How to determine a better contract? (1 Viewer)

[Michael Brown]

I run a dynasty league, currently in season 10 with most of the original owners. Over the years we graduated from simple redraft, to limited keepers, to multi-year keepers, and now we feature contracts for just about all players.

The way we work it now is, when a player's contract expires then all of the owners have the opportunity to "bid" on him in the offseason to try and sign him away from the other team. The original team gets to match the best offer as sort of a player loyalty thing. In the past, we've done it where we all gathered in the offseason to submit live offers, auction-style. The team that finished last in the standings submits their best offer, then the next team up gets to beat that, and so on until the first place team gets to submit an offer after seeing everyone else's offers. Yes, the rich get richer type of thing but it also provides an incentive to finish higher in the standings.

Anyway we talked it over and decided that we want to change it up so it's not rich get richer. Rather than everyone seeing everyone else's bids, we're going to do blind bidding and the best offer wins the bid (with the original team still getting a chance to match). The problem we're going to run into is determining what the best offer is.

Obviously if the years are the same, the higher dollar amount wins. Likewise with identical dollar amounts, meaning more years wins out. But say someone offers four years at $25 per year and someone else offers 3 years at $30 per year. Which is the better offer? It can't just go solely by total money either, because then an offer of 10 years for $20 would trump an offer of one year for $18 and that's just silly. So does anyone have a suggestion on how to do this mathematically without me resorting to just creating a big chart that would be very subjective?

 

[Eephus]

I think you have to get everyone to agree on some kind of annual discount rate, so the value of future years gets progressively diminished. There's probably some MBA on the board who could give you a formula but it's sort of a NPV exercise.

While the teams offering long term contracts are taking on more risk, I don't think it would be healthy for the league to have everyone signed to max term deals. It may not be a realistic simulation of the real world, where players and their agents will generally favor more years and total dollars, I think it'll be more fun for everybody if more talent is on the block every year.

 

[Michael Brown]

I think you have to get everyone to agree on some kind of annual discount rate, so the value of future years gets progressively diminished. There's probably some MBA on the board who could give you a formula but it's sort of a NPV exercise. While the teams offering long term contracts are taking on more risk, I don't think it would be healthy for the league to have everyone signed to max term deals. It may not be a realistic simulation of the real world, where players and their agents will generally favor more years and total dollars, I think it'll be more fun for everybody if more talent is on the block every year.

To give some more background on how we do this crazy gorilla league:You draft players in the regular FA draft each year, aside from the guys who are already under contract. Those drafted players play out the season, and then in the offseason you have to make decisions on their contract terms. In order to sign a player to a contract, you surrender the round that player was drafted in at their current salary (it's not an auction league, but we use TSN's salary guidelines as a basis for establishing the contract salaries and for an in-season salary cap).There are three types of keepers: 1) veteran players, 2) "franchise" guys, and 3) undrafted guys. Veterans are guys who have played 5+ years. They can be signed up to 10 years at their current salary, and the round you surrender drops by one each season. When their contracts expire, there is a one year option to extend it at the original season and salary. After the option, or if they option isn't picked up, these guys go into offseason free agent bidding.Franchise guys are guys who have played less than five years who were drafted in the FA draft. They can be signed up to 5 years, but the round you surrender stays the same each season. Their salary is determined like the NFL franchise tag system, with the player's salary for a long-term contract determined based on the average salary of the top 12 players at his position (12-man league). This is to prevent a situation like Ryan Braun a few years back. He was a $1 guy coming into the season, and immediately became a stud worth $30-$35. We didn't want people locking up all the awesome young players for like a dollar each. The only exception to the franchise tag is if the unsigned player's current salary already exceeds that of the franchise average (this rarely happens of course, because if a young player's salary is so high that it already exceeds the positional average of the elite players, then he has probably already been signed long-term). When a franchise guy's contract expires, he doesn't go into offseason bidding - he just goes back into the draft.Undrafted guys are players who didn't get drafted but were picked up during the season. Those guys have their current salary carried over and a 15th round pick is surrendered. They are only able to be signed for one season, and then they go back into the draft. That would be a guy like Jose Bautista this year.I know most people outside the league would suggest that the draft round surrendered should increase yearly for the veteran and franchise guys rather than drop, but we felt the opposite because of our setup. This way, there's actually incentive to sign a player long-term. You have to determine a player's expected value for 2012, but you have to do it NOW...not in January 2012. In leagues where you renew your keeper decision every year, obviously it makes more sense to have the round increase. With that, it becomes an annual question of, "does this player still hold this value in this round?". In our league, David Wright was drafted in the first round a few years back for $40. So by 2014, Wright will be had for a 5th round pick. Owners have to weigh whether they think the player will be worthy of that round (probably) versus how long a player like Wright will continue to be worth $40. Since the decision has to be made after the season the player gets drafted in, there wouldn't be a whole lot of guys signed to long-term deals if the round increased yearly. If a guy was only worth an 8th rounder this past year, what are the odds that he's going to be worth a 6th rounder two years from now? Or a 4th rounder four years from now? You'd really have to be banking a lot of faith to assume a player's relative value will increase by four rounds. So what you'd see is nothing but 1-and 2-year contracts. Which defeats the purpose of making this a long-term building type of thing. Meanwhile, there's a good chance a guy drafted in the 8th will still be worth a 10...but at the same time, you have to factor in the salary. It's a good balance between the two. And with all of the contracts, our early round picks are mostly being surrendered for the top-tier talent. For instance, the top three available players in next year's draft are likely to be Carlos Gonzalez, Adam Wainwright, and Brandon Phillips.That may not sound like a very fun draft, but it makes for a very active offseason with guys getting traded, draft picks being moved, in-season trades are great because you've got people trying to dump bad contracts and contenders looking to grab guys whose original owners are trying to build for the future, etc.Anyway there's always talent available, just not necessarily always in the draft. But the draft is used sort of like real-life drafts, to plug holes and fill in the gaps. Draft day is still extremely important, because all of the eventual contracts are based off of draft day salaries and round selected, but it's a good mix of the two. Most of the players who get signed are on 1-year deals, followed by 2-year, then 3-year, and so on. Only a handful of guys are currently signed to deals of 5+ years: Tim Hudson, David Wright, Miguel Cabrera, Jorge Cantu, and Edwin Jackson...the latter two were signed for so long because they were drafted at $1 for a late-round pick and their owners figured they'd be at least serviceable at that rate for a long time. Hudson was drafted at $1 the year of his TJ surgery, so that was another bargain situation. Pujols/Hanley/Lincecum/Hamilton were all originally signed for 5, so they've all got 3 years left. The latter three are all franchise guys, so when those contracts expire they go back into the draft.