Tuesday, May 8, 2012

The Logic of the Contract Extension

One of the things that is so attractive about baseball for me is its very calculated "game within a game" aspect.  Managers have their situational thinking, pitchers have their routines, hitters have their tendencies, and defenses are positioned.  All of these scouting reports are available to everybody and there is a constant battle of wits to out-think the other team and stay one step ahead.  But when we mix all of these known factors together into certain combinations, there are an infinite number of results on every pitch, and no matter how we think things might play out in our head, a new scenario is always possible.  Every pitch is then tracked and extrapolated into spreadsheets and plugged into formulas, and an entire player's career can be predicted based on a series of events that could have gone a million different ways if it were played out a million different times.  And then just when you think you have everything figured out, there is always the variable of injuries that can ruin all data.  This is what makes the worth player contracts so fascinating to me.  When the causal fan sees a monster contract, it is actually very thought out in most cases based on projections and comparisons and not just a huge arbitrary sum of money.

That is why more than ever, you are seeing younger players being locked up by their teams instead waiting for them to reach their prime and hit free agency, perhaps no more prevalent than this year.  More and more teams are employing sabremetric statistics and weighing risk vs. reward to determine the best possible value and practical number of years to get out of their players before they hit the market.  Multi-year contracts for players in arbitration and even pre-arbitration gives the team far more control and payroll stability.  However, in free agency, very often a team gets caught up in a bidding war and can overpay for a player because things like demand and personal feelings get involved and create unknowns, which is never good when planning a budget.  Every free agent understandably wants more years and more money than the guy before him and by this time a player is most likely just entering or already at his prime, so a team will be paying a large amount of money based solely on past performance and not projected worth. 

The boldest case of a general manager bucking this trend that I have seen was Theo Epstein this past offseason.  We all know that the Cubs had the money to sign Prince Fielder, the 27-year old stud first baseman with over 200 career homeruns.  Experts had all said this was a done deal.  But Epstein came in and changed the culture of the Cubs immediately.  He basically said "we're not paying for past performance, we're paying for future growth."  Yes, maybe Fielder will be a 30-100 guy for all 9 years of his contract with the Tigers and will play 162 games each year as he has been known to.  But this is highly unlikely.  It is a pretty common line of thinking that age 30 is about a professional baseball player's peak, and any production beyond that is deflated - I won't even get into the Pujols contract with the Angels. 

Epstein's method of rebuilding through the minor leagues and signing undervalued free agents is going to greatly help the Cubs organization in the long term, but it is certainly not the only smart way to run a team.  Staying in the division, the Reds and Brewers have taken more of a middle-market approach by locking up their own existing players with extensions.  This allows these teams to slowly increase payroll in a controlled fashion by building around a core group of players over a multi-year stretch, in an effort to grow the fan base and attract lucrative free agents.  Some of these extensions may be of the Joey Votto-Ryan Braun variety, where you are in exclusive negotiating rights with a player and want him to be part of that team for life, and some extensions may be of the Jay Bruce-Yovani Gallardo variety, who signed relatively conservative deals in pre-arbitration years to control future arbitration costs and cover a few free agency seasons.

Signing contract extensions early in a player's career are to the benefit of almost everyone.  It provides the team and the player with financial stability.  It shows the fanbase that the team is committed to the future, and fans can know what to expect when they come to the ballpark instead of turning over 3 new positions every year.  The biggest hurdle to this theory are the agents.  They always will want to see a player maximize his value and sign the big guaranteed contracts in arbitration and subsequently free agency.  But if a team can sensibly scout and predict a player's ability early in his career, it's a good move to sign a player early.  Ryan Braun's initial contract of 8 years/$45 million was one of the most ludicrous things I'd ever seen at the time.  I could not believe both that a player would handicap himself for future salary and that a team would commit to a player that early.  But you know what, it's low-risk high-reward if the player turns out to be a star.  How much money have the Brewers already saved on Braun with this contract?  And from his perspective, there are no guarantees in this game.  Braun may suffer some horrific injury and never even see free agency, but now he has 8 years (and since then another 5) that he knows he will be set financially.  And as he has said, "is there anything I really want that I can't buy with this amount of money?"

Brewers 12-17, -6.0 (3 v. Reds, 3 v. Cubs)
Reds 15-13, -2.5 (3 @ Brewers, 3 v. Nationals)
Twins 7-21, -10.0 (3 v. Angels, 4 v. Blue Jays)

Erik - 2
Peter - 6

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