Pay me now, or pay me later

Imagine you’re a professional baseball player, talented enough to reach the majors, and you have a seemingly bright future. Your team loves your potential, too, so much that it’s interested in signing you to a long-term deal despite the fact that it still has complete control of your salary, since you’re not even eligible for arbitration yet.

Do you take the deal, knowing you and your family will be set for life? Or do you take the risk that your talent will continue to blossom and you’ll avoid any catastrophic injury that could curtail your career? This latter approach has much greater uncertainly, but it also holds the potential for a significantly bigger payout, as arbitration awards—and then free agency!!—could put your total earnings well above what the deal on the table can provide.

Most players opt for the former path, banking tens of millions of dollars while foregoing the opportunity to earns tens of millions more. It’s difficult to blame them, because baseball is full of tales of young flameouts whose careers ended quickly via injury, the league adjusting to them, personal crises and other reasons. For the players, the security is golden; for the teams, the investment is a drop in the bucket as they lock in upcoming talent at bargain prices.

Let’s look at some recent examples of players who took the money and ran and how their deals are looking at the moment. Additionally, we’ll study one player who refused to be locked in for the long term and whether he profited from his decision.

(I’ll be using WAR as a proxy for player performance, though we all know it’s not a perfect measure. It does give us a good, quick feel for how these players have performed relative to their deals. We’ll focus on FanGraphs’ version of WAR since it’s going to be simpler to use a single WAR instead of listing both FanGraphs and Baseball-Reference values over and over.)

Screaming bargain

The Tampa Bay Rays started this latest spending approach, inking third baseman Evan Longoria to a six-year, $17.5 million deal just weeks into his major league career in 2008. In addition to those half-dozen guaranteed years, the Rays had very reasonable options for Longoria’s first three free-agent seasons.

The results so far ought to have Longoria strangling his agent, as he accumulated 29.3 WAR in his first five seasons, during which he earned a measly $9 million. It’s difficult to imagine a player being a better bargain over a half-decade stretch. Longoria’s 2013 season is off to a terrific start, too, as he’s at 2.8 WAR already and bringing home just $6 million.

Tampa Bay has promised to make Longoria an incredibly wealthy man by exercising all three of the option years in this deal and tacking on another $100 million for the 2017-22 campaigns. Still, that’s “only” $147.5 million over 15 years, and an average salary under eight figures per year is quite a steal for a franchise player on a team with a shoestring budget.

Given how his career has gone, if he had to do it over again, I imagine Longoria would opt for a year-to-year approach to contract negotiations. Of course, this may have led to his departure from the team as his salary escalated to unsustainable (for the Rays) levels, so maybe he’s happy that he’ll be spending potentially his entire career with the team that drafted him.

So far, so good

The next player the Rays signed to a similar package was pitcher Matt Moore, who after throwing just 9.3 major league innings in 2011 signed a five-year, $14 million deal with three option years—very similar to the contract Longoria worked out.

Less than two seasons into the deal, Tampa Bay’s execs look like geniuses, as Moore was worth 2.5 WAR last season and has garnered 0.8 so far in 2013, though that number is seriously regressed due to a 4.14 FIP compared to his 2.21 ERA. His 8-0 record may be a bit misleading, as Moore is walking more than four batters per nine innings and he has a .204 BABIP allowed, but he’s been a very valuable member of the rotation and looks to be one well into the future.

With pitchers, security is even more important because of the heightened risk of injury, so Moore taking the guaranteed $14 million—after receiving only a $115,000 signing bonus—is understandable. Still, he’s not going to get more than $5 million a season through 2016 and no more than $10 million through 2019. If he keeps pitching like he has, he’ll have traded off scores of millions for known comfort.

Well done, once again, Tampa Bay.

***

The Royals saw what the Rays were doing, and being a small-market team, too, Kansas City tried a similar approach with catcher Salvador Perez. Despite his having only 158 major league plate appearances, the Royals guaranteed him $7 million over five years, along with the oh-so-familiar three option years.

Things looked iffy when Perez needed meniscus surgery in March of last year, delaying his season debut significantly. However, a .301 batting average with 11 home runs over 305 trips to the dish—good for 2.5 WAR—allayed any fears. Thus far in 2013, Perez is batting over .300 again, though with reduced power. Still, good defense, 0.9 WAR to date, and a $1 million salary are a tasty combination. It seems KC made a wise investment, locking in Perez for no more than $2 million a year through 2016.

