's average, and/or injured part of the time, and his WAR is 2. Maybe he stays, maybe he walks. What if it goes really badly and his WAR is 1? Same uncertainty - maybe he stays, trying to rebuild value. WAR can be 0 too, or even negative. Probably he stays, trying to rebuild value.
Okay, sorry to belabor, but my point is that if he stays, it's almost certainly tied to low performance relative to expectations. Reeeeeally low.
Now, consider Year 2, 2023. Seems like it's 90% odds that he's gone, and whatever WAR he earned for the Twins this one year is the end of the story. But in that remaining 10% case, what will be your expectation of WAR for 2023, given that he put up 0 or 1 WAR in 2022? Depends on why, but probably a WAR of 9 is now off the table - chances of a bounceback like that are just too remote. Could he return to 2021 levels and deliver 7 WAR? Sure, maybe. If he does, then he walks after the year, and his contribution to the Twins is that number plus his (low) 2021 number. Like around... 8 or 9, for the two years together? It can't be much higher, because he would have left already. Of course he might not deliver 7, but only 5 - he still walks after Year Two. 3 WAR - probably he walks. Lower than that, maybe he stays.
So if it was 10% that he's staying for Year 2, probably it's also at most 50/50 that he's back for Year 3, or 5%. And that will be only if he's put up WAR in the neighborhood of 0-2 the first year and followed up with 0-2 WAR the second year. Now what are the odds that he suddenly goes bananas at last, after 2 straight sub-par years? Really small, right? Anything can happen, but an MVP type season really is unlikely. He could win Comeback Player of the Year with a 5 WAR. I think that's about the ceiling at that point. 0-2, plus 0-2, plus 5, equals... gee, 9 at most, again.
There are all kinds of ways to do this kind of analysis, because nothing is certain. But I've convinced myself that the absolute maximum the Twins can sanely hope for, from this particular contract, is a total WAR of 9, whether in one season or spread across multiple.
"I'll Do The Homework Later." Good, I don't blame you. To recap: the Twins stand to reap 9 WAR as a maximum, by signing Correa - go back and do the homework if you think it should be higher, I really don't think you'll come up with a sound argument. The Twins' maximum risk is $105.3M. We don't expect the latter to happen, but that's the risk.
Now, let's compare. What if a deep-pockets team had gone ahead and instead given Correa a 10-year $325M contract like some were saying, and let's assume no opt-outs? Let's do a quick version of the max risk/reward analysis for that - bear with me for one paragraph. As before, the maximum risk on the contract is simple: $325M is on the line, win lose or Tommy John Surgery. What's the maximum reward? If we're allowing a chance at an MVP-like 9 WAR before, we need to do it again. He might do that in any of the 10 years of the contract, but let's don't go crazy and think he does it every time. Let's say 1 year of 9 WAR, and a 7 (a second monster year), a couple years of 5 WAR (still a huge asset), three more years of 3 WAR (above average), and then 1 WAR each of the other three years if he hits a steep decline or sprinkles in an injury-plagued season or two earlier in the sequence. So really, I'm not talking absolute maximum after all, merely an optimistic outlook for a window of contention involving a great player. Those 10 numbers, they all add up to 38 WAR. A starry-eyed optimist could look at a potential future hall-of famer and come up with an argument for more, like 50 - meaning inner-circle HoF, which I can't honestly rule out for him at age 27 - he's less than halfway through his career and is more than halfway to HoF status IMO. But let's go with 38.
Estimated performance would likely be lower but remember, this is max risk and max reward.
So, put yourself in the Yankees' shoes. Do you risk $105.3M for at most 8 WAR, like the Twins are doing? Or do you say, **** that, I mean forget that, we're rich, and by tripling our risk, we can more than triple our potential reward. Isn't that what smart money does?
So I think they, New York, say no to the smaller contract. They have deep pockets, and won't risk significant money for modest maximum reward, when they could invest 3X as much in risk and really hit the jackpot.
Max risk and max reward are not the only analyses a team would make. Not by a long shot. Anticipated actual cost and estimated reward also are crucial. Let's say 4 WAR for 2021 to reward the (very likely) $35.1M he gets from the Twins. Compare that to maybe 30 WAR over a 10 year contract that costs $325M. Now the dollars per WAR are much more favorable to the short contract - it is center-cut after all, an advantage not shared by the full 10-year cut of meat.
But likely outcomes aren't enough. A front-office that didn't present a solid risk/reward analysis, which I have merely half-assed in this lengthy post, would be laughed out of the room by their higher-ups - if, that is, the higher-ups had an actual sense of humor and were in a forgiving mood and didn't fire them for lack of due diligence.
Bottom line, this is a mid-market contract, in my estimation. The expected reward fits the expected price, but the risks are disproportionate. A big team goes big. No regrets for the Yankees. This is the kind of deal the Twins have to embrace, but by no means did they "put one over on them" when they traded Donaldson to the Yanks to free up the cash to make this happen. The Twins had to, in effect, buy Correa a $70.2M insurance policy, to get him to commit to just one year at $35.1M. It probably adds $10M to the cost that the team's CPA has to factor in.
Thanks for your patience. I welcome nit-picks, or bigger criticisms.
* Let's assume a small meteor, and like in Princess Bride he's only mostly dead, yet still slightly alive and expecting direct deposits at his bank to continue
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