Valuing 2016 Opt-Out Clauses
Back in January, I wrote an article in which I approximated the dollar value of the opt-out clauses in the contracts for David Price, Johnny Cueto, and Jason Heyward. Since then, five more contracts with opt-outs have been signed, so I have extended this analysis to put values on these opt-outs as well. These include contracts for Yoenis Cespedes, Justin Upton, Scott Kazmir, Ian Kennedy, and Wei-Yin Chen. Remember, these values are approximations of what these contracts would have cost without opt-outs. (Please reference the above-linked post for further explanation of the methodology.)
Too many people talk as though opt-outs are just bad decisions on the part of teams, without considering how much more expensive contracts would be without them. This logic would imply that no financial firm should ever sell a put—of course they should, but only at the right price.
The earlier three contracts were larger than almost all of the five more recent contracts. Other than Justin Upton, the other recent contracts were under $100 million, so the opt-out values are generally lower than the $17-22 million that I found for Price, Cueto, and Heyward. However, all five opt-out values all range between 10 and 15 percent of the full contract value, similar to the prior three deals.
The following table shows the assumptions surrounding the opt-outs, like the one in January’s article. (Mobile app users can click here to see it.)
Yoenis Cespedes received a three-year contract for $75 million, but it is really a $27.5 million one-year contract with a player option of a two-year, $47.5 million deal. Few players actually sign one-year deals for that much money, but as we saw a decade ago with Roger Clemens, one-year deals for superstars have an AAV much higher than the AAV superstars receive on longer deals. In this case, Cespedes would probably have been worth about $31.7 million on a one-year deal. At this stage, a reasonable estimate of Cespedes’ value for 2017-18 would be around $55.1 million. However, like with all of these deals, we know that it is very likely that Cespedes’ market value will change significantly by next year. Chances are that if he is good enough to opt-out, then he will have had a strong 2016 campaign, and his market value will be higher. I estimate this would be around $68.2 million for 2017-18 in that case. If he does not opt-out, then he probably has disappointed in 2016 and probably has lowered his two-year value for 2017-18 down to $36.9 million. With an estimated 60% chance of opting out, that puts Cespedes’ opt-out at about $11.8 million. In other words, a regular three-year deal for Cespedes would be for $86.8 million instead of $75 million.
Justin Upton’s contract six-year, $132.5 million contract with the Tigers amounts to a two-year, $44.25 million deal with a four-year, $85 million player option. As a relatively young free agent, Upton has the potential to remain very valuable by the time he reaches his opt-out, but as a unique talent he is a risk to regress to the mean significantly—there is more room for him to fall than mediocre players. I estimate that if he has opted out after 2017, he has played well enough over 2016-17 that his market value will be about $119.1 million over 2018-21, and if he has not opted out then it stands to reason he has played poorly enough that his market value for 2018-21 would be about $52.2 million. Further, I estimate that he has a 58 percent chance to opt out. As a result, Upton’s opt-out is worth about $19.7 million, meaning that his value in a six-year deal without an opt-out would be $152.2 million.
Scott Kazmir had a relatively small deal for one that included an opt-out. His deal amounts to a $16 million one-year deal with $32 million two-year player option. I estimate that if he has opted out after this year, then he must have played well enough in 2016 that his market value for 2017-18 probably reached around $44.1 million. On the other hand, if he has played poorly enough that he does not opt out, then I estimate his market value for 2017-18 must have fallen to around $21.7 million. I think there is a 46 percent chance he opts out. As a result, his opt-out value is only worth $5 million—so a regular three-year deal without an opt-out would probably have been for about $53 million.
Ian Kennedy’s $70 million five-year contract is actually a $27 million two-year deal with a three-year, $43 million player option. His contract values him significantly higher than his Steamer or especially his ZiPS projection on FanGraphs would suggest, making it challenging to estimate his value. However, it is safe to assume that the Royals are placing more value on him than the projection systems and that they probably expect that his 2016 value is higher. Furthermore, there must have been at least some pressure for another team (real or imagined) that caused the Royals to believe they had to offer as much as they did. So we need to estimate the equivalent value of a contract based on the what the Royals paid, rather than what ZiPS or Steamer (and up to 28 other teams potentially) seem to think. Based on this, if he has opted out after 2017, then there is a good chance that the Royals (and potentially the other team they imagined themselves outbidding) were right about him, but if he does not then there is a good chance the projection systems were right. I estimate that his value over 2018-20 would only be $15 million conditional on not opting out, while it would be about $57.7 million if he played well enough to justify opting out. I think the Royals estimate a 44 percent chance that he will opt out (again, another team bidding presumably thought something similar), making his opt-out value about $7.1 million. A five-year deal without an opt-out would probably be worth about $77.1 million.