For Perez, an amateur free agent signee from Venezuela who advanced only up to High-A in his first four minor league campaigns, this financial windfall must have been a dream come true. Would he have made more through arbitration? Almost certainly, but after that knee injury last year, I imagine he’s happy his future is secure. Catchers may not be as volatile as pitchers, but they’re put in harm’s way often enough that an offer of a long-term deal is something worth jumping at when it’s offered.

Just getting started

The dominoes really started to fall this spring, with Chris Sale the first player to sign. His White Sox pact is for five years and $32.5 million. This obviously is a big jump in average salary compared to the previous deals, but a starting pitcher with nearly 300 major league innings under his belt (Sale) is more of a known quantity than one with fewer than 10 (Moore). Also, this deal reflects the surge in revenues coming into baseball through national television contracts, as well as Chicago’s large-market spending capacity.

The rail-thin Sale managed 192 innings last season, sporting a tidy nine strikeouts per nine innings and slender 2.39 walks-per-nine and 0.89 homers-per-nine numbers. This total package yielded a 3.05 ERA and 4.8 WAR. About one-third of the way through this season, Sale’s 1.6 WAR is on pace to match last year’s mark.

The big money doesn’t start rolling in until next year, but his contract terms probably are in the neighborhood of what he would earn via arbitration, so it’s not like Sale has surrendered massive piles of cash for his security. It appears players and their agents are getting smarter about playing this pre-arbitration contract game, as the following players aptly demonstrate.

***

It’s time for the first-base thumpers to find out what they’re worth, and the first to do so was the Cardinals’ Allen Craig. Following brief call-ups in 2010 and 2011, the latter of which was particularly impressive, Craig stepped in to the gargantuan shoes left by Albert Pujols and filled them admirably for a guy making under half a million bucks.

His 2012 season featured a .307 average and 22 homers, though as a slugger with middling defensive and baserunning skills and only a 7.2 percent walk rate, he compiled just 2.8 WAR. This number shows how challenging it is to be a premier player at first base, where the offensive talent level is so high that standing out from the crowed, or simply being above average, is very difficult. Still, St. Louis had a solid run-producer, and so the Cardinals inked Craig to a five-year, $31 million deal that takes him through his first free-agent year, with an option for the 2018 season tacked on.

The days of the hyper-bargain may have passed, but the Redbirds have to be happy locking in the next five or six seasons of Craig rather than spending nearly eight times as much for twice the duration on a player who will be 41 when his contract ends.

***

On the heels of Craig’s signing, the Diamondbacks came to similar terms with their first baseman, Paul Goldschmidt, adding another million dollars to a deal of the same five-year length, along with the requisite option year. Goldy’s deal is just a touch pricier than Craig’s, but the D-backs first sacker appears to have the higher upside. He’s younger and his power has been much more evident this season: He leads Craig in homers, 12-3, and slugging percentage, .597 to .440 (through May 26).

Some writers and agents have questioned this deal from Goldschmidt’s perspective, as his white-hot start to 2013 may be indicative of coming greatness, which certainly would have been rewarded quite handsomely by arbitration panels. But he’s content that the deal at the time was a good one.

From Arizona’s perspective, it’s a fabulous contract. The team is getting top-flight thumping, average and patience, along with solid defense and base running, from a 25-year-old who has room to grow. If he maintains anything close to his current level, Goldschmidt will be a superstar making little more than journeyman money for several more years. Maybe the biggest bargain deals are past, but this one someday could be viewed as one.

***

The Cubs hope they are putting together the centerpieces of their upcoming return to relevance. After signing Starlin Castro last fall to a seven-year, $60 million deal (which didn’t buy out any pre-arb years, so I’m not evaluating it), Chicago penned a second seven-year contract, this one with Anthony Rizzo for $41 million with two option years.

The extra guaranteed season and two option years versus the one that Craig and Goldschmidt received may simply reflect general manager Jed Hoyer’s obsession with Rizzo, whom he has acquired twice via trade. He’s two years younger than Goldschmidt, so it also could be that the Cubs are counting on further growth as Rizzo ages and want to capture the duration of his peak.

After flopping with the Padres in 2011 in a 49-game call-up, Rizzo was much improved in a half-season with the Cubs last year when he had a .285/.342/.463 triple slash and 1.8 WAR. The average is down a bit this year, but the power is up, leading to 1.0 WAR through a third of the season.

