Avoiding Arbitration and Locking up Free Agents

There have been a few contracts signed since the end of the season that are worth noting.

The Cubs Sign Pitchers

The Cubs signed Ryan Dempster to a three-year deal, worth a total of $15.5 million. Dempster was eligible for free agency, with more than seven years of major league service time.

Dempster seemed to find his niche in the bullpen this year, compiling a 3.13 ERA and 33 saves in 35 opportunities. He was a ground ball pitcher (2.7 ground ball/fly ball ratio) with a very good strikeout ratio (8.5 per game), though he was on the wild side (4.7 walks a game). His expected FIP (3.71) wasn’t terribly out of line with his ERA, all of which indicates to me that he should be able to replicate his five WSAB from last year, at least, if he stays healthy. Health has been an issue for the guy in the past.

Health is really the key. If Dempster stays healthy, this looks like a pretty good deal for the Cubs. If not, well, it’s not.

The Cubs also signed potential free agent Glendon Rusch to a deal, essentially replacing his player option for 2006 with a two-year deal worth $6 million. I was skeptical when the Cubs signed Rusch last year, but his contract basically broke even from a Net Win Shares Value perspective in 2005. He was 9-8 with a 4.52 ERA, and his FIP and xFIP were both lower than that. The Cubs’ DER was very low when he pitched (.662) but that appears to be primarily due to his high Line Drive Percentage of 27%. If he had pitched enough innings, that Line Drive Percentage would have been the worst in the major leagues.

I’m still skeptical. Over his career, Rusch has proved to be one of the few pitchers who has managed to stay in the majors despite a propensity to give up line drives. I guess the fact that he’s a lefty and can both start and relieve makes him valuable. At $3 million a year, this isn’t a terrible risk for the Cubs, but it’s a bigger gamble than it appears on the surface.

The Cubs also signed a pitcher who had actually filed for free agency, Scott Eyre, for two years, $6.3 million with a player option for a third year for $3.8 million. There was some confusion among writers and bloggers when this deal was first announced. Some labeled it a “two-year deal with a club option” and others called it a “guaranteed three-year deal.” From a player’s perspective, however, a player option is even better than a guaranteed deal.

In 2004, Eyre was the champion one-batter pitcher, coming into a game to face one batter 35 times. That total decreased to 16 in 2005, as Giant manager Felipe Alou let him face a few more guys and Eyre proved up to the challenge with a 2.63 ERA. However, Eyre’s expected FIP was 4.13, because he gave up a very low number of home runs last year, just five for every 100 outfield fly balls. He’s virtually guaranteed to give up more homers in 2006, particularly in Wrigley.

Despite the warning signals, I think this contract will be a better deal for the Cubs over the next two years than the Rusch deal. The problem is that the third year of the deal is likely to turn out poorly for them. One the one hand, Eyre may have a great 2007, decide that $3.8 million isn’t enough and enter the free agent market, or he may stink and the Cubs will have to pay him $3.8 million. The best outcome for the Cubs would be that he pitch about as well as expected, but not any better.

Actually, the best thing about Eyre is the story of how he learned to manage his Attention Deficit Disorder and improve his major league performance. Stories like this make you wonder how many players in major league history had similar disabilities yet never had them identified or treated.

By the way, the Cubs also signed shortstop Neifi Perez to a two-year deal for $5 million. Perez had a good year in 2005, for him, yet he still contributed zero win shares above bench level. I could see signing him for a million, but $5 million was a waste of money.

Everyone Wraps Up Young Players

Danny Haren has a little more than one year of major league service, but he will probably never go through the arbitration process. Oakland signed him to a five-year deal that covers all of his arbitration years and follows this pattern:

2006: $500,000
2007: $550,000
2008: $2,500,000
2009: $5,000,000
2010: $7,000,000

This is a complicated deal. The salary schedule changes if Haren qualifies as a Super 2 arbitration candidate, and there are some decent salary escalators based on innings pitched or games started. The 2010 year is actually a club option, though Haren will automatically earn it if he pitches enough innings in 2009.

On the one hand, the A’s will have to eat a lot of cash if Haren is injured and out for a decent amount of time. On the other hand, Haren would almost certainly earn more in arbitration in 2009 and 2010 if he pitches up to his potential. The most interesting aspect of this deal is that the A’s didn’t get to extend it into any of Haren’s free agent years.

The A’s also signed Jay Witasick to a two-year deal worth $2.5 million, with a club option for a third year at $2 million. You could argue that the A’s would have been better off releasing Witasick and letting a young righthander, not eligible for arbitration, take his place in the bullpen.

