Who can blame Clayton Kershaw for feeling a little uncomfortable talking about money after this weekend?
On Friday, the left hander finalized a seven-year, $215 million contract extension with the Dodgers. We’ve all imagined what winning the lottery might be like, but the actual enormity of that salary is almost impossible to comprehend.
Kershaw’s deal makes him the highest paid player in baseball history. It shattered the record for a pitcher set by Justin Verlander, who just signed a seven-year, $180 million contract of his own last March. Kershaw’s average yearly salary will be $30.7 million, topping the previous high of $27.5 million set by the Yankees’ Alex Rodriguez as part of a 10-year extension signed in 2007.
Obviously, with that kind of money comes monstrous expectations.
Few would argue that Kershaw has been the game’s best pitcher over the course of the last few seasons. At just 25 years old, he is already a two-time Cy Young Award winner. Last season, Kershaw finished 16-9 as ace of the NL West champions and led the league with 232 strikeouts and a 1.83 ERA – the best since Pedro Martinez posted a 1.74 ERA for the Red Sox back in 2000. He’s led the National League in ERA for three years running now. Many have tabbed Kershaw as the best Dodgers starter since legend Sandy Koufax, and not unreasonably.
But this record-breaking extension is not about rewarding past performance. It’s about expectations. So how should we judge whether it’s worth it for the Dodgers?
In my mind, the deal can be analyzed in two ways.
1. From a financial perspective
First, we can look at things from a pure economics standpoint (those of you who hate math, bear with me; there is a lot of number crunching to follow).
Kershaw’s extension nets him a signing bonus of $18 million, payable in three installments of $6 million on April 15th, July 15th and September 15th of this year. He will earn $4 million in 2014, $30 million in 2015, $32 million in 2016, $33 million in 2017 and 2018, $32 million in 2019 and $33 million in 2020. Adding all of that money up and dividing over the seven-year terms of the deal produces an average yearly salary of roughly $30.7 million.
As ace of his staff, Kershaw will make 33 starts barring any missed time due to injuries or other reasons. If you take that average yearly salary of $30.7 million and divide it over 33 starts, then the contract will pay Kershaw approximately $930,000 per start over the life of the deal. If the Dodgers make more than that $930,000 in revenue for each Kershaw start, then financially the deal is totally worth it.
The Dodgers have money, and lots of it. By the end of the regular season, the team had the second-highest payroll in baseball at more than $236 million. And instead of trying to trim that down this offseason, instead they continue to aggressively bid and spend to improve their roster. That is circumstantial evidence that the organization continues to turn a profit, even as payroll spending continues to skyrocket.
They’re able to do so because Los Angeles is a huge television market, and in January of last year the Dodgers and Time Warner Cable entered into a new TV deal that was, at the time, projected to net the club $7 billion over the next 25 years alone. That equals $280 million in revenue per year from the team’s television deal alone (which would round to $1.73 million per game). Over the course of each season, the team will rake in even more money from ticket sales, concessions, merchandising and advertising. With all of those sources of revenue, it’s highly likely that the Dodgers make more than enough per game to cover the $930,000 per start price tag that comes with this Kershaw deal and still turn a daily profit.
2. From a results perspective
A second way of analyzing whether the Kershaw deal is “worth it” is to try and figure out how many more wins per year Kershaw earns for the Dodgers than a replacement player would, and then to determine if it makes good business sense to spend $30.7 million annually for that number of wins. Thankfully, baseball nerds have already created a stat that does that for us.
Of course I’m referring to WAR, or wins above replacement player. It’s an advanced metric that teams an analysts are looking at more and more to determine just how valuable an individual player is to his respective team (see the annual AL MVP debate that pits Miguel Cabrera against Mike Trout as an illustration).
During the last three seasons, Kershaw has posted a WAR of 6.5, 6.2 and 7.8. When rounded, that means that he gives the Dodgers on average seven more wins per season than the team would have without him on their roster.
Let’s think about that for a second.
Seven games in the standings is a huge margin. Sure, the Dodgers won the NL West by 11 games in 2013, but that is an outlier, not the norm. Three games separated the first place Cardinals from the second place Pirates in the NL Central; seven games separated the Cards from the third place Reds. Over in the AL West, the Athletics topped the Rangers by just 5.5 games. In the AL East, the World Series champion Red Sox beat Tampa by just 5.5 games. The Tigers won the AL Central by just one game; the Indians finished second, and the Royals finished third – just seven games behind.
In baseball, seven games can mean the difference in winning home field advantage, in winning the division, in earning a Wild Card berth or in missing the playoffs altogether. I have tried, unsuccessfully, to come up with some way to quantify the value of making the playoffs vs. missing them to a team. That’s not to say that the Dodgers have not been able to do so internally. My guess is that the organization crunched some numbers while negotiating this extension with Kershaw’s agent and made the determination that those critical seven games were worth spending $30.7 million for.
And if that’s the case, who are we to say Kershaw isn’t worth the money?