This deal seems to strike a good balance between the team’s and player’s goals. It gives Chicago a strong player at reasonable rates while making Rizzo a rich man after just over one season worth of major league playing time.

Take the money and run

Here’s an example of a long-term contract that hasn’t worked out as the team hoped. Following a 102-game 2010 featuring a .299/.346/.400 line and 1.9 WAR, Pittsburgh inked outfielder Jose Tabata to a six-year, $15 million deal. Since then, Tabata has seen his performance slip and playing time reduced. His 2011 WAR was only 0.8, and in 2012 it was -0.5. To this point this season, he has an exceeeding bland WAR total of 0.0.

The Pirates are going to be paying $12 million in the three upcoming seasons to a player who has regressed quickly and appears to be little more than replacement level. Of course, Tabata is not even 25 years old, so there’s time for him to get back on track, but he’ll have to push for playing time in right field, since center is manned by Andrew McCutchen, and Starling Marte is taking a firm hold on left.

The Pirates are likely to give Tabata additional chances due to their investment, but the dollars aren’t so significant that they’ll force him into the lineup more than he deserves.

Yes, most of these deals look good, but once in a while there will be a lemon. Tabata’s contract looks like it’s on it’s way to being good for making lemonade.

Wingin’ it

And now we come to the player who has bucked this trend and refused to sign a long-term pact. Giants pitcher Tim Lincecum parlayed back-to-back Cy Young awards into a two-year, $23 million deal that covered his first two years of arbitration. And while he didn’t approach the 14.6 WAR he earned in those two award-winning campaigns, his two-year total of 8.0 WAR under that extension earned him a follow-up deal for two additional years, this time for $40.5 million.

That’s right, in his final two pre-free agency seasons, Lincecum is earning the same amount as Rizzo will be over seven seasons. Sure, those two Cy Youngs put Lincecum in a separate class from the others in this study, but his approach also shows the upside to sticking to short-term deals. On the risk-reward spectrum, Lincecum certainly skewed toward the former, but it’s paid off so far.

Of course, last year’s 5.18 ERA and 1.0 WAR, followed up by a somewhat-improved, but still uninspiring, season to date could mean Lincecum’s next contract is for a much smaller amount. But the $64.5 million he’s banking through this year is his to keep. And it’s unlikely he would have earned as much had he signed a long-term deal previously.

Which way do we go?

So is there a right or wrong path to choose in these situations?

For most players, the security of an eight-figure contract is enough to get them to sign on the dotted line, and there’s no way to blame them. Even players who earned a multi-million dollar signing bonus can be swayed by a deal an order of magnitude larger. Lifetime security is a strong incentive to sign.

For players who take the risk, there’s obviously the chance for more money. But there’s also the strong possibility of injury or simply a talent drop-off that could prove devastating.

I’d love to be in position to make the choice, because there’s not a wrong one when either option leads to millions of dollars. What about you? Which way would you go?

References & Resources
FanGraphs provided the WAR values, and Baseball Prospectus was the source for salary information.

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Comments

  1. MikeS said...

    Longoria may be under-payed compared to his peers in the same profession, but nine million dollars is not “measly.”  I don’t want to roll back salaries and let the owners keep all the money but let’s be realistic here.  Try not to look at it as monopoly money, but how much a person needs to secure the future for themselves and their families.  Nine million does that just fine for most people.  Put another way, it’s not about respect, it’s about the money.

  2. Greg Simons said...

    Mike S – I was being somewhat facetious calling $9 million “measly.”  Certainly that’s a lot of money (I’d probably retire and travel the world if I had it), but as you said, it’s in the context of baseball player salaries.  In that context, Longoria has been vastly underpaid.  Of course, his new extension helps make up for that.

  3. Joe Geshel said...

    “One in the hand is worth 2 in the bush”, is an old truism and is still true today.  Money now is better than maybe more money later.  Why?  You can invest the money you have and increase its value.  Sure things are better than chancey things where money is involved.

  4. Phil said...

    Have to go guaranteed money personally.

    I think these type of deals are good for baseball.  If a good player becomes great he’ll get another large, long-term contract.  If not, the team isn’t hamstrung by the contract.

    And even with the misses like Tabata; like the article mentions he’s only 25; Look at Chris Davis and Carlos Gomez as two examples this season of late bloomers.

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