Back to wrapping up young players, the Pirates signed Jason Bay to a deal that covers next year and all of his arbitration years, with this salary schedule:

2006: $750,000
2007: $3,250,000
2008: $5,750,000
2009: $7,500,000

Bay also received a $1 million signing bonus and the deal includes some relatively minor salary escalators based on All Star and MVP voting. What’s interesting is that Bay’s schedule is slightly higher than Haren’s in each year of arbitration eligibility, which makes you wonder if clubs and agents have come to a consensus about arbitration-year outcomes.

Bay is a great player and a lower injury risk than Haren, just because he’s not a pitcher. So this is a great deal for the Pirates, keeping Bay during his prime years. Again, it’s too bad for the club that he wouldn’t sign away any of his free agent years, but you really can’t blame him for that. In 2010, Bay will probably go from being a very wealthy man to being spectacularly wealthy.

The most interesting young-player deal took place in Tampa Bay, where the Devil Rays signed Rocco Baldelli to a three-year deal, covering the rest of his arbitration years, plus three club options for each of his first three free agent years.

Baldelli didn’t play at all in 2005, due to a bum elbow that eventually required Tommy John surgery. He’s an excellent defensive outfielder, though the jury is still out on his offensive skills. His GPA was .256 in 2004, indicating an average level of offense. But his speed in the field and on the basepaths make him a very good fit for Tampa’s Tropicana Field. Here’s his salary schedule (2006 is the first year he’s eligible for salary arbitration):

2006: $2,000,000
2007: $2,250,000 (provided he has at least 600 plate appearances in 2006)
2008: $4,500,000 (same contingency)

If he doesn’t reach 600 plate appearances, his salary will be based on a graduated scale of plate appearances, but he’ll make a minimum of $750 thousand in 2007 and $2.25 million in 2008.

It’s the option years that really make this deal interesting. Tampa Bay can keep Baldelli for his first three free agent years for $6 million, $8 million and $9 million each year. In return for giving up his freedom those years, Baldelli will receive $4 million from the Devil Rays if they want to get out of the first option years, and $2 million to get out of the second and third option years.

That $9 million may seem like a lot to you, but don’t forget about a little thing called inflation. If you assume that player salaries will rise 10% a year, $9 million in 2011 is equivalent to $5 million in 2005. Kudos to the Devil Rays for signing a good young player to a creative long-term contract.

The Devil Rays made a similar deal with Carl Crawford last year, signing him through his arbitration years and adding options for his first two free agent years. This is a great idea, and I expect to see more clubs follow this strategy.

In 2005, there were 30 players who were in their free agent years but had signed contracts with their clubs before reaching free agency (by my count). Most of these players had signed contracts after their fifth year, one year before reaching free agency, when their teams elected to wrap them up for some of their free agent years. A good example is Bobby Abreu, who signed a 5-year $64 million deal in 2003 that included his final year of arbitration elgibility.

Altogether, these players represented a lot of value, compiling $37 million Net Win Shares Value. Some of the best values in this group included some of the best values in all of Major League Baseball, such as Derrek Lee and David Ortiz. In general, I think signing a top player to a long-term deal before he reaches free agency is a good idea.

However, there were only a few players who had signed these deals after just two or three years of major league service. According to my research, Brian Giles (great value), Jeff Weaver (slightly negative value) and Preston Wilson (very negative value) were the only 2005 players who fit this criteria.

The notion of signing a relatively new player to an arbitration-years long-term contract, then adding two or three option years for free agent years is a relatively new strategy, and one very much worth watching.

A Couple of Outfielders

Jose Cruz Jr. signed a one-year $2.9 million deal with the Dodgers, with a $4.5 million option for 2007. Cruz was two different players last year, Arizona Jose (.253 GPA) and L.A. Jose (.322), and this contract seems to value him right in between those two figures. The Dodgers agreed to not offer Cruz arbitration at the end of the contract, which is a plus for him.

Finally, the Yankees signed Hideki Matsui to a straightforward four-year $52 million deal. Matsui will receive $13 million a year with a full no-trade provision, no special bonuses or incentives. If they hadn’t done this deal, Matsui would have become a free agent and the Yankees would not have been able to sign him for six months.

Matsui is one of the 30 best hitters in the major leagues and a decent left fielder. $13 million is certainly a fair price. The key to getting this deal done was the Yankees’ willingness to add a fourth year, which means they are on the hook for Matsui’s salary until he’s 35. So the key to this deal, obviously, is how well Matsui ages through the risky years of 32-35. I’m not nearly smart enough to try and predict that.

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