Less than 72 hours remain in the Masahiro Tanaka sweepstakes. I’ve written a scouting report, valuation study, and just some general thoughts.  Overall, I think a six-year, $120 million deal is pretty reasonable. However, two of baseball’s richest teams, the Yankees and Dodgers, as well as new regimes in Arizona and Chicago have also shelled out nine figure offers. When the competition is this fierce, someone is going to pay a premium. Tanaka’s agent, Casey Close, has done an excellent job keeping negotiations quiet, so we don’t know where each team stands.

When we compare Tanaka to the entire free agent pitching market, it’s not even close–and Close knows that. Based on age alone, Tanaka is three years younger than the next pitcher (Phil Hughes). Skill-wise, an argument can be made that Tanaka has the best ‘stuff’ among free agent pitchers. This article will show us why we shouldn’t be shocked when Tanaka signs a deal in excess of $140 million.

To illustrate my point, let’s take a look at each free agent pitcher that has signed and the remaining top free agent pitchers. Please note that 2013 statistics are shown for comparative purposes:

Table 1: 2013 MLB SPs

Pitcher Team Age Years Value ERA WHIP K/9 WAR
Masahiro Tanaka TBD 25 TBD  JPN 1.27 0.94 7.8 N/A
Phil Hughes MIN 28 3 $24.0 5.19 1.32 7.5 1.3
Tim Lincecum SF 29 2 $35.0 4.37 1.32 8.8 1.6
Josh Johnson SD 29 1 $8.0 6.20 1.66 9.2 0.5
Ubaldo Jimenez TBD 30 TBD 3.30 1.35 9.6 3.2
Scott Kazmir OAK 30 2 $22.0 4.04 1.32 9.2 2.5
Matt Garza TBD 30 TBD 3.82 1.24 7.6 2.2
Mike Pelfrey MIN 30 2 $11.0 5.19 1.55 6.0 2.1
Edinson Volquez PIT 30 1 $5.0 5.71 1.59 7.5 0.2
Ricky Nolasco MIN 31 4 $49.0 4.37 1.20 7.8 3.0
Ervin Santana TBD 31 TBD 3.24 1.28 6.9 3.0
Scott Feldman HOU 31 3 $30.0 3.86 1.18 6.5 2.1
Jason Vargas KC 31 4 $32.0 4.02 1.39 6.5 1.5
Paul Maholm TBD 32 TBD 4.41 1.41 6.2 0.7
Dan Haren LAD 33 1 $10.0 4.67 1.24 8.0 1.5
Ryan Vogelsong SF 36 1 $5.0 5.73 1.57 5.8 -0.6
AJ Burnett TBD 37 TBD 3.30 1.32 9.8 4.0
Bronson Arroyo TBD 37 TBD 3.79 1.29 5.2 0.8
Tim Hudson SF 38 2 $23.0 3.97 1.12 6.5 1.7
Hiroki Kuroda NYY 39 1 $16.0 3.31 1.16 6.7 3.8
Bartolo Colon NYM 40 2 $20.0 2.65 1.17 5.5 3.9

A few things jump out right away. Young pitchers that have high strikeout potential signed for at least $8.0 million this season. Scott Kazmir, who resurrected his career last season, played in independent leagues during 2012. Last year with the Indians, he rediscovered himself and the A’s are betting on him continuing his success for the next two seasons. Despite his struggles and declining velocity, the Giants made the first move of the off-season by inking Tim Lincecum to a two-year, $35 million deal. Lincecum has a few Cy Young awards under his belt and as we’ll see in Table 2, the Giants were willing to pay premium despite his struggles.  Tanaka is a few years younger than the rest of the field and while he doesn’t have the strikeout upside of a Yu Darvish, he’s good enough to strikeout seven or eight batters per nine innings. Strikeouts command dollars and Tanaka has shown the ability to strikeout hitters. Table 2 shows how much teams are willing to pay for wins relative to Steamer’s 2014 WAR projections.

Table 2: $/WAR

Pitcher Team Age Years Value K/9 2014 WAR Projections Contract Value (WAR) $/WAR
Edinson Volquez PIT 30 1 $5.0 7.5 0.4 0.4 $12.50
Tim Lincecum SF 29 2 $35.0 8.8 1.9 3.3 $10.61
Tim Hudson SF 38 2 $23.0 6.5 1.5 2.5 $9.20
Phil Hughes MIN 28 3 $24.0 7.5 1.4 2.7 $8.89
Ricky Nolasco MIN 31 4 $49.0 7.8 2.4 6.6 $7.42
Ryan Vogelsong SF 36 1 $5.0 5.8 0.7 0.7 $7.14
Jason Vargas KC 31 4 $32.0 6.5 1.9 4.6 $6.96
Scott Feldman HOU 31 3 $30.0 6.5 2.1 4.8 $6.25
Bartolo Colon NYM 40 2 $20.0 5.5 2.2 3.9 $5.13
Mike Pelfrey MIN 30 2 $11.0 6.0 1.4 2.3 $4.78
Hiroki Kuroda NYY 39 1 $16.0 6.7 3.4 3.4 $4.71
Scott Kazmir OAK 30 2 $22.0 9.2 2.6 4.7 $4.68
Dan Haren LAD 33 1 $10.0 8.0 2.2 2.2 $4.55
Josh Johnson SD 29 1 $8.0 9.2 2.1 2.1 $3.81
Average   33 2 $20.7 7.3 1.9 3.2 $6.90

Table 2 puts a lot of things into perspective. On a purely straight-line basis, teams have paid approximately $7.0 million per win. Teams were willing to overpay for pure upside and youth (Lincecum, Nolasco, and Hughes) while other teams took calculated gambles on high-reward talent (Kazmir, Haren, and Johnson). We’ll use these market indicators to derive a potential contract benchmark.

Assume:

  • $7.0/WAR baseline, which might be a little conservative;
  • 5% inflation; and
  • A first-year WAR of 4.5 depreciated over the life of the contract.

These benchmark generate a larger average annual value and contract size relative to our last study.

Table 3: Tanaka’s Potential Contract

Age WAR $/WAR Value
25 4.5 $6.90 $31.05
26 4.0 $7.25 $28.98
27 3.5 $7.61 $26.63
28 3.0 $7.99 $23.96
29 2.5 $8.39 $20.97
30 2.0 $8.81 $17.61
31 1.5 $9.25 $13.87
6-Year 19.5 $149.20
7-Year 21.0 $163.07

As shown, based on these market indicator, we get to a six-year, $149 million deal and a seven-year, $163 million deal. The 7-163 deal is similar to the contract CC Sabathia originally signed with the Yankees. Sabathia was an established ace, but was three years older than Tanaka. We’ve heard a $160 million contract offer rumor float around, but we have no idea if there’s any validity behind it. It’s possible to justify that contract, but is a team willing to take on that type of risk? This model does not assume the value of an opt-out clause or no-trade clause.

Conclusion

We’ll have clarity within the next 72 hours. Given the competition among some of baseball’s top team, I’m fully expecting Tanaka to exceed my original six-year, $120 million contract prediction. Teams are paying a premium for young, strike-out arms that can anchor rotations. Tanaka has the age and stuff to lead a MLB rotation. I can’t wait to see which team signs him and how much he signs for.