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Wednesday, April 3, 2013

Evaluating Long Term Contracts

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Evaluating Long-Term Contracts
By Wild on Sports Baseball Analyst Aaron Dorman

Last night, the Rangers signed shortstop Elvis Andrus to a surprise eight-year deal, capping off a flurry of similar agreements made by teams and their young stars. Although there is plenty of precedent for locking up players long-term, it does seem like there has been an unusually large number of extensions given out over the past few years, something which is also evident when you look at recent available free agents; this winter only one elite player was available under the age of 30 in Zack Greinke, and even he is something less than a star (even though he got superstar dollars).

Especially with free agent compensation being diminished under the new CBA agreement, its less and less likely that elite players in their prime will make it to the open market, unless they are coming off a down year, an injury, or are from Japan. This has been a long-term trend.

Here are the list of players under 30 over the past few years who have gotten a free agent contract for five years or 50 million. Players who re-signed with their team are starred:

2013:
Elvis Andrus-Rangers
BJ Upton-Braves
Edwin Jackson-Cubs
Zack Greinke-Dodgers

2012:
Prince Fielder-Tigers
Jose Reyes-Marlins
Yu Darvish-Rangers

2011:
Carl Crawford-Red Sox

2010:
Aroldis Chapman-Reds
Matt Holliday-Cardinals*
John Lackey-Red Sox

2009:
CC Sabathia-Yankees
Mark Teixeira-Yankees

Basically, up until 2012 there were on average two core-level talents available in their prime each winter. Last winter not even that held up, as Greinke, Upton and especially Jackson don’t qualify as more than complementary players, albeit good ones. No longer does it seem as if a team can build a core by signing free agents; teams that have tried, such as the Yankees and Mets, have found themselves with no extra money to spend and a lineup of aging veterans. Drafting, and then keeping, your own players seems to be the surest way to a strong run of success. This strategy was pioneered by John Hart when he was GM of the Indians in the early 90s, locking up stars like Jim Thome and Kenny Lofton into their early thirties.

More recently, the Tampa Bay Rays have started the trend of signing young players almost immediately after their debut, buying out several years of free agency in the process; Mike Moore, Wade Davis, and Evan Longoria have such contracts. These contracts are often thought to be calculated risks since if these players become stars they will make less, and for more years, than if they were allowed to follow the arbitration process and then free agency. That will in turn allow the Rays to keep enough money to surround their core with capable veterans and role players.

But is paying up early always the right strategy? When does stability and commitment to players actually undermine success and financial flexibility? When your name is Vernon Wells, to name one notorious example! Mid-market teams must be especially pointed with who they retain, as they cannot keep all their stars. A decade ago, the Athletics chose Eric Chavez over Miguel Tejada (or Jason Giambi) and suffered for it. The current Brewers franchise is wagering that Ryan Braun will age more gracefully than Prince Fielder. Meanwhile, the Rockies and Reds are committing themselves to their current core at the expense of future stars.

So when evaluating long-term contracts such as what we’ve seen this past week, here are some key questions:

Does the contract allow for more flexibility than if the player had been signed after becoming a free agent? Did they save money and years?

Did the team have a replacement for the player who they are signing? On a similar note: is the player irreplaceable in some way?

Does the player have any growth potential? If they are already at their peak, do they fit the profile of a player who can safely be predicted to earn the money?

Does the timing make sense?

Elvis Andrus for 8 years and $120 million- this is a very excessive contract. In a vacuum, it makes some sense. The money is only on average $15 million per year and will take Andrus into his early thirties. Elvis Andrus is a good bet to at least continue his current rate of production, and he is an underrated asset. Although he has no power, Andrus is an elite defensive shortstop who gets on base and runs well.

There are several factors that make this a questionable signing. For one, it is hard to imagine that Andrus would make more money as a free agent than what he got this weekend. He is also not a star, and will probably never be. He doesn’t project to add power to his game and he’s already a strong contact hitter so a consistently higher batting average is no guarantee.

