Revisiting pre-arb contracts

From the moment I submitted my article last week on pre-arbitration contracts, I knew I wanted to delve deeper. That piece gave some good examples of players who signed long-term deals early in their careers and the risks and rewards of doing so. But I want to look more closely at the decision-making process that leads to these deals.

Show me the money

In these negotiations, teams almost always have the advantage, and I’m not sure the “almost” should be included. Who has the money? The team. Who wants it? The player—and his agent. When one person strongly desires something a second person has, the latter always has the power. This is true not just in baseball, but in life in general. The phrase “follow the money” is spot on in myriad situations.

Besides being the ones with the money, teams have much more experience. They’ve conducted thousands of player negotiations, and they hire the best people to handle them, so they have that advantage, as well.

Sure, players have agents, but there’s a limitation to this setup. The agents work for the players. (It may not seem like it at times, but they really do.) In the end, the agent has to do what the player wants. Even if an agent is certain he can get more money for his player by continuing/stalling/cutting off negotiations, if the player wants to sign, the deal will get done.

Imagine you’re a young guy who has never experienced wealth before, and your team is waving a contract for many millions of dollars in front of you. As the dollar signs fill your eyes, the gritty details of the contract may not matter so much.

***

Team: We’ll give you $30 million over the next six years. You and your family will be set for life.

Agent: If we hold out a couple more weeks, I’m sure I can get that to $35 million, maybe even 40. And if you don’t sign now, we can always discuss another long-term deal next winter after you’ve put up more strong numbers.

Team: Of course, if you get hurt, that lifetime security is gone.

Player: (I really don’t want to work at McDonald’s again.) I’ll sign!!!

***

Okay, maybe that’s not exactly how these discussions go (maybe instead of McDonald’s it’s the local gas station, an uncle’s taxidermy business, or Abercrombie & Fitch), but you get the idea. Teams have money, players want money, and so the franchise wields strong control over contract negotiations.

We are family

As alluded to above, family can be a crucial factor in contract dealings. A young player may want to take care of his parents or other relatives as a way of saying thank you for all they’ve done to help get him to where he is, and getting money now rather than later could allow him to do so. A player may have a wife and children to think about, giving him extra incentive to lock in long-term security for his spouse and little ones.

Additionally, the player may not have an alternative career path to fall back on (the Golden Arches is rarely a solid long-term employer), so pocketing some serious cash for when his playing career is often is a smart move.

Rooting interest

Aside from being outgunned by the franchise and influenced by familial obligations, the player also has to consider the influence of the opinions of fans and—most critically—the local sportswriters, few of whom can understand or sympathize with the player’s position.

Fans generally don’t care that players are drafted by a team not of their choosing, are sent to whatever distance corners of the country their teams want them to go, have to move at a moment’s notice when a promotion or demotion occurs, ride buses at all hours of the night and day, and get paid very little to do so.

What most fans care about is that the players do everything they can for the home team to win, from busting their tails on every play, to playing through injuries, to taking a “hometown” discount to stick around and demonstrate the loyalty and sacrifice they “owe” the team that has nurtured their development. Fans care about their team first, the specific players second. Jerry Seinfeld was right, we root for the laundry.

And sportswriters are even worse. They have a platform to call these players out for their lack of devotion. If news of a contract negotiation leaks, the writers typically pounce on any inkling that the player is holding out for more money, and they’ll shame that player for his greedy attitude, wondering why he’s not perpetually grateful for his opportunity to take less money to commit long-term to the local nine.

(Yes, some of these situations are more often applicable to players approaching free agency, but an indication that any player may not be willing to sacrifice his happiness for the good of the team is viewed with utter disdain by the home crowd.)

What many fans, and even “knowledgeable” writers, don’t realize—or fail to acknowledge—is that the absurd contracts players sign—pre-arbitration, arb-eligible, or free agent—exist only because of the amount of money that is pouring into the game. National and local television contract extensions, new stadia with naming rights deals, increased ticket prices, and MLB Advanced Media are just some of the sources of massive revenue streams for major league franchises.

Some people argue that the owners are the ones taking the risk, so they should reap the greatest rewards. My counter to this is, what risk? When is the last time a major league team was sold for less than its purchase price? Most of the time the appreciation in franchise value is hundreds of millions of dollars. The Dodgers sold for $2.15 billion! There’s virtually no risk in owing a major league baseball team.

