Planning Ahead in Milwaukee

I’d imagine that it’s no secret to most of my readers that I’m a Brewers fan. I’ve written with wonder about Milwaukee’s stars on multiple occasions. Today, I get to shower accolades on Doug Melvin for locking up Bill Hall through the 2010 season.

Hall is entering what would have been his first year of arbitration, coming off what was not only a career year for him, but one of the best offensive performances from a shortstop in 2006. While Hall probably won’t play shortstop this year, he’s likely to move to center field, another position where offense is hard to come by, and one at which he has already excelled (albeit in very limited action).

Hall’s deal is typical of its kind: in exchange for financial security for several generations of the Hall family, the Brewers get their budding star at a below-market price. His contract breaks down as follows:

  • 2007: $3.5 million (includes $500,000 bonus)
  • 2008: $4.8 million
  • 2009: $6.8 million
  • 2010: $8.4 million
  • 2011: $9.25 million club option ($500,000 buyout)

If Hall performs at anything like the level he’s established in the last two years, this will be a steal, starting in 2007.

Doug Melvin made a potentially great deal for the Brewers not so much because of his savvy negotiating skills, but because that’s the kind of discount teams appear to get when they sign players with Hall’s level of experience. The most relevant recent contract to Hall’s is the one the Mets gave Jose Reyes last August. Reyes’ deal also covers his three years of arbitration and first two years of free agency. The Reyes and Hall deals are almost identical: Hall is signed for $24 million over four years, while Reyes will receive $23.25 million.

Risk and Reward

When you’re willing to commit to a young player, the rewards can be enormous. While it’s difficult to see that far into the future, if Hall maintains his current career averages of .267/.322/.479 and establishes himself as a solid defender in center field, he could be the best free agent option at his position after the 2009 season. (The same, of course, is true of Reyes at shortstop.) Even better, if Hall continues his production in the 280/340/520 range, he could be one the best free agent hitters on the market that year, regardless of position.

Even setting aside the importance of considering present value when evaluating salaries several years in the future, $8.4 million and $9.25 million are incredible bargains for such a potentially productive hitter. The Mets, with their $9 million and $11 million salaries for Reyes in his first two years of free agency, can look forward to the same benefit. It’s not far-fetched to think that, by 2010, either of those players could sign a deal for $15-20 million annually.

Believe it or not, it gets better. Let’s conservatively say that Hall settles in at his career averages of .267/.322/.479 for the next three years. On this year’s market, a center fielder with that track record would probably have gotten $12 million or so per year. However, it’s impossible to sign a top young free agent to a short deal. Not only will the Brewers get Hall at a below-market price for his first two years of free agency, but they can do so without committing to him through his decline phase. The current contract runs through his age-31 season, covering most, if not all, of his peak.

Of course, as I suggested earlier, there’s a tradeoff involved. The Brewers are on the hook for $24 million—$20 million more than if they had just settled with Hall for 2007—regardless of whether their young star ever plays another game. (It may be that the Brewers are able to insure his contract, which would mitigate some of that risk.) $20 million over three years is nothing to sneeze at, especially for a small market team, but if Hall is on the field, it’s tough to imagine him being much worse than what $6.5 million per year will buy you on the free agent market.

Buy More, Save More

While Doug Melvin and Omar Minaya were quite aggressive in locking up their young players, they look downright slow compared to Mark Shapiro, general manager of the Indians. Shapiro is the poster boy for this kind of deal, specifically for signing Jhonny Peralta and Grady Sizemore to five- and six-year deals, respectively.

What makes Shapiro’s deals that much more gutsy is that, while he got more years for less money, he signed each of those players after only their first full year in the majors. Ignoring for the moment that we’re comparing very different players, let’s look at how Hall, Reyes, and Sizemore will be compensated at various stages of their deals:

Year    Hall    Reyes   Sizemore
Arb - 2                 0.5
Arb - 1                 0.75
Arb1    3.5     2.5     3
Arb2    4.8     4       4.6
Arb3    6.8     5.75    5.6
FA1     8.4     9       7.5
FA2     9.25*   11*     8.5*

* Indicates a club option

Sizemore is a year behind Hall and Reyes (his first arb year wouldn’t have been until 2008), but his deal is strikingly similar to those of Reyes and Hall. Using PECOTA’s five-year forecasts, Sizemore is the best of the bunch, projected to be worth 36.4 wins in that time, as measured by WARP. Reyes is next, at 31.7, while Hall trails at 24.8.

In this small sample, the team that gets the most for its $20-25 million investment (or $30-35 million, including the option) is the one that pulled the trigger the soonest. That, of course, is how it should be: the Indians took the greatest risk, locking up a player with only a single full season under his belt, while the Mets and Brewers waited a full year after their players’ star potential became evident.

Looking to the Future

If this offseason and last are any indication, more players will sign deals that buy out their arbitration years and a season or two of free agency. In addition to Hall, Aaron Harang recently signed a deal covering his three arbitration seasons and first two years of free agency, and Chase Utley agreed to a seven-year contract that includes his first four years of free agency.

Harang’s deal is very similar to the one Jeremy Bonderman signed with the Tigers, while Utley’s is like the deal David Wright made with the Mets. In all of these cases, teams are buying out free agent years so that, if the player continues at his current, the team will save money and avoid the free agent market for at least that one position.

What’s most interesting to me about the future of MLB contracts is that, the more teams lock up their young players, the more other teams will have to do it, as well. As I noted in last week’s column, the free agent class of ’08 isn’t looking that strong, and that’s before several of those players sign extensions with their current teams. If deals like these reduce each year’s free-agent options by, say, 25%, that could make the existing pool older, less talented, and even more expensive.

Faced with a prospect like that, it’s no surprise that major league general managers are happy to make $20 million gambles.

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