Wei-Yin Chen has a tricky deal. Nominally he has a 5 year deal worth $80 million, but it is really a $28 million deal over two years, with a player option for $52 million over the following three years. However, if he does not opt out, then the team has an option for 2021 that will actually vest if he pitches a sufficient number of innings and is healthy. Putting a value on a vesting option that is conditional on having a low value after 2017 is tricky, but I believe I have come up with a reasonable estimate. I think that if he does opt out, his value for 2018-20 is probably about $60.4 million, while his conditional value if he plays poorly enough to not opt out would be $21.3 million over 2018-20. His vesting option at the end is essentially worth under $2 million to the team. I think that on a normal five-year contract for 2016-20, Chen would have gotten about $82 million, which means his opt-out value was about $12 million.
As these deals become more common, it becomes more important to properly value these put options. I estimate that these five deals would each have cost about 10 to 15 percent more for teams if they did not provide the players with opt-out clauses. Players with more years post opt-out and higher talent levels will generally have a larger value to opting out, while the inverse is true for players with fewer years post opt-out who are less talented. While these opt-outs are risky, they definitely provide an opportunity for teams to save money relative to mutually guaranteed longer contracts.
Padres Acquire Dan Straily From Astros For Erik Kratz
The Padres have acquired righty Dan Straily from the Astros in exchange for veteran catcher Erik Kratz, the clubs have announced. Houston had been searching for another backstop after losing presumed reserve Max Stassi to injury.
Straily, 27, is out of options and did not appear in line for a rotation job with the Astros. He was, however, competing for a spot in the Houston pen. It’s certainly possible he could function in either capacity with the Padres.
It’s been something of an uphill battle for Straily since a promising 2013 season with the Athletics, in which he threw 152 1/3 innings and compiled a 3.96 ERA with 7.3 K/9 against 3.4 BB/9. He’s only made 18 appearances (seven from the pen) since that time, with his earned run average ballooning to 6.42. He’s still young and controllable, but he’s also bounced from the A’s to the Cubs to the ‘Stros as a small part of more significant trades.
Meanwhile, San Diego has been rumored to be shopping its catching depth for longer than Houston has even had a need. Derek Norris, Christian Bethancourt, and Austin Hedges look like the top three options for the Padres. Rocky Gale remains in camp, too. More than likely, Kratz — who had a minor league deal with San Diego — wasn’t cracking the MLB roster anytime soon.
The veteran Kratz looks like a true stop-gap for Houston, while the club awaits the return of Stassi. The 35-year-old has spent time in the majors in parts of the last six seasons. He was most active over 2012-13 with the Phillies, and also topped 100 plate appearances in total in 2014, but last year he played in only 16 major league games.
All told, Kratz owns a .218/.270/.397 slash with 23 home runs in 560 MLB plate appearances. That’s quite an impressive power outlay, and Kratz owns an excellent .266/.343/.473 line in his Triple-A career. (That’s not a short sample, either: he’s seen action in ten seasons, and has 1,820 plate appearances on his ledger.)
Of course, striking this deal doesn’t necessarily preclude the Astros from searching for a more significant catching addition, though that seems increasingly unlikely — particularly since the club announced that it has added Kratz to its 40-man roster. Likewise, the Pads could still conceivably deal one of their other backstops. It’s worth noting, too, that adding Straily would help ease the burden if San Diego were to find a trade partner for James Shields, though his presence hardly changes the calculus of such a significant move.
Evan Drellich of the Houston Chronicle first reported the swap on Twitter, noting that Straily was going and a catcher was involved. Dennis Lin of the San Diego Union-Tribune reported that Kratz was involved, on Twitter.
Royals Release Brian Duensing, Peter Moylan, Clint Barmes
The Royals have released a trio of veterans who were in camp on minor league deals, per a club announcement. Pitchers Brian Duensing and Peter Moylan were let go along with infielder Clint Barmes.
All three players were Article XX(B) free agents, meaning that Kansas City would have had to offer them an active roster spot or pay a $100K retention bonus tomorrow. Instead, the organization obviously elected to cut ties — though it’s worth noting that some such players end up reaching alternative deals to re-join the same organizations they spent camp with.
