Lengthy Debate: Evaluating Baseball's Longest and Most Lucrative Contracts

(The following is being syndicated from The Captain’s Blog).

Before the ink had tried on Troy Tulowitzki’s 10-year, $157.8 million contract extension, several pundits questioned the wisdom of the Rockies’ decision to enter into such a long-term pact, especially after the team’s experience with Mike Hampton and Todd Helton (the fallacy of the later suggestion is displayed below). For some reason, it seems as if a conventional wisdom has developed that suggests these mega-deals are inherently bad. However, although all long-term deals are not without risk, especially a 10-year pact, there must be circumstances under which they are appropriate? To test that hypothesis, the 20 largest contracts (defined as at least seven years in length and $90 million in value) are considered below. 

Expired Long-Term, High-Value Deals ($ millions)

^{^}Based on Fangraphs’ calculations of player value.
*Years included in comparison may be less than contract term because data was only available since 2002.
^#Arod opted out of this contract after the 2007 season, but his subsequent performance is still considered.
⁺Approximately 57% of Griffey’s contract was deferred.
Note: Option years are not considered, nor is deferred money factored into the calculations.
Source: Cots Contracts and fangraphs.com

Based on the chart above, Albert Pujols’ contract stands out as the undisputed champion of long-term bargains. In fact, the $18 million per year premium enjoyed by the Cardinals suggests that the organization would have been wise to offer an even longer deal to their immortal first baseman. The other clear cut bargain in the group was Scott Rolen, which comes as a bit of surprise, especially considering four of his seasons were truncated because of injuries.

The next two contracts that appear to be laggers, but probably should be shifted comfortably to the outperformers belong to Alex Rodriguez and Derek Jeter. Arod’s case is an easy one because his annual deficit is already below $1 million. So, when you factor in his strong 2001 (which isn’t included in the analysis), the level of deferred money, marquee value as well as post season contribution, it should be easy to see why Arod’s original contract would have ended up a bargain if served to completion. In the case of Jeter, his $2 million annual deficit also not only ignores post season performance and brand-related value, but also exists largely because fangraph’s calculations incorporate UZR, which tends to treat Jeter rather severely. Considering the unreliability of this metric, there is a lot of wiggle room to give Jeter a bump in terms of value. So, with all caveats considered, Jeter also appears to have been a relative bargain over the past 10 years.

One nebulous case, rather appropriately, belongs to Manny Ramirez. If defense wasn’t factored into the equation, Ramirez’ value would likely exceed his salary. However, as with Jeter, UZR cripples his value. Considering the tendency to underrate left fielders who play most of their games at Fenway Park, it’s probably safe to assume that Manny being Manny was closer to break even than indicated above. However, the $5 million deficit is large enough to prevent Ramirez’ contract from being considered a bargain.

Mike Hampton’s mega-deal stands alone as the all-time worst, thanks to a near $100,000,000 million underperformance (and that’s before factoring in the value of the Denver school system). Although Ken Griffey Jr.’s contract seems to approach Hampton’s in terms of its annual deficit, it should be noted that nearly 60% of the former was deferred (thus significantly lessening its “real” value). Also, two of Griffey’s best seasons under the deal were not included in the analysis. The same is also true of Kevin Brown, whose strong 1999 and 2000 campaigns were omitted. Finally, like Ramirez, Jason Giambi’s value was severely taxed by his weakness on defense. However, that impact is mitigated by his position, making his $6 million annual deficit seem more accurate.

Ongoing Long-Term, High-Value Deals

^{^}Based on Fangraphs’ calculations of player value.
*Years included are to-date 2010.
^#The terms of Helton’s deal were originally 9-years, $141.5 million, but a two-year extension was added along with a deferral of 13.1 million.
Note: Option years are not considered, nor is deferred money factored into the calculations.
Source: Cots Contracts and fangraphs.com

So far, it looks as if Matt Holliday, Miguel Cabrera and CC Sabathia have gotten off to a good start in providing above-contract value. However, those players are still in the infancy of their deals, and value contributed tends to decline, not increase, over the length of long-term contracts. Because Cabrera is already three years into his deal, and still only 27, he seems like the best bet of the three to live up to his monetary expectations.

Two contracts that have almost run their course belong to Carlos Beltran and Todd Helton, both of whom have pretty much provided equal value. In Beltran’s case, he has one more year to tilt the balance in either direction, while Helton’s deal still has three years thanks to an extension that was added in March 2010. Both players are likely to underperform their average annual salary over the final year years of their current deals, but each should end up close to an acceptable threshold.

The contracts of Alfonso Soriano and Mark Teixeira are in red flag territory as each has already dipped several million dollars below par. In Soriano’s case, the concern is likely merited, but Teixeira’s underperformance is easier to dismiss. Again, the culprit seems to be UZR, which doesn’t think as highly of Teixeira’s defense as other metrics and evaluators. Also, Teixeira is four years younger than Soriano, and thus more likely to maintain a prime-level of performance.

Alex Rodriquez’ second contract has not fared as well as his first. Despite delivering an impressive annual value, Arod’s inflated salary makes the contract look destined to be a bust. Of course, that’s really a relative concern. Although some of his off field value was likely lessened by steroid revelations, brand equity is an important consideration in Arod’s deal. It remains to be seen how fervently the baseball world will be follow Rodriguez’ pursuit of homerun milestones, but even a small ratings bump on YES could mitigate some of the perceived overpayment in salary.   Vernon Wells’ contract, however, appears to be a lost cause. Although he did have a bounce back year in 2010, the Blue Jays centerfielder is already 31, making him a good bet to challenge Hampton for the worst long-term deal of all time.

In 2011, at least two more long-term mega-deals will commence: an eight year deal for Joe Mauer and the aforementioned 10-year extension for Tulowitzki. Because the latter contract was signed four years prior to free agency, and Tulowitzki is still only 25, the smart money says it will end up in the bargain column. In fact, it seems to be in the mold of Arod’s and Jeter’s long-term deals referenced above (an athletic, mid-20s shortstop with a plus bat). Mauer also has age on his side (he is only 28), but his salary, which was negotiated only one year away from free agency, is a much higher $23 million. Also, as a catcher, Mauer is more prone to injury and more likely to experience a sharper, more rapid decline. Nonetheless, the early years of Mauer’s contract could provide enough of a buffer to net out above par by the time 2018 rolls around.

Although there have definitely been some colossal-sized busts, there have also been a few bargains from among baseball’s longest and most lucrative contracts. One rule of thumb seems to be that if a team signs a young player at a skilled position to a long-term deal, it should come out ahead. However, the closer the players gets to (and then from) 30, as well as the farther he gets from the middle of the diamond, the less likely it becomes that the contract will earn equal or greater value. Keep that in mind this offseason when players like Carl Crawford and Jayson Werth sign their inevitable big money deals

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