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Mike Trout and economic rent

Mike Trout is signed through 2020, and unless something drastic happens, it could prove to be one of the greatest contracts of all time.

Kelvin Kuo-USA TODAY Sports

When Mike Trout came up for good in April of 2012, it was immediately clear that the baseball world was in for a treat. By the end of his first month, he had posted an ISO of .218, along with a wOBA of .376 and a wRC+ of 145, and he hasn't slowed down since.

Mike Trout PA HR BB% K% ISO wOBA wRC+ fWAR
2012 639 30 10.5 % 21.8 % .238 .409 167 10.3
2013 716 27 15.4 % 19.0 % .234 .423 176 10.5
2014 705 36 11.8 % 26.1 % .274 .402 167 8.0
2015 403 28 11.4 % 23.1 % .300 .419 178 5.5

In parts of four seasons, Trout has been an All-Star each year, and taken home the ROY as well as the MVP. Since his rookie season, Trout has been the best player in MLB, which is made even more apparent via the context-dependent statistics:

2012-2015 WPA RE24
1. Mike Trout 20.68 226.32
2. Miguel Cabrera
18.50 197.84
3. Paul Goldschmidt
17.99 185.92
4. Andrew McCutchen 17.66 162.26
5. Joey Votto 15.09 147.63

It's fairly clear that Trout has been the league's best player since 2012, and he figures to be near the top of these lists for the foreseeable future. Most players don't reach their prime until their late 20's, and Trout is still just 23 years old. Thankfully for the Angels, he's already signed to a six-year contract that will pay him $135 million from 2016-2020. He'll finally start to be paid like one of the best players in baseball, but because of his value, it's still going to be a massive bargain for Los Angeles. Below is a table of what Trout has been paid thus far in his career, along with what his value provided has actually been worth.

Trout Value Actual Contract Surplus Value
2012 $67,000,000 $482,500 $66,520,000
2013 $77,400,000 $510,000 $76,890,000
2014 $60,800,000 $1,000,000 $59,800,000
2015 $44,300,000 $3,567,191* $40,732,809
Total $249,500,000 $5,557,191 $243,942,809

*Trout's total 2015 contract is $6,083,000, but hasn't earned the full value yet.

Before moving on, there's a term from the title of this article that needs to be explained; economic rent. Two weeks ago I wrote about CC Sabathia, and how he was a sunk cost that the Yankees needed to rid themselves of. Economic rent is the flip side of that idea. According to Investopedia, the definition of this concept is:

[A]n excess payment made to or for a factor of production over and above the amount expected by its owner. Economic rent is the positive difference between the actual payment made for a factor of production (such as land, labor or capital) to its owner and the payment level expected by the owner, due to its exclusivity or scarcity.

They go on to give a few examples that show what economic rent is to an owner, or someone like a union worker, but unfortunately for baseball fans, they don't have anything to help us understand how it relates to Trout and the Angels. For the sake of ease, let's assume that a win is worth $8 million, which means that for the entire season, for the Angels to break even on Trout's 2015 salary, he would need to be worth just 0.75 fWAR. Obviously he's much more valuable, which is where economic rent comes into play. For every point of fWAR that Trout accrues above what the current going rate of $/WAR is, the Angels are essentially getting value for free.

This is important for every team, but it's vital for the Angels, as they have an aging slugger, Albert Pujols, who will likely start declining in the near future. Before the 2012 season began, Anaheim inked the future Hall of Famer to a ten-year deal worth $240 million, and for the first four years of that contract, it's barely been worth the money.

Pujols Value Actual Contract Surplus Value
2012 $23,400,000 $12,000,000 $11,400,000
2013 $4,100,000 $16,000,000 -$11,900,000
2014 $21,900,000 $23,000,000 -$1,100,000
2015 $19,700,000 $14,074,074* $5,625,926
Total $69,100,000 $65,074,074 $4,025,926

*Like Trout, Pujols hasn't yet earned his full 2015 salary.

If not for his recent career renaissance, in which Pujols has posted his best ISO since 2010, the Angels would undoubtedly be in the red for his contract. From 2013-2014, he cost the team $13 million, but they have recouped some of the lost value this season. As it stands now, the Angels have gotten roughly $4 million of extra production from Pujols. However that number is likely to plummet, as his salary is set to rise every single year until his contract expires, which will pay him  $165 million from 2016-2021.

According to PECOTA's projections, Pujols will be worth 4.2 WARP (Baseball Prospectus' version of WAR) over the final six years of his contract. Using today's rough estimate of $8 million per win, his worth translates to just over $32 million. If we use ZiPS instead, his five-year projection for total WAR is closer to 7.3, which would bring Pujols' value to just over $58 million. Regardless of which system you may prefer, we're left with the conclusion that the Angels will be paying far too much money for Pujols' swan song. However this is the beauty of Trout and economic rent.

With the extra value that Trout provides the Angels, they can afford the presumed and eventual downfall of Pujols. If we use BP's PECOTA system, Trout will be worth roughly 32.2 WARP from 2016-2020, whereas ZiPS values him much higher, and thinks he'll post a cumulative WAR of 47. With his contract worth $138.4 million for the final five years, the Angels can realistically expect to get anywhere from $122-$241 million in extra value from Trout; which will likely be more than enough to cover what the Angels will lose from Pujols.

While there are many players throughout the league that help provide their respective team with extra value, and this is in no way a unique situation, once again, Trout represents the best of the best. He'll be able to single-handedly offset the financial cost of Pujols once he begins his decline, and hopefully prevent it from crippling the team. Trout has almost universally been crowned as the best player in baseball, and when his financial value added is taken into consideration, his case becomes even stronger.

Mike Trout is bargain thanks to the salary structure and incentives imposed on young players, and the immense surplus the Angels are receiving from Trout is enough to offset a large investment that will probably not pay off on its own. Whether that's fair or not to the players is another matter, but the fact that the Angels are getting such a large number of wins for such a low cost makes it much easier to field a contender.

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Matt Goldman is a Featured Writer with Beyond the Box Score and a Contributing Editor at MLB Daily Dish. You can follow him on Twitter at @TheOriginalBull.