OK, a break from the regular action.
Spring has officially arrived. (Pitchers and catchers reported yesterday. Did you miss it?) With it comes the end of the first stage in contract negotiations between Pujols and the Cardinals. I wouldn’t normally spend time here commenting on it, but the chatter around town strikes me as so far off the mark, I want to use this as a great example of the job HR should be doing here. And no, I don’t think the Cardinals HR team is involved in the negotiations. I’m sure it’s the owner, the general manager, the manager and the agent.
So why would HR be involved?
There have been a lot of estimates about the length of the contract (10 years? 7 years?) being discussed, as well as the value ($200M? $300M? More?) being kicked around. There are those that say he should get whatever he wants, as the face of the franchise. He’s a once in a generation player, the best in the game, and it would be tragic to see him leave.
On the other hand, how much money does one person need? Wouldn’t he rather get a little less to have a quality team around him? Surely he wants to be a Cardinal for life, right? That kind of loyalty still exists, doesn’t it?
There are no right answers to these questions. The answer that satisfies you will depend on your perspective of the question. But there is a way to look at this that takes loyalty, greed, hubris and sentiment out of the equation.
How much is one employee really worth?
It’s a vexing question, to be sure, and it makes ROI of HR projects a beast to compute. Not too long ago, I speculated that we can only assume the value of the position must be more than what you are paying, as a general rule, in order for your business to remain viable. Does the same principle apply here? Of course.
In order for any business, even a baseball team, to remain viable, they must bring in more revenue than they spend. That means the overhead, of which player contracts are a major component, must be less than the totals of tickets, concessions, television, merchandise, etc. This quickly becomes a work of simple math to determine the player’s worth to the team. OK, maybe not simple, but certainly equatable.
What does he bring in?
Let’s break down some of the major components of revenue.
Merchandise – AP related items are easy to track. Change in team specific sales can be measured as well.
In-stadium advertising, television/radio contracts, ticket sales – Easy to compare the AP years to those before. Can an increase be attributed to him? Not directly, no. But can we find the difference? Of course. Next, we investigate a correlation between winning and revenue from these streams. Logically and historically, we should assume successful teams bring in more revenue when compared to “down cycles” in performance, after adjustments for inflation.
Next, we can use one of the many measures of player performance in relation to winning. The most popular around baseball statisticians is probably WARP, or “wins over replacement player,” brought to us by the fine folks over at Baseball Prospectus. Their definition:
Wins Above Replacement Player, level 1. The number of wins this player contributed, above what a replacement level hitter, fielder, and pitcher would have done, with adjustments only for within the season. It should be noted that a team which is at replacement level in all three of batting, pitching, and fielding will be an extraordinarily bad team, on the order of 20-25 wins in a 162-game season.
So what is Pujols worth to the team in WARP?
Courtesy of the Baseball Prospectus stat page for AP…
While the WARP has a little it of a curve, he is generally worth about ten wins per year, just by himself. In baseball terms, the difference between 90 wins (usually in contention for a division title) and 80 wins (under .500) is significant. To give you a little more perspective, in 2010, not one division winning team had 10 more wins that their next closest competitor.
So where do you go from there?
Just like any other salary negotiation, you now know what the position is worth, and probably with a higher level of confidence that usual. Just a few more calculations to perform…
– What is the expected WARP for the life of the contract? Aging players decline in performance. How much? Well, that varies. So you have to take an educated guess on this one. I won’t, since I’m guessing I’m not as educated as the team management and medical staff in regards to his physical condition.
– What is the value of the expected WARP return on merchandise, tickets, advertising, and so forth?
– What, if anything, is the “intrinsic” value to the team of keeping Pujols inside a Cardinal jersey?
– And how much of that total value are you, as the owner, willing to give up?
Let’s say, just for the sake of argument, your total calculated value (not including the last one on the list) is $300M. A nice round number. How much of that are you willing to spend? Are you expecting to turn a profit? Do you deserve to keep some of that money for yourself? How much?
Also, let’s not forget that AP is also able to do these calculations. If he brings $300M in value should he settle for less than that in his payoff? What is his legacy as a Cardinal worth to him?
So what’s the answer?
I have no idea. There are too many unknown factors for me to give an answer. But these are the kinds of salary calculations and hard decisions that HR professionals make every day, just not usually on this scale. But this is what we do. And I can only hope that the team has tapped their resident expert on talent management to help guide them through this tough discussion.
If not, I would, of course, be willing to help. Mr. DeWitt, feel free to check the About page for my contact information.