Others will argue that player contracts should be smaller and the players and owners should give the money back to the fans in the form of lower ticket prices. But where’s the incentive for that? Like it or not, most teams, like other businesses, are run primarily to make money. With few exceptions, plenty of tickets are being sold at their current prices, and sacrificing money is not something most billionaires are likely to do.

So aside from teams having the upper hand in negotiations in terms of finances, they also have the court of public opinion on their side.

Making the right call

Given these conditions, it’s no wonder players usually opt to grab as much money as they can as soon as they can. And as the Evan Longoria, Matt Moore and Salvador Perez contracts were used to demonstrate last week, the earlier these long-term pacts are signed, the worse they seem to turn out for the players (and, in turn, the better they turn out for the teams).

The more recent trend of a player getting a year or two of experience under his belt before inking a new deal seems to be working out better for the players, as the value of the new deals for Chris Sale, Allen Craig, Paul Goldschmidt and Anthony Rizzo are more in line with market prices. Sure, they’ve traded away some earnings potential—and their earliest shot at free agency—for additional security, but at least the dollars are more commensurate with their contributions.

And, as also mentioned last week, there are the few who will take the Tim Lincecum path and decline a long-term deal. His exceptional start to his career put him in a whole other category that has allowed his earnings to outstrip the others in this group by a factor of 2-4 times. But his unwillingness to put pen to paper on a lengthy pact also may have hurt him, because his performance over the last couple years has fallen well short of where it once was, and any chance at a mega-deal is likely gone.

In the end, the “correct” decision for a player (or team) depends on the particulars of his situation. Keep in mind that, while money is a huge factor, there are many considerations in the decision besides dollars and cents. And if the player on your favorite team doesn’t want to play ball on a new deal, remember that he may have spent the last decade playing in locations where he wasn’t comfortable. He may simply want to return to what is, to him, his real hometown.

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Comments

  1. Dylan B said...

    It will be interesting if teams continue to go this route, with the likely failure of Tabata and the actual failure of Ricky Romero(not listed in the previous article). Most MLB front offices are risk adverse so if one or two more of the players listed above “fail”, I think you will see very little of these deals moving forward. Or if it is Sale that fails, not offering these deals to pitchers.

  2. MikeC said...

    There are the few Longo type contracts, but those are almost always the ones signed when the player really SHOULD be happy to get such a deal.  Yes, you may have signed away a chance at bigger money, but given the attrition rate, either through injuries or just not playing all that great, for baseball players, knowing you’ll be guaranteed that much money when you have *literally* not proven yourself as a MLB level player is a near no-brainer.

    Most other guys, like Rizzo and such, as you mentioned aren’t even giving away that much.  Yes, they lose the chance for a bit more in free agency, but so much of the free agency money is 100% ego anyways.  It’s a cliche, but no one – no matter how good they are – really needs A-Rod type money.  Players want it because it is a public endorsement of their skills – a way to say, “See, I’m better than X because I’m making Y.”

    Once you’ve made your first $30 million or whatever, you’ll realistically never spend it all, nor will your children, unless you’re a complete moron.  The money after that is simply to let the player feel appreciated.  And I don’t fault them for that at all, mind you.

  3. Greg Simons said...

    Dylan B – I think it’s possible teams could back off on pitcher deals, but I think they’ll continue to lock up hitters.  Teams value certainly as much as they’re risk averse, so it’s an interesting balancing act.

    MikeC – I almost always side with the players in contract matters, because I pay to see the players, not the owners, and if the players don’t get the money, the owners will.

  4. MikeC said...

    Oh, I don’t really care who gets the money at all.  Players, owners, it makes no difference to me. 

    As a fan, I probably somewhat root for the owners because there are generally going to be budgetary issues (even for the Dodgers – maybe … someday) and a giant albatross contract will inevitably impact the team’s ability to spend. (as a Giants fan: Zito, Barry)  I blame management for those contracts 100%, because if someone offered me more money to do my job than I was worth, I sure as heck wouldn’t say no.

    But, if the player gets it, I don’t fault him at all.  Was mostly just pointing out that players who’ve been in the league for a week (Longo) and are offered money to keep them set for life really can’t be faulted at all for taking the deal.  Especially, as I mentioned, when after a certain point, the money is purely an ego thing and has nothing to do with actual financial security.

    (Mind you, again, if the player gets it, good for him.  It ain’t my money.)

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