Sunday, December 28, 2008

Fun With Racism

"Stokley is a Welker type of guy".

No, John Madden, he is not.

Saturday, December 27, 2008

As Lisa Simpson Would Say

"The Reds completed their offseason search for a leadoff man on Saturday, signing center fielder Willy Taveras to a two-year contract."

I know those words, but that headline makes no sense.

Backloaded Contracts

I don't like this piece at all; it defies the normal good quality of content over at Statistically Speaking.

The article asks a simple question--why are contracts backloaded?--and proposes several arguments that have little real-world application:

- Jones wants to be paid more than Smith because he's a better player right now than Smith, who has declined significantly since signing his free agent contract years ago. Some dumb team accepts this reasoning and incorrectly pays Jones a higher average annual salary than Smith's.

This offseason, A.J. Burnett and Ryan Dempster have signed long-term deals for less per year than Barry Zito is getting, and I'm sure no one would argue Zito is the better pitcher right now. Mark Teixeira and C.C. Sabathia will each make less in 2009 than Jason Giambi did in 2008. I don't think this hypothesis is correct in practice.

- Players refuse to believe they will grow old, so they demand an escalating salary to prove that they will improve with age.

If I believe I'm going to improve or stay at this level as I age, why am I signing a five-year deal worth $65 million when I can take $17 million for one year and re-enter the market in a stronger position next offseason? Surely the risk of a career-ending injury next year is not that great, and if you buy the idea that salary is most important as a status symbol, $17 million fares a lot better in a measuring contest than $13 million.

A marquee free agent seeks a long-term deal for the exact opposite reason: he (or his agent) knows this is likely his last big payday, so it's time to make the most of it.

- It's more difficult for a team to manage an "albatross" contract than to consistently overpay him from year-to-year.

I would argue that if anything, albatrosses get traded more often than other players. There always seems to be some team that believes a change of scenery will help the player, who must have been good at some point to earn such a large contract. (Well, not always.) Of course, you'll often have to eat some cash to swing such a trade, but the ability to equalize a trade with money proves that a large salary is not a barrier to a trade in and of itself.

Teams have also shown a willingness to release players who are worth nothing to the club, even if they have plenty of money left on their contract. Russ Ortiz was released with $22 million still due him. Frank Thomas and Richie Sexson were cut last year in the middle of earning $8MM and $14MM respectively for 2008.

- Baseball players are financially illiterate and want to guarantee themselves a high income in the future.

Most baseball players are well aware that they are financially illiterate, which is why they hire an agent to negotiate their contract for them.

How often do you hear about a player voluntarily asking for his salary to be deferred for 20 years, to ensure a solid income well into retirement? Even a baseball player knows that a dollar today is better than a dollar in 2030.

The article does contain hints at the right answer. Player salaries are something of a measuring contest, as there is an element of pride in having a higher salary than a comparable player. And because players aren't finance majors, they're likely comparing average annual salaries rather than the net present values of their contracts. A team, on the other hand, concerns itself with things like time value of money, so it is in their interest to pay the player as late as possible.

How can a team give a player a higher average annual salary while holding constant the total value of the contract? By backloading it. As any FIN 101 student could tell you, a contract structure like Sexson's (05:$4.5M, 06:$11.5M, 07:$14M, 08:$14M) is considerably less costly to the team than simply giving him $11M every year--and much better than frontloading a $44M deal.

I doubt anyone making $5M in 2005 tried to win a measuring contest with Sexson. Through the magic of backloading, everyone was happy*.

*Well, except the Mariners when Sexson sucked.

Wednesday, December 24, 2008

The Yankees Offseason In Perspective

The Bronx Bombers' spending spree has prompted two common responses:

a) They spent HOW much!?!
b) The Yankees are buying a championship and ruining baseball!!!

Neither view is really correct. The Yankees have made four big offseason moves:

- Replacing Bobby Abreu with Nick Swisher
- Replacing Mike Mussina with CC Sabathia
- Replacing Andy Pettitte with AJ Burnett
- Replacing Jason Giambi with Mark Teixeira

What has changed?

First, the money. The four castaways made a total of $64 million in 2008, not counting the $5MM Jason Giambi is getting paid to not play for the Yankees next year. Their replacements are signed for an average annual value of $69 million. Once you factor in salary inflation--estimated at 10%/year in baseball--that's not even an increase, it's just treading water.

Fine, so they're not spending more, they're spending smarter. How many wins did New York buy? For that, I turn to CHONE:

Excommunicated (with 2008 Wins Above Replacement):

Abreu (3.1*)
Mussina (5.0)
Pettitte (2.6)
Giambi (2.8*)

No, I didn't just pull these numbers out of my ass. Here's how they were calculated.

