Pitching, Risk Aversion, Salaries

Lincecum and Arbitration

Tim Lincecum is currently in his first year of arbitration with the Giants (If you don’t know what arbitration is, look at this post). In a short synopsis, it is speculated Lincecum will file for anywhere between $8 and $24 million for his one year contract. How it works is that Lincecum has to file what he believes he should get as salary, and the Giants can either accept the offer, or offer him something else (which is usually  a lower salary). What’s important to note is both numbers will correlate as to what each side believes Timmy is going to be worth for the 2010 season. if both sides can’t agree to a salary, they both go to court and argue their sides for a correct amount.

What’s cool is that Lincecum has a lot of space to work with, as to what will actually be granted to him through this process. If he asks for way too much (like upwards of $24 million), then the Giants could get a huge discount (say $12 million) if the court sides with the Giants. However, if he asks for what is probably his worth (say $18 million), he’s probably leaving a couple million dollars on the table. So it’s an interesting game theory model in which both sides must also think about what the other will do in certain situations, the interdependency of choice. What’s best for both sides is coordination, yet the uncertainty of what the other will do causes conflict and may result in giving Lincecum either more or less of his true worth.

Here’s a good summary of the figures, taken from an article in Baseball Prospectus yesterday:

I think Lincecum will win $18 million, hands down, but that’s a different question as to what he should offer. The arbitration panel picks the offer (the team’s or the player’s) that they believe to be most correct. If the Giants propose $12 million and Lincecum goes $18, Lincecum wins. But, he also could win if he goes as high as $24! To suggest $18 million would be to leave possibly $6 million on the table. Now, I don’t think the Giants will go that low—they will go under $18 though—so, I wouldn’t recommend $24 million, but I think Lincecum will ask for more than $18. How much more has to do with factors that I know nothing about. Have the parties discussed figures for a long-run contract? I suspect they both know something about what the other party might offer.

It’s the same exact negotiations any business goes through in evaluating promotions and raises. What’s more important, the number of years serviced to the firm, or how much the employee has increased revenue in the past, even if it has only been one or two years.


Pitchers & Volatility Levels

In the past two weeks, Brad Penny and John Smoltz, both very experienced veteran pitchers, were released by the Boston Red Sox. Signed during last season’s offseason on incentive based contracts, the Red Sox nation bought low for pitchers with lots of question marks.

Smoltz’s season with the Red Sox can be described as disastrous. Here was his line with the New England-ers:

2 Wins, 5 Losses, 40.0 Innings Pitched, 59 Hits Allowed, 37 Runs Allowed, 8 Home Runs Allowed, 33 Strikeouts, 9 Walks Given, 8.32 ERA, 1.70 WHIP, .343 BAA

Yeah, over 40 innings, Smoltz looked like an aged man who could not locate his pitches where he wanted them. His velocity was there, but location was the key flaw that many saw in his pitching for the Red Sox. But the key question is, has Smoltz digressed to become a bad pitcher? A good article to look over (if you have time) compares Smoltz’s past 40 innings to Jered Weaver’s (a 26 year old pitcher who, many believe, has a bright career ahead of him) past 40 innings. The article bases its argument on the fact that a sample size of 40 innings is very small; too small to judge whether a pitcher is performing at his true talent level. Why is this important?

A pitcher’s volatility level is rather high, even for above average pitchers. Meaning a pitcher’s performance fluctuates a lot from game to game. Let’s look at Penny’s and Smoltz’s debuts with their new teams:

Penny for the Giants: 1-0, 8.0 IP, 5 H, 0 R, 2 K, 1 BB, 0.00 ERA, 0.75 WHIP

Smoltz for the Cardinals: 1-0, 11.0 IP, 7 H, 1 R, 15 K, 1 BB, 0.82 ERA, 0.73 WHIP

Now those are stellar numbers. See the fluctuation? I wouldn’t be surprised if either is able to ride this stretch for another 3 or 4 starts. If they did, it would help bring them back to numbers that coincide more with their career averages.

To further my case, let’s look at two pitchers: Tim Lincecum and Joe Blanton. One is the reigning Cy Young winner (an award for best pitcher in the league), the other is known as a number 3 starter, an average pitcher. Their ERA’s differ by more than a 1.50 (2.33 vs. 3.88 respectively). By finding the standard deviation of runs given up by the pitcher by game, we can see how volatile their performances are. Lincecum stands at a 2.86 while Joe Blanton is at a 3.86. What does this tell us?

Despite Lincecum’s status as the best pitcher in baseball, there’s a substantial chance he could give up 2.86 runs more than average, while Blanton could give up 3.86 runs less than his average. This assumes some sort of standard distribution, but you get the point. The probability of Lincecum allowing +2.86 extra runs and Blanton allowing -3.86 less runs is equal to the flipside. So much can happen in a game, a so-so pitcher can outright dominate the game while the stellar workhorse can have an off day. It’s amazing how teams will pay premiums for above average pitchers, even below average ones! Why spend +$10 million for a pitcher who will equally give up either  1 run or 5 runs in one game when you have a minor league spot starter who can guarantee the same performance?

EDIT: Another great example of the volatility we see in pitchers.