Archives for January 2014

An impressive flurry of activity before the Winter Meetings left some feeling that there would be little left to tackle before the 2014 season kicks off. And yet, while just seven of MLBTR's top fifty free agents were still available last time this year, fully twice that number remains this time around. Meanwhile, by this point in the 2013 offseason, David Wright and Evan Longoria had already entered huge new extensions. So far this year, however, only Hunter Pence's deal has approached those in magnitude, and he was set to hit the free agent market anyway.

All of which is to say that there is plenty of time left for major decisions before the start of the 2014 season. Here are a few of the most impactful situations to watch as we enter the new year:

Free Agency

Perhaps the biggest reason for the hold up in the current free agent market, of course, is the Masahiro Tanaka posting. With only a $20MM surcharge required for whatever team wins the bidding war, Tanaka is a virtual free agent. Given his open market status, young age, high-end billing, and complete lack of a MLB track record, his courtship will be fascinating and impactful. 

Tanaka's situation is not just interesting in its own right, however. Most of the top free agent starters remain available: chief among them, Matt Garza, Ubaldo Jimenez, and Ervin Santana. If they continue to wait and see where Tanaka lands, there could be an unprecedented rush for arms right on the precipice of Spring Training. Or, perhaps, one or more will break ranks earlier as the Tanaka market begins to clarify.

There are, of course, multiple other important players still available to the highest bidder. The markets for Stephen Drew, Nelson Cruz, and Kendrys Morales — constrained by the draft pick compensation they are tied to — will be interesting to track and could have a big impact on future qualifying offer situations. And A.J. Burnett could still bring big impact on a short-term commitment to the Pirates or, potentially, another destination. Finally, some club could well be in line to add a big arm to the back of its pen at a reasonable rate, with both Grant Balfour and Fernando Rodney still available.

Extensions

Between January 1 and Opening Day of last year, long-term extensions were signed by Elvis Andrus, Justin Verlander, Buster Posey, Paul Goldschmidt, and Adam Wainwright. Right now, there are several major potential extension targets whose situations seem ripe for resolution. 

To begin, baseball has several high-end arms entering their final year of team control. First amongst them, of course, is Clayton Kershaw of the Dodgers, who could ultimately land one of (if not the) biggest contracts in MLB history. But he is not alone: Max Scherzer, Jon Lester, and Homer Bailey were all amongst the game's most valuable starters last year.

One team, in particular, faces an intricate set of decisions on its many viable externsion candidates: the Braves. First baseman Freddie Freeman; shortstop Andrelton Simmons; outfielders Jason Heyward and Justin Upton; closer Craig Kimbrel; and starters like Kris Medlen, Mike Minor, and Julio Teheran. While each player comes with different service time and other considerations, there are arguments to be made for them all. Whether, when, and how Atlanta GM Frank Wren pursues extensions promises to have major long-term implications for the organization, especially given its budget constraints.

More pressing, perhaps, is the situation in Baltimore. The Orioles have two key younger players — Chris Davis and Matt Wieters — entering their second-to-last year of team control. As MLBTR's Mark Polishuk explains, the O's will face a challenging test in determining whether to make a serious run at either or both of the two Boras clients. If an extension is not in the cards, and Baltimore cannot stay in the thick of things in 2014, there is certainly a possibility that a trade could instead be in the works.

And then there is the most fascinating extension case of all: unprecedented superstar Mike Trout of the Angels. $400MM has been floated as a starting point for valuing a huge new deal for baseball's best player, who is still just 22 years of age. If Los Angeles wants to get any kind of break on the price, it may need to set negotiations in serious motion before Trout hits a big arbitration payday (and secures his financial future) after this season. Since the club can delay the luxury tax implications of an extension by waiting to put pen to paper until after Opening Day, look for things to heat up as the season draws nearer.

Trades

Some obvious trade candidates — like Ike Davis of the Mets — have been actively involved in trade talks of late. But after a series of big swaps in advance of and during the Winter Meetings, things have been much more quiet since with respect to some of baseball's biggest targets.

The most likely star to be traded, it would seem, is Rays ace David Price. While his market has been slow to develop, one must wonder whether some team will eventually decide to make a significant offer to bring him on board. With the aforementioned Scherzer, Lester, and Bailey all seemingly unlikely to be dealt at this point, and a free agent market filled with less appealing arms, Tampa still has plenty of leverage — particularly since the club could always hold onto Price if its demands aren't met.

Otherwise, it is not clear that any top-end talent is truly available by trade. Though plenty of speculation has visited Giancarlo Stanton, the Marlins appear prepared to keep him in right field for at least one more year. In fact, as time goes on, it could well be that the chatter will begin to shift back towards whether the Fish can and will try to ink Stanton to an extension.

Other

The resolution of Alex Rodriguez's grievance hearing is still an important element of the overall market, given its impact on the Yankees' luxury cap and overall payroll situation. Even if keeping under the cap will now be a significant challenge, particularly if the Yanks sign Tanaka, New York can still save big dollars if the suspension is upheld.

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The stage is set for a new year, with plenty of room to impact the outcome of the 2014 campaign. As always, MLBTR will be there every step of the way.