Brand Spankin' New (with 2009 projected WAR):

Swisher (2.0*)
Sabathia (5.5)
Burnett (3.6)
Teixeira (4.7*)

*Includes estimates of these players' fielding acumen. Abreu and Giambi are bad glovemen, Swisher slightly below average, Teixeira well above average.

Total WAR lost: 13.5. Total WAR gained: 15.8. Net benefit: 2.1 2.3 wins to the positive.

I am not ready to concede the 2009 World Series title just yet. However, I'm already practicing clicking the 'bet' button on the Rays and Red Sox next year.

Edit: According to Fangraphs, who have really upgraded their stats pages this year, the difference is actually 4.5 wins, mostly because they have Abreu as a -25 run fielder. I know he stinks, but I don't buy this number.

Super Bowl XLIII: The Coin Toss

No, this isn't a prop bet offering you -105 on Heads or Tails. I just think that when they sit down to make a film documenting the 2009 Super Bowl, this would make a fine title.

Take a look at the NFL Futures odds from The Greek (found here). Since they're collecting roughly the same juice on the Super Bowl and both conference markets (about 16%), we can use each team's Super Bowl and conference odds to calculate their approximate chances--in The Greek's opinion--of winning the Super Bowl should they get there:

Bal .516
Den .520
Ind .525
Mia .434
NE .612
NYJ .401
Pit .459
SD .519
Ten .473

Ari .358
Atl .449
Car .568
Chi .512
Dal .504
Min .496
NYG .493
Phi .549
TB .572

I doubt any of Olympic Sports' oddsmakers actually think that New England and Tampa Bay are the best the NFL has to offer, but talk about having no clear-cut favorite. The number 1 seeds from both conferences are dogs in the big game, and if Atlanta wins the NFC South--which they have a downright decent chance to do--both 2 seeds will be dogs as well!

Hey, at least they correctly identified the weakest participant in the tournament.

A Bet By Any Other Name (NFL Edition)

Perhaps this isn't as clear-cut as it was for MLB, but here are some 'to win division' odds that are available for various teams at BetCRIS, juxtaposed against the Week 17 money lines at that same book:

AFC East

Miami
Futures price: +135
Money line price: +120 (straight bet against NYJ)

New England
Futures price: -115
Money line price: +129 (parlay NE and NYJ)

New York Football Jets
Futures price: +570
Money line price: +500 (parlay NYJ and Buf)

NFC North

Chicago
Futures price: +380
Money line price: +631 (parlay Chi and NYG)

Minnesota
Futures price: -910
Money line price: -816 (it's complicated)

NFC South

Atlanta
Futures price: +135
Money line price: +151 (parlay Atl and NO)

Carolina
Futures price: -215
Money line price: -183 (it's complicated)

As the saying goes, it pays to line shop, sometimes even if you only have one betting account.

Saturday, December 13, 2008

Market Efficiency

NFL futures odds earlier this week carried an interesting quirk. Here are some sample lines that were available at multiple books:

NFC to win Super Bowl: +140
AFC to win Super Bowl: -160

Giants to win NFC: +110
Giants to win Super Bowl: +300

Panthers to win NFC: +500
Panthers to win Super Bowl: +1000

Can you spot the problem?

Certainly the perception is that the NFC is now the stronger conference for the first time in years, which is reflected in the early Super Bowl line of NFC-3 (and the -160 money line seen above). However, the lines for the Giants and Panthers--ostensibly the two favorites to advance from the NFC field--indicate that they are smaller favorites in the Super Bowl than the NFC as a whole!

Generally, books charge a higher vig on Super Bowl futures than Conferences, but even if we assume they don't, the above lines indicate the Giants are a paltry 52.5% favorite in the big game, and the Panthers 54.5%. Meanwhile, the NFC is at least a 58.3% favorite, unless you believe the +140 is a profitable bet.

Apparently some bettors have taken notice. (Okay, I was partially responsible.) The Giants are down to +270 now, and the Super Bowl money line is now +120/-140 at The Greek and +105/-125 (!) at 5Dimes. To the best of my knowledge, MGM Mirage is still offering the AFC at +135, so if you live in Vegas, there's an arbitrage opportunity for you.

Thursday, December 11, 2008

Opt-Out Clauses

Point

Counterpoint

"So far as I can recall, all of the big-name players with opt-out clauses that come to mind (Alex Rodriguez, J.D. Drew, A.J. Burnett) have exercised that option when it came up because the market for annual salaries has risen faster than the general rate of inflation."

