Taking another look at baseball’s largest contracts

I don't care if the colors are the same, that just don't look right.

About two weeks ago Albert Pujols and the Angels shocked the baseball universe with the news that the perennial MVP was changing teams, coasts and leagues for a tidy $254 million. Everyone knows that Albert has 254 million excellent reasons to make this move, but the Angels’ motivations were murkier. Pujols is still a great hitter, but any Yankee fan can tell you the dangers of committing hundreds of millions of dollars to a player who will be 42 years old when the deal is complete. Once the contract was made public, justified speculation as to whether or not this will turn out to be a terrible contract followed.

That speculation motivated me to take a closer look at the largest contracts announced in baseball history and examine how much bang teams got for their buck, in the case of contracts that are complete or nearly completed, or the level of performance teams will need to get from players over the years that are left on their deals to justify the dollars being spent. The table below contains a list of the twelve largest contracts announced in baseball history, their dollar amounts, their number of years, and the total value according to Fangraphs that a player was worth during the contract. In the case of contracts that are not yet finished I’ve also calculated the average annual value a player would have to produce over the years that remain on his deal to get the team paying him back to even on the money. For those contracts that began before 2002, the first season that Fangraphs has made value data available, I’ve done my best to estimate a player’s value to complete the analysis. (For Alex Rodriguez‘s first contract I have put the actual value he signed for, but note that he was only paid about $181 million during that deal because he nullified the contract.)

Two things from this table jump out at me immediately. First, baseball has in no way slowed the number of huge contracts it awards players. Only four of the contracts above are completed and many of them were given out in the last few seasons. Second, there is a formula to awarding these contracts that makes a team more likely to get its money’s worth than not. While a baseball team is always gambling when it bets hundreds of millions of dollars on a player, it is clear that if the player is in his mid-twenties when he signs and the average annual value is under $20 million over the life of the contract then the team is more likely get the value it needs.

The best examples of this formula succeeding are Derek Jeter‘s and Todd Helton‘s contracts. Both players were reasonably young and in their primes when they signed their deals. Both players were rewarded handsomely, but because the contracts generated their vast sums more due to the length of the deals than the amounts paid out in a single season it was possible for the players to earn their money. Jeter, for example, had his ups and downs during the life of that contract, but in the end Fangraphs estimates that he came close to being worth every penny the Yankees paid him, just in terms of his regular season performance, and if you remove his defense, which punishes him as far as Fangraphs is concerned, then the Yankees possibly won on the deal. Had they paid Jeter just $3 million more a season, however, they would have been in the hole tens of millions.

This logic extends nicely to some of the more recent contracts that have been extended. Miguel Cabrera, for example, is on pace to be the biggest $150 million steal in baseball history. At his current pace of production the last two years on his contract will practically be free for the Tigers. By the same logic, Troy Tulowitzki‘s deal looks more reasonable than it seemed at first. Sure, Tulo is owed a ton of money, but according to Fangraphs he has routinely been worth $25 million a year throughout his career while the Rockies are due to pay him just a touch under $16 million a season on average. If he continues to produce surplus value for the team during the beginning of the contract then he’ll position himself well to earn the total dollar value of the deal even as he begins to age.

Turning things around, the the three worst contracts on that table are Alex’s second deal, Mark Teixeira‘s deal and Albert Pujols’ new contract. It is always difficult for a player to be worth more than $20 million a season, and it is even more challenging for a player to do that after he has entered his mid-thirties. Yet that is precisely what these three players will have to do if they are going to be worth the money they are paid. Pujols has routinely crushed that amount with his on-field performance, until last season. He’ll have to return to his old form for the next three or four seasons for the Angels to get a decent return on their investment.