We often speak of contracts in terms of years and total guaranteed money. And, of course, that shorthand tells us most of what we need to know about a given deal. But every deal is individually negotiated, and most contain additional terms that can have a substantial impact on the risks and rewards applicable to both parties.

In particular, option years -– of varying type, duration, and value -– are a critical component of many contracts. While the function of options is fairly well understood, it seems worth taking a broad view of their employment across the league. To that end, I have compiled* and categorized (as best I can) every single contract containing an option that was entered into between the 2007-08 and 2012-13 “signing seasons.”

It was relatively easy to determine a signing season for free agency, which begins at the point at which exclusive negotiating rights end for a player's former team. For extensions, which are defined as new contracts entered with players that are not free to negotiate with other teams, I determined that a signing season would begin at Opening Day for a given season. While this is a somewhat arbitrary demarcation, it seemed unwise to attempt the subjective task of determining when a player had accrued enough innings or at-bats in a new season for a team to reassess that player. And this approach allows ready comparison to the free agent figures. While the resulting lines that I drew can skew the results somewhat, I hope that this breakdown will be sufficient for a preliminary analysis.

Overview

For starters, we’ll consider the overall use of options of all kinds. Between the 2007-08 and 2012-13 signing seasons, 726 guaranteed MLB free agent contracts were agreed upon, 196 (27.00%) of which came with options. Only two of those, so far as my research could identify, contained more than one option year: the deals signed by Kevin Gregg and Scott Atchison in the 2009-10 season. This table shows the figures by season for free agent contracts:

Of the 301 extensions that were reached in that same time frame, 160 (53.16%) included options. Those 160 deals included a total of 202 option years, meaning that there were 1.26 option years for every deal that included some kind of option. This table shows the figures by season for extensions:

Clearly, and unsurprisingly, extensions are much more likely to come with options attached. Twice as likely, as it turns out. (And, as we'll see in a later installment, options in extensions are almost always straight club options.) Primarily, no doubt, that is a reflection of the fact that teams have much stronger bargaining positions with respect to players who have yet to qualify for free agency. The strongest motivations for teams guaranteeing future money for players who have yet to reach the open market are extending control, achieving cost savings, and obtaining cost certainty. In exchange for achieving such goals, teams often demand the right to achieve upside and retain flexibility in the event of injury or performance decline.

The 2009-10 Confluence

Of course, as the astute observer will note, there is one very interesting exception to the overall distribution: the 2009-10 season. As this chart shows, the sudden equalization of the use of options between free agent and extension contracts is quite out of line with the surrounding seasons:

So, what is the explanation for that shift? The most obvious explanation would seem to be the broad international economic downturn, which added an element of uncertainty to all of baseball’s dealings. Prying an option year from a free agent can be expensive, and teams may have been less willing to commit cash to get the upside of an option. On the other hand, the risk and uncertainty hit players as well, which may have increased club leverage to demand options in the extension context.

Alternatively, or additionally, it could just be that early, market-setting deals paved the way for an odd year. Utilizing comparable contracts to set parameters for other deals can lower the transaction costs and even the perceived risks for parties. If the most relevant models for contract structures tended not to include options, there may have been a copycat effect.

The 2011-12 Multi-Option Boom

One other figure that stands out from the above tables is a seemingly aberrational year in terms of the number of option years per option contract in the extension bucket. Take a look:

For the 2011-12 signing season, the average option deal suddenly included over 1.5 option years. Three option years were agreed to with Salvador Perez, Sergio Santos, Jose Tabata, and Wade Davis. And a host of players, including Gio Gonzalez and Clay Buchholz, gave up two option years.

Once again, I am far from certain of the proper explanation for the shift. It could be (as noted above) that a few teams and agents simply followed early trend-setting deals. Once the extension market was established, players with around one service year tended to give up three option years while those with around two service years generally signed deals with two options.

Alternatively, industry financial trends may be the cause. Teams may have aggressively worked to extend control before anticipated TV revenue inflows changed market perceptions, choosing to make substantial guarantees in exchange for option years that cover free agent-eligible seasons. Or, somewhat alternatively, teams may have decided to commit portions of their expected new cash before it started to flow, utilizing it to lock up option years.

Whatever the reasons for it, the 2011-12 boom in lengthy option terms may have lent to the general industry perception that teams are increasingly locking up younger players to longer-term deals that enhance team control. But, as the graph shows, the numbers returned to approximately historical levels in the 2012-13 signing season. It will be interesting to see where things head moving forward.

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Of course, it could be that options are such a negotiation-specific element that seeming patterns really tell us relatively little about how the market is moving. Either way, I hope that this broad look at recent option usage provides a reasonably useful descriptive account.

In the next installment on options, we will break things down by option type to look at how varying forms of options are utilized in the market.

*Starting from the MLBTR transaction and extension trackers, I built out the dataset by mining Cot's on Contracts, Cot's data on non-active players from Baseball Prospectus player cards, and ESPN.com's free agency tracker. I then supplemented those results with internet searches to resolve any conflicts among the various sources and to identify, to the extent possible, any missing information that may have fallen through the cracks. The MLBTR trackers will be updated to reflect the complete information utilized in this and future posts.