We probably don’t need to tell you that the Giants overpaid for Barry Zito. But understanding just how and why Zito was overpaid is revealing.
My first reaction upon learning about the signing was to plug Zito’s contract into the spreadsheet that I use to calculate MORP values. MORP’s conclusion: Zito, who will be paid $99 million in present-day dollars, is actually worth $100 million in present-day dollars. In other words, the contract was right on the money. That’s what MORP says.
The next thing I did was to run Zito’s numbers in PECOTA. PECOTA is not terribly optimistic about Zito, whom it regards as a just a hair better than a league average starter. It thinks that Zito’s next seven seasons are worth $43 million in present value. That’s what PECOTA says.
A $57 million discrepancy is not easy to explain away, not even if Andy Fastow is your CFO (or Isaiah Thomas is your GM). But the difference is as follows: the MORP numbers are based on a naive projection of Zito’s value. The PECOTAs are a little bit smarter than that.
Specifically, the projections used to calibrate our MORP formula are designed to replicate the assumptions that real-life baseball teams make in settling upon the value for a free agent contract. That means taking a weighted average of Zito’s WARP over the past three seasons, with a very heavy emphasis on 2006, and applying a generic aging curve to future years of the contract.
Now, it’s true that the Giants probably weren’t referencing WARP in their conference calls with Scott Boras, but all WARP really is (for pitchers) is a combination of ERA and innings pitched, adjusted for league, park, and defense effects. The Giants certainly were thinking about Zito’s ERA and innings pitched, numbers which have been very good. They probably even had some notion that the advantages that Zito got from throwing in a pitcher’s park and in front of a good defense were counteracted by the disadvantages of pitching in the American League.
PECOTA, on the other hand, largely ignores ERA, and focuses instead on a pitcher’s peripheral numbers. Zito’s peripherals haven’t been very good: both his strikeout rate and walk rate were below-average last season, and he also gives up a fair number of home runs. It also does not automatically assume that Zito is going to make 35 starts per season; in fact, a decline in strikeout rate, as Zito has experienced over his past couple of seasons, is often a precursor to a decline in innings pitched.
“Smart” (PECOTA) and “Dumb” (MORP) Projections for Barry Zito’s WARP
To reiterate, the key difference between these two sets of projections boils down to the predictive value of ERA; if Zito’s ERAs were an accurate reflection of his ability (as our “dumb” projection assumes), then this contract would have been perfectly reasonable. But while ERA is a very useful backward-looking metric — it’s helpful in settling Cy Young Award debates, for example — it’s not such a good forward-looking metric. A pitcher’s peripheral statistics predict ERA much better than past ERA itself. Sometimes the differences are trivial, and sometimes they amount to 57 million dollars.
I’m beating a dead horse here, I know, but it’s for a good reason: misunderstanding the predictive value of past ERA is the single biggest mistake that teams make in spending their free agent dollars.
We probably don’t need to tell you that the 
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