Results aside, this is EXACTLY the problem with opt-out clauses, one so glaringly obvious that I can't believe Jay Jaffe makes this point yet goes on to say, "I don't see the opt-out as a downside."

Let's take a look at what those three opt-out clauses really cost:

Alex Rodriguez
Remaining contract at time of opt-out: 3 years, $81 million
Actually signed for: 10 years, $275 million

How much would it have cost the Yankees to sign A-Rod for just three years after 2007? I think $120 million is a reasonable estimate. Remember, to sign that contract, Mr. Madonna is giving up $155MM in guaranteed money for his age 35-41 seasons.

If we accept the $120MM estimate, then this opt-out clause cost the Yankees $39 million--the difference between the $81 million Rodriguez was signed for and the $120 million the Yankees were willing to offer for those three years. (If you want to be really results-oriented, it's true that this opt-out clause cost the Rangers nothing, except maybe some negotiating leverage when they traded A-Rod.)

J.D. Drew
Remaining contract at time of opt-out: 3 years, $33 million
Actually signed for: 5 years, $70 million

To re-sign Drew for three years, the Dodgers would have had to pay perhaps $48 million. This opt-out clause cost LA $15 million.*

*You might argue that the Dodgers wouldn't have actually paid Drew $48 million for three years. That's not relevant; what matters is his market value. By having a $48 million player under contract for $33 million, they're running a $15MM surplus, and they can capitalize by trading Drew to a team that values him more highly.

A.J. Burnett
Remaining contract at time of opt-out: 2 years, $24 million
Offer currently on table: 5 years, $80 million

If a notoriously injury-prone pitcher has an offer of 5-$80MM on the table, I'd say it would take $44 million to sign him for two years. That's a $20 million surplus the Jays won't get to enjoy, thanks to the opt-out clause.

----

As Dave Studeman said in the counterpoint, the Yankees are guaranteed to get the shaft in 2011 regardless of CC's decision; either they will be upset that their dominant starter is now demanding more money and more years, or they'll be stuck with a 300-pound albatross. What value would you put on the final four years of Mike Hampton's contract? Kevin Brown's? Barry Zito's?

Handing out a $92 million player option is just a really dumb idea. I'd rather give Sabathia $85 million for three years, or $175 million for seven. This is a terrible contract for the Yankees. Either they didn't realize that, or this was the only way to land CC.

Wednesday, December 10, 2008

Information Advantage

The NFL's tie-breaking system for playoff spots is admittedly confusing--apparently even for bookmakers.

Here's a sample of some 'to win division' lines that were available around the internet earlier this week:

Miami +297
Pittsburgh -320
Minnesota -240
Tampa Bay +275

All of these lines are substantially worse now, largely because I've been betting them heavily. (I posted my estimates of the true odds over here.) Still, the point is that these are the lines the bookies thought were "correct".

What do these four teams have in common? They all own substantial tiebreaker advantages, and the books apparently didn't realize it in each case.

The exact scenarios are complicated, but here's one example: The Vikings split their head-to-head matchups with the Bears. They're 4-2 in the division, so Chicago (3-2) can't gain the advantage there. Minnesota currently owns the edge in games against common opponents, 7-4 to 4-5. The only way the Bears can catch up in that column (without overtaking the Vikings in the standings) is for Chicago to win out while Minnesota goes 2-1, losing to the Falcons. In this scenario, the Vikings win the division on the basis of their 8-4 conference record to the Bears' 7-5. The Bears win this tiebreaker exactly never.

In the NFC North, there's another factor at work. The Vikings still have to face the Giants in Week 17, but it looks likely that New York will be taking it light that game--the early line is Minnesota -7.5. Perhaps the bookmakers aren't taking this into account when setting the futures lines.

The bookies could always consider hiring consultants. These guys know how to implement tiebreakers in their simulations. Hell, when I told a Bears fan living in Chicago that his team is boned in all tiebreaker scenarios, he replied "Yeah, everyone here knows that."

Well, apparently not everyone.

Monday, December 08, 2008

Comedy Gold

Well, I enjoyed it anyway.

If you can't identify at least 10 reasons this article is terrible, you have no future as a winning sports bettor.

Saturday, December 06, 2008

Ah, Bodog...

I know a lot of the readers on this blog bet on sports, so I just wanted to pass along my experiences cashing out of Bodog:

I requested a $9000 cashout about a month ago, and they're stringing me along by giving me a $3000 check every other week. I deposited the first check a week ago; it bounced, leaving me with a returned check fee.

I know Bodog has been having problems lately, but this is pretty bad. If anyone is thinking about putting more money in there, I have to advise against doing so.