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Evaluating the Price and Future Value of the Verlander Deal

Houston Astros v Seattle Mariners Photo by Lindsey Wasson/Getty Images

In August the Astros turned what we previously knew about MLB trade deadlines on it’s head. After a surprisingly quiet non-waiver deadline, the aggrieved front office made a splash a month later by acquiring one of the best currently-active pitchers from a career perspective. Justin Verlander brought some needed stability to the Astros staff after a 12-17 August, and could be quickly considered well worth the price after posting a 0.86 ERA in three Houston starts, including a gem in the AL West clinch game last Sunday.

But what did the Astros really give up for Verlander? As with all trades involving future assets, no one can make a clear judgment for many years down the line. On paper, the Tigers did seem to come out well with a return of both upside and projectable skill in these three prospects - or, as our neighboring Detroit blog Bless You Boys called it, "pry[ing] talent away from an Astros team that treats prospects like gasoline in the Mad Max universe."

On the other end, there's plenty of risk with the players involved going back to Detroit and a lot to like about what the Astros did. Perez and Cameron are 19 and 20 respectively. Rogers has plenty of concerns about how his bat will play against advanced pitching. The Astros also managed to keep their top pitching and hitting prospects away from Detroit. But for what we can't 100% know, there's some analysis that could help us estimate what this trade could look like for both clubs in the future.

This exercise is similar to one I wrote up while the Astros were seemingly on the precipice of a Jose Quintana trade last December. That post, like this one will, deals with the baseball concept of surplus value. I stumbled across this concept back in 2015 when I read an analysis of the Evan Gattis trade from our own David Coleman. Surplus value isn't a new concept, but David's explanation was great, so it's posted below.

“Surplus value is an economic concept, but can easily be applied to baseball. Players have a value to teams that can be expressed in dollars. This is usually their salary. They also accumulate statistics based on their play in games. This is their production.

We can assign a value to that production, such as Wins Above Replacement. We can then assign a dollar amount to that WAR total, based on the cost of buying one Win Above Replacement on the open market.

After establishing a dollar figure for how much a player produced in a specific year, you can subtract that from his salary to get a surplus value to the team."

If you're math-averse, don't worry - it's basic stuff, and it's possible major league teams use some version (probably more complex) of a surplus value exercise to evaluate players based on their contracts, future projection and current value.

First, an assumption - the going rate for 1 win above replacement (WAR) is around $8 million on the open market. We'll use that as a big component of surplus value.

The first step is the most time-consuming and challenging - that is, how well will Justin Verlander pitch for the Astros in 2018 and 2019? Verlander and the Astros agreed to waive his 2020 vesting option upon agreement of the deal, so we'll see a probable Hall of Famer in Houston for his starts to end this season and the next two full seasons. This is fun.

What's not fun is projecting how a 34-year old pitcher will look in his age 35 and 36 seasons. However, I was able to use Fangraphs and the following criteria to find relevant comparisons to Verlander's 2015, 2016 and 2017 seasons going back to 1967. (More assumptions - I projected Verlander's rest of 2017 numbers out to the criteria below. These include innings pitched and rest of season WAR, which I marked at 1.0 with the Astros - he’s currently around 0.7 fWAR with Houston). So, we're looking for:

I. Pitchers within 50 innings (+/-) of Verlander's three-year total (565 IP)

II. Pitchers within 1.5 WAR (+/-) of Verlander's three-year total (12.1)

III. Pitchers within 1.5 WAR (+/-) of Verlander's age-34 WAR (4.0 in 2017)

Here's what we're working with:

A pretty wild list, and it's interesting how these numbers reflect era-to-era pitching trends across fifty years of baseball. Verlander's innings are well below average among guys who pitched in the 70s and 80s, but his strikeout rate is tops among this list.

The above list doesn't tell us much about what Verlander will look like in 2018 and/or 2019 - but checking the next two years (age 35 and 36 seasons) of these hurlers’ careers should give us a decently-realistic projection.

