I'm sorry for another D-Lee post. I originally was going to put this in the comments of "The myth that Derrek Lee is NOT declining" post, however, it got really long and I thought that my point of view was a lot different from the other two posts.
While DGU and mutleyi both had excellent statistical posts displaying their respective points of view, I felt that they really didn't give enough info as to why Lee may or may not be declining. The golden rule of statistics is that "correlation doesn't imply causation". So the fact that Lee's stats may or may not have gotten worse, doesn't prove that they will continue to get worse. This post will hopefully serve to clarify why Lee's numbers have dropped, and whether or not they will continue to.
First of all, I wouldn't recommend that you use his actual results (OPS+, wOBA, BA/OBP/SLG) to try to show decline or vice versa. Those overall results are largely affected by luck and they don't really represent a players true talent level. The stats that I would use to show decline are BB%, K% and ISO; and to a lesser extent Fly Ball%, Ground Ball% and Line Drive% and home run/fly ball ratio. Those stats are more or less under a players control, and they generally correlate well from year to year, meaning that they pretty much represent a players true talent level. Fortunately, all of that data is available on his FanGraphs player page.
So starting from 2005, the season that obviously represents his peak performance, we can see how his numbers have trended:
2005 (691 PA): 12.5 BB%, 18.4 K%, .327 ISO, 22.0 LD%, 38.6 GB%, 39.4 FB%, 23.7 HR/FB
2006 (204 PA): 12.5 BB%, 23.4 K%, .189 ISO, 20.3 LD%, 41.3 GB%, 38.4 FB%, 15.1 HR/FB
2007 (650): 11.1 BB%, 20.1 K%, .196 ISO, 20.6 LD%, 41.2 GB%, 38.2 FB%, 12.6 HR/FB
2008 (698 PA): 10.2 K%, 19.1 K%, .172 ISO, 21.5 LD%, 44.9 GB%, 33.7FB%, 11.7 HR/FB
The first thing I look at is the drop in power. In 2006 and 2007, his FB% remained basically the same as in 2005, however, his HR/FB dropped precipitously which lead to a big drop in his ISO. That either means that he was incredibly lucky in 2005 (meaning he had a lot of just over the fence homers), or the wrist injury that he suffered in 2006 really affected his power for the long term. I would think that it would be a combination of the two. As you may also notice, his approach remained basically the same (his BB%, GB% and LD% were all very similar from 05-07), so the only thing that really changed was the decline in power.
Then 2008 happened. His BB% dropped, his K% dropped, his HR/FB dropped, his ISO dropped, his GB% raised, his FB% dropped, and his LD% raised. In short, he became less of a slugger, and more of a contact hitter. That showed up in his overall slash line of .291/.361/.462, which was only slightly above average for a first baseman in the NL.
So, the debate is basically over which Lee is the real Lee. Is he the high walk, high strikeout, high-ish fly ball, moderate power player that he was in 06 and 07, and last year simply was an "off year"; or is he truly the higher contact, higher groundball, lower power, lower walk player that he was last year?
To attempt to answer to that question, I looked at his (admittedly small sample size) numbers this year:
2009 (83): 8.6 BB%, 18.9 K%, .095 ISO, 8.1 LD%, 37.1 GB%. 54.8 FB%, 2.9 HR/FB
Now Derrek Lee is obviously in an extended slump so far this year, so it is imperative to try to differentiate between his slow start and actual evidence of decline. His LD% for example, doesn't really prove anything. He has consistently been over 20% over the past 4 years, and his super low mark this year is likely just because of the fact that he is in a slump. Countering that is his FB%. If you go to his FanGraphs page you may notice that his infield fly ball rate is over 20%. His career rate is 7.6% and he has averaged around 4% over the past 3 years. That number will regress as he starts to square the ball up better, and it will likely manifest itself in more line drives.
The number's so far that I am intruiged by are his continued drop in BB%, to where he is now below average. If you look at his plate discipline stats, you can see that his O-Swing% (which measures how many pitches out of the strike zone a batter swings at) is at a career high. That is clearly not a good sign. In fact, his O-Swing% has raised in each of the last few seasons. Again, not a very good sign.
A sign that he isn't in decline is that his FB% is up and his GB% is down. Even if you regress his infield fly ball percentage to his career average, his GB/FB ratio would be around his 06/07 levels. On the other hand, he simply isn't hitting those fly balls very far. His is popping the ball up a lot, and the ones that he is driving aren't really going anywhere. You can really see that by his hit chart, found at mlb.com (these are only his fly balls and homers hit at home, so the data isn't complete... small sample size caveats apply):
So, despite that one warning track shot, Lee looks like his power has been sapped. Even when hits the ball into the outfield, they just don't have a lot of umph behind them. Here is his 2008 fly ball and homer chart (only at Wrigley) for comparison:
So, he had his share of crappily hit fly balls last year, however as you can tell, a larger percentage of his fly balls were hit very far than they have been this year. Once again, small sample size this year, but it's still an interesting comparison.
My conclusion is that Lee is in decline. His plate discipline and power have been steadily dropping since 2005, and while they will certainly not be as bad as they have been this year, I think that this exaggerates the current trend that he is in.
That is the offensive aspect of it. Defensively, I would like to clear some things up. Here is a cursory look at his UZR ratings (which measure runs saved above an average defender):
2005 (1386.0 innings): -3.7
2006 (393.2 innings) : +0.2
2007 (1274.1 innings) : -0.5
2008 (1339.1 innings): +5.2
UZR isn't perfect, but over a large sample size (about 1000 innings in the field), they are pretty reliable, generally with a +/- of 5 runs.
So before 2008, he had pretty much established himself as a slightly below average defender. Given the fact that fielders generally peak in their 20's, and assuming a lot of the usual caveats of UZR type metrics, I would call his 2008 season a fluke defensively. He may have made some adjustments that allowed him to be better, but it is pretty hard to improve your range at 32 years old.
I would probably call Lee an average defender for this year, incorporating the possibility that last year represented a true improvement in his skills, but also the possibility that it could have been a fluke. If you think that his main value defensively, is that he is able to scoop up bad throws, than you could probably call him a +5 defender overall.
So my total projections for Lee this year, are that he will be an average first baseman. Assuming further decline in some of his skills, coupled with some regression, I think that his slash line will be something like .300/.360/.460 for the rest of this season (feel free to disagree with that), which would make his overall season line something like .290/.350/.440. The average first baseman had an .838 OPS last year, so that would make Lee a little below average offensively. Add in slightly above average defense, an he would basically be a league average first baseman. That isn't terrible. That would be worth around 9 million on the free agent market, so the Cubs wouldn't be overpaying for Lee that drastically.