The recently announced mega-extensions of Matt Cain and Joey Votto sent a bit of a shockwave through the conventional wisdom surrounding how often star players end up hitting the free agent market. William’s great post from yesterday got me thinking about the subject. I wanted to spend some time thinking about the implications of a new trend of teams resigning their young stars before they hit the market. There may not be enough data points to definitively prove that we have a trend here, but the recent pattern of signings is noteworthy.
The lucrative signings, wherein Cain became the highest-paid right-handed pitcher in baseball (though probably not for long) and Votto was locked up until age 30, were not handed out by historically high-spending organizations. While the Giants and the Reds are not exactly small-market clubs that have to pinch pennies at every turn, it is unusual to see teams other than the Yankees and a few select others hand out contracts with that kind of length and value to players still under contract.
The reason for doing so makes sense: teams get to negotiate a contract without the leverage of competing offers during free agency, allowing them to potentially save a little money or at very least ensure that they can keep their star under contract for the foreseeable future. With the Yankees continuing to spend big and other teams beginning to open their wallets, no player’s return is guaranteed once he hits the open market. The player benefits too in this situation, as they get a lucrative payday and plenty of security without having to wait until free agency.
The previously-mentioned factors are still relevant, but don’t really explain why we seem to be seeing more teams attempt to lock up their young stars prior to free agency. Another possible cause is the great influx of revenues that teams are beginning to see (or will in the future) from lucrative TV deals. This was made very evident when a debt-ridden LA Dodgers team that has been mediocre in recent years sold for more than $2 billion, significantly exceeding the amount paid for any other MLB franchise. Tom Van Riper of Forbes and other financial evaluators point to the Dodgers’ new TV deal as a significant source of their value.
Van Riper’s article points out that TV revenues are on the rise, and will likely continue to do so for the foreseeable future. Forbes projects that TV revenues will increase by around 50 percent from 2011 to 2015, creating a potentially huge influx of cash for many owners. This may allow them to spend the necessary amount to lock up their young stud players, so it is likely that this trend will persist, at least until salary inflation occurs to account for the increased revenues.
The article actually highlights Cincinnati as a smaller market where the TV contract is less lucrative (they’re only making $10 million/year through 2016), but because of revenue sharing, big TV deals around the league could still wind up helping teams like the Reds keep their young players. For the Reds, resigning Votto for the rest of his career will give the a marketable star to help bring in further revenues, and enhance the value of their next TV deal, especially if they can be a consistent contender in the NL Central (and they should).
All this likely means that fewer star players will be hitting free agency until substantial salary inflation occurs (the growth in TV revenues decreases drastically, perhaps due to competition from Internet media). This doesn’t mean that star players won’t hit the market at all, because some players (especially from small markets) will still have the desire to maximize their chances of winning a ring along with their earnings. However, these players may be less frequent, and likely more expensive (Robinson Cano, cha-ching).
This trend further highlights the importance of player development as a source of cheap young players, not only potential stars, but also complementary pieces. In the last few years, conventional wisdom seemed to prize hitting over pitching because top hitters were more likely to hit the market, whereas ace pitchers were more likely to be extended. Given the recent evidence (Matt Kemp, Votto), I’m not sure we can make that distinction anymore.
The Yankees have more upper-level pitching than hitting talent presently in the minor league system, and most of their aging players are hitters. As a result, the Yankees’ young hitting prospects (Mason Williams, Gary Sanchez, Dante Bichette, etc.) will play an exceedingly important role in the not-too-distant future. Of course, it would be premature to have expectations of players who haven’t made it past A-ball yet, but the Yankees may not be able to throw money at every lineup hole in the future (especially if they are aiming for the austerity budget) to remain a perennial contender. They may also have to make some tough choices, possibly taking a risk on extending players under contract or letting productive players leave in free agency. Despite these concerns, the Yankees are still well-positioned to maintain continued success amid the changing financial climate.
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One Response to Rising revenues and colossal contracts: How will they impact the Yankees?
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TIQ IQ
Do you think that we’ll see a lot of situations where these young players are given heavy contracts now, then get bought up by teams like the Yankees when they don’t show their worth. Teams with pockets more shallow than the Yanks, Red Sox, etc. still can’t afford to pay a $5 million dollar player $15 million.