I'm using shoewizard's method of projecting value over the lifetime of a free-agent contract. There are four parameters which need to be plugged in to the equation.
Greinke 2016 WAR: Zack Greinke's value to the team in 2016. I start this off at 5.0 WAR
- Decline per year: We expect his performance to decline over the course of the contract, simply because he is on the wrong side of the aging curve, having turned 32 in October. The default is a drop of 0.5 per year.
Initial WAR cost: The cost of a win in 2016. Let's start at $8m.
- WAR inflation. The price of free-agent wins is going up, so that needs to be taken into account for the future years I used 5% inflation as the default.
From these four inputs, we can first project Greinke's performance in WAR, then figure out its "value" in dollar by working out what the cost of each WAR will be for future seasons, and multiplying that by Zack's expected contribution to the team.to cost each year. Sum his value for each season, and we can see how the contract cost compares to his expected value. Below, you'll find a spreadsheet where you can try out various combinations of the above variables in the top four rows, and the rest of the table will then update to show you performance and value over the length of the contract, and how total cost compares to the total value.
I tend to think those defaults represent about a decent "best guess" in terms of Grienke's performance. Obviously, any decline is not going to be smooth - some years will be better, others worse. But based on that assumption, it looks like the overall value will sit a little north of $200 million, very close to the cost of the contract. But a slight tweak of the parameters can lead to a significant change. Dropping the WAR decline fractionally, from 0.5 to 0.4 WAR per year, results in $14.4 million of additional value. Similarly, if inflation is at 7% rather than 5%, that increases value $8.8 million, to $209 million, again in positive territory.
But the big change is if we adjust Greinke's baseline of production. Half an extra win next year, so 5.5, has a compound effect, as it means half an extra win the rest of the way too. And those wins are all the more valuable, because the cost of WAR escalates - even at 5% inflation, by the time Greinke's contract ends in 2021, one win will be worth more than $10 million. So, that half an extra win turns into $27.2 million more value over the lifetime of the contract. Conversely though, if Greinke declines faster than we expect - say, 0.75 WAR per year, rather than 0.5 - that would reduce its value by $38 million.
Anyway, have a play around, try out various scenarios and see what you think in regard to this deal. What do you have as your "best guess" of the parameters, and what are the results of that by the time it ends in 2021?