Thursday, December 8, 2011

How much should Matt Cain get in an extension?

With the news earlier today that the Angels had signed C.J. Wilson to a 5 year $77.5 million deal it got me thinking about Matt Cain and his coming free agency next season.

What Wilson was able to get as an older and less consistent starting pitcher means that the market, should Cain become a free agent, could get pretty crazy. With that in mind I think that the Giants should really take advantage of the window that they have right now to work on getting him extended before he leaves town like Albert Pujols.

What is Cain worth?

As a starting point we should try to figure out where the break even point is for the Giants for a number of different scenarios.

First up some assumptions:

This extension will kick in for the start of the 2013 season. We will assume that his true talent level in 2013 will be 4 WAR. We will assume that his WAR will drop 10% every season there after through the life of the extension. We will assume that there will be a 5% inflation rate in the cost of wins above replacement given that a win is worth $5 million in 2012.

Here is what Cain's total value produced over the course of different lengths of contracts would look like with our assumptions.

Extension Length
Break Even
1 year
2 years
3 years
4 years
5 years
6 years
7 years
8 years

So with these break even points and comparing to the comparable pitchers out there what kind of deals make sense for both sides?

What have others received?

Some of the more recent contracts I would point to as good comparables for Cain would be the Wilson deal with it's $15.5 million average annual value (AAV), the Justin Verlander contract with a $16 million AAV or the contract extension signed by Jared Weaver with a $17 million AAV.

For the sake of comparison here is the list from Cot's Contracts the highest-paid starting pitchers, by average annual value:

1. CC Sabathia, $24,400,000 (2012-16)
2. Cliff Lee, $24,000,000 (2011-15)
3. CC Sabathia, $23,000,000 (2009-15)
4. Johan Santana, $22,916,667 (2008-13)
5. Roy Halladay, $20,000,000 (2011-13)
6. Carlos Zambrano, $18,300,000 (2008-12)
7. Barry Zito, $18,000,000 (2007-13)
8. Jake Peavy, $17,333,333 (2010-12)
9. Jered Weaver, $17,000,000 (2012-16)
10. A.J. Burnett, $16,500,000 (2009-13)
. . . John Lackey, $16,500,000 (2010-14)
12. Justin Verlander, $16,000,000 (2010-14)
13. Jason Schmidt, $15,666,667 (2007-09)
14. Felix Hernandez, $15,600,000 (2010-14)
15. C.J. Wilson, $15,500,000 (2012-16)
16. Mike Hampton, $15,125,000 (2001-08)
17. Derek Lowe, $15,000,000 (2009-12)
18. Roy Oswalt, $14,600,000 (2007-11)
19. Mark Buehrle, $14,000,000 (2008-11)
20. Roy Halladay, $13,333,333 (2008-10)


I think somewhere in the middle with maybe $16.25 million AAV would be pretty fair given Cain's age and the comparable contracts from the last couple of seasons. With this as a baseline that would give some contracts in the range of four years $65 million, five years $81 million or six years $97 million.

This would make Cain paid like one of the best pitchers in baseball but with our assumptions it also would leave the Giants some surplus value for taking on the longer term risk.

If I were the Giants I would probably start just south of the Wilson deal and negotiate towards the above numbers. There isn't too much reason that an extension shouldn't be able to reached between the two sides because the one of the last things this team needs is trying to fill the hole left by Cain should he leave in free agency.

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