The Rangers have a very viable replacement for Andrus in Jurickson Profar. Signing Andrus moves Profar to second when he arrives in the majors, which I think is a waste of the latter’s defensive abilities. Having Andrus there for this year or even next year is fine, but basically to permanently keep Profar off of SS is a decision I disagree with strongly. The better option people were proposing over the winter was to move Andrus to CF. Andrus is not Derek Jeter, and even Derek Jeter should have acquiesced to move for A-Rod when he was traded to the Yankees so many years ago.

Overall, this will not affect the Rangers right now. By 2017 or 2018, however, this is a contract that could hurt their ability to retain future elite players, the kind Profar or Yu Darvish or even Derek Holland could become. Will they have to make a choice between dumping Andrus’ contract or saying goodbye to a better player? We’ll know in five years.

Justin Verlander for five years and $140 million starting in 2015- THIS is the kind of player who you sign to long-term megadeals. Verlander is not only a superstar, he is a unique talent, a pitcher who has thus far shown no signs of wear and tear on an arm that regularly throws more pitches than anybody else in baseball. Verlander is a freak and in a good way. Although it’s possible that his velocity will decline by the end of the deal, he is such a good pitcher that he should be able to weather a slow downward slope. Yes, his arm could fall off in a few years, or he could have a down year, or he won’t be “worth” the $28 million average annual value of his contract. But there are as yet no warning signs. This is a risk a team has to take. Verlander is not replaceable.

One word of caution, however: A few years ago the Tigers locked themselves into too many expensive contracts and suffered a few down years as a result, in the end trading away Curtis Granderson and Edwin Jackson to free up money (although that trade turned out favorably for them). They had to wait for Magglio Ordonez, Carlos Guillen, et al to come off the books before they could go after guys like Prince Fielder. The Tigers now have a lot of money locked up again, to Verlander, Miguel Cabrera, and Fielder, among others. This is a combustible strategy-just ask the Yankees. However, for now, those three are among the best at their respective positions. And if the Tigers win a World Series over the next few years, maybe it was worth it.

Buster Posey for eight years and $160 million (After 2013)- The reigning MVP cashed in with a “Giant” contract and overall it’s a reasonable deal. Posey plays a premium position and he’s established himself to be a star on both sides of the ball. The Giants play in a tough ballpark for hitters so securing an elite offensive performer makes sense. They certainly don’t have anyone to replace him; their farm system has been emptied by the graduation of so many young stars to San Francisco.

That said, there’s a good chance that this deal goes south in a few years. First of all, as a catcher, Posey’s durability will always be in question, and he’s already missed nearly a year due to the 2011 collision with Scott Cousins. Catchers have historically not lasted long in their careers, having to at least move off the position (Joe Torre, Ted Simmons, Yogi Berra, Johnny Bench, just to name a few). The Giants are probably committing themselves to one or two years where Posey is unhealthy, in decline, or a first basemen. Even the best catcher in the other league, Joe Mauer, has caused his team some regrets about signing him forever.

Building a team around Posey and Matt Cain is still going to lead to some excellent years over the next decade, and the Giants have money to spend. They are not the most sabermetric-savvy team but whatever they’re doing is obviously working.

Adam Wainwright for five years and 97.5 million- This contract is a very fair deal considering the market. Although the Cardinals don’t get a home town discount, when you consider what Zack Greinke got as a free agent, Wainwright would probably command more dollars and years if he left after this year.

Wainwright’s 2012 was deceptively “off” his last few healthy seasons; he had a 3.94 ERA and threw less innings. Overall, however, his component ratios were very similar, and his stuff hadn’t regressed. Even if 2010 was a career year, Wainwright is still probable to maintain near-ace quality performances over the bulk of his contract. Maybe St. Louis should have waited to see if Shelby Miller or Lance Lynn step up this year, but they didn’t and that’s okay. Besides, you can never have too much pitching.

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