Most of these columns don't mean a ton, since statistics for pitchers across fifty years don't match up that well and the results are pretty divergent. The "Age 35 & 36 WAR" column helps, though - the median here gives us 7.4 WAR for Verlander's comparable pitchers. This is a pretty reasonable number for Verlander across the next two years and we'll add on 1.0 WAR for his starts in this last month of 2017, so our final WAR total for Verlander's time as an Astro is 8.4.

Another interesting note with this group of comparable pitchers is longevity in the majors. The average retirement age of that group was at age 41. Jim Kaat and Nolan Ryan pitched in four different decades. Though the Astros are only really concerned with Verlander through age 36, it's possible he could make the team he signs with after 2019 happy due to potentially strong production in his later thirties.

Thanks to the good people at Cot's Contracts, finding Verlander's salary is easy. We can see the Astros will pay Verlander just north of $43 million after the Tigers agreed to kick in about $17 million (thanks Mike Illitch for the Little Caesar's money, and may he rest in peace). So the Verlander part is just about finished - the table for calculating his figure (shown below) gives the Astros around $23.8 million of surplus value for Verlander's 2+ years in Houston.

The prospect portion of this is much more complex in both determining salary and future value. Back to Fangraphs! Chris Mitchell, who developed the KATOH projection system for evaluating prospects, plays a big role here. I used Mitchell's KATOH+ system (which incorporates minor league stats and Baseball America rankings) to pull a six-year WAR total for Perez, Cameron and Rogers. This total encompasses their controllable, pre-free agency years.

Projection a salary for Perez, Cameron and Rogers also takes some number-crunching - their first three pre-arbitration years of MLB service time are set based on MLB minimums. For years 4-6, I stuck to a general rule to estimate salary as 40% of a player’s open market value (derived from performance, or that KATOH+ WAR figure) in Year 4, 60% in Year 5 and 80% in Year 6, which is based on the assumption that two-thirds of controllable WAR comes in those arbitration years.

Assumed in this are a multitude of factors that affect a young player's development (injuries, "plateauing" at a level or lack of immediate MLB impact) which will certainly change these projections in the future. But even without one sky-high 6-year WAR projection from Perez, Cameron or Rogers, surplus value still shows that the Tigers project to get really good value for this return based on dollars per WAR for a $54.5 million surplus value to the Tigers.

If your first question is about Franklin Perez’s low 6-year WAR figure, it’s a good one! After a discussion with Mitchell about his projection system, I found out that Perez’s projection was dropped after a “pedestrian” second half in the minors this season - his projections can swing pretty significantly on MILB stats. If you’re more optimistic on Perez (hard not to be, as a 19 year-old who hit Double-A), you could probably bump this up without a lot of argument - but for the sake of consistency and understanding the risk of this type of prospect, we’ll go with 3.9 for Perez.

A note on future value - in economics, as well as baseball, long-term value is perceived as more of a risk. People (and GM’s) will place more value on what can be produced in the short-term. Al Avila is trying to rebuild a declining club, so the short-term gains of Verlander to Detroit are very small compared to how Jeff Luhnow would value that production for Houston in the same amount of years. This is an argument for closing the surplus value gap, in that Verlander’s contributions will have more affect on the 2017-19 Astros than they would on the 2017-19 Tigers.

On the Astros side, there certainly could be reasons to discount a pitcher’s value to their own team - the mid-30s Verlander comparisons above show just how mixed of a bag results can be for pitchers in those years. But Verlander’s track record comes with less of a reason to discount the future due to a serious injury, or even production - he’s failed to make 30 or more starts just once in 12 years and he’s missing bats at a greater rate than his career averages over the last two years. Here’s the final surplus value totals stacked up by player.

Verlander’s projected performance could be another argument to closing this surplus value gap, in that his future value is all but locked in compared to the Tigers’ return of players with 2018 or 2019 ETAs, and especially if you buy him hitting 98-99 mph in the later innings of his start as a legitimate trend for the next two seasons. Let's hope that continues through the postseason, and maybe the Astros can back at a hefty return for Verlander in the future with a commissioner's trophy to show for it.