Duensing had actually exercised an opt-out clause in his deal earlier today as well. The Royals would have owed the southpaw $2MM on the major league roster. The 33-year-old had established himself as a capable LOOGY after failing to stick in the rotation, but had a rough 2015 (4.25 ERA, 4.4 K/9 vs. 3.9 BB/9).
The 37-year-old Moylan, a side-arming righty from Australia, had a surprising 2015 with the Braves last year. He had joined the organization as a minor league player-coach, but ended up reaching the MLB pen. Moylan is far removed from his excellent run with Atlanta earlier in his career, but still managed to allow only four earned runs in his 10 1/3 innings last year, while striking out eight and avoiding any walks. (Of course, those frames also came in 22 appearances, as Moylan was almost exclusively allowed to face right-handed batters.)
Barmes, meanwhile, has never shown much with the bat in his thirteen MLB seasons, but still holds some appeal as a utility piece due to his highly-regarded glove — though metrics have soured on his defense of late. It always seemed he’d face long odds in Kansas City, and a healthy spring from the club’s other middle infield options left him without a chair.
AL Notes: Panda, Rangers, Sanchez, White, Angels
The Padres have sent a scout to watch Red Sox third baseman Pablo Sandoval, Nick Cafardo of the Boston Globe reports. It’s far from clear whether that is an indication of serious interest, of course, let alone whether the scout is watching more than just Sandoval. Regardless, it’s the latest hint that there could be some remaining trade chatter to be held between these organizations, who already struck a significant swap early in the offseason.
Here’s more from the eastern divisions:
- The Rangers are not only continuing their search for another catcher, but could look outside the organization for rotation help, according to Evan Grant of the Dallas Morning News. A.J. Griffin may have the inside track to take the fifth starter’s job at present, says Grant, but there’s some concern about the overall starting pitching depth as camp comes to a close. As for the backstop situation, it doesn’t appear that much has changed, but Texas is still looking to improve upon its reserve options — if not to strike a more significant upgrade. (Grant notes that the club has inquired on Derek Norris of the Padres and Bryan Holaday of the Tigers.)
- Of course, interest doesn’t always mean that a deal gets done, and significant spring trades are rare. Ken Rosenthal of FOX Sports also reports that the Rangers have real interest in both areas (Twitter links), but he says the club thinks it has only an “outside chance” at adding a catcher and is “doubtful” to find a new pitcher. All in all, both reports suggest that Texas is looking at its options but is hardly certain to add outside pieces. And still others suggest there’s not much reason to expect movement. Jeff Wilson of the Forth Worth Star-Telegram tweets that outside inquiries have mostly been tire-kicking exercises, while MLB.com’s T.R. Sullivan adds on Twitter that club officials have suggested to him that the final rotation piece will come from inside the organization.
- Reclamation righty Matt Bush isn’t in the mix for an Opening Day pen spot with the Rangers, Grant also writes, but he has been enormously impressive this spring and could be an option later in the season. Bush’s story is well-known, of course — the former first overall draft pick recently finished a prison term for severely injuring a man in a DUI.
- Aaron Sanchez has been named as the Blue Jays‘ fifth starter, manager John Gibbons told reporters (including John Lott of Blue Jays Nation) this morning. It won’t be a season-long assignment for Sanchez, however, as the righty seems to be under an innings cap and will eventually be transitioned into the bullpen as he approaches his limit. The 23-year-old has never thrown more than 133 1/3 innings in a season. Sanchez and Gavin Floyd emerged as the top two contenders for the fifth starter’s job during camp, and Floyd will join Jesse Chavez in the bullpen while Drew Hutchison has been optioned to Triple-A. It stands to reason that Floyd, Chavez or Hutchison will all be rotation candidates when Sanchez is moved back to relief pitching.
- The Astros have decided to give an Opening Day roster spot to young first baseman Tyler White, as Evan Drellich of the Houston Chronicle reports. Houston’s first-base situation has been in flux all spring, but it appears that the 33rd-round draftee is in line for a significant opportunity to take the position and run with it. He is one of several players in the organization who have impressed this spring; third base prospect Colin Moran has also compiled a 1.000+ OPS in more than thirty plate appearances, though Drellich notes on Twitter that he’s not considered a roster option at this point. The same holds true of A.J. Reed, of course, who could also have a chance to make an impact later in the season.
- Angels GM Billy Eppler says that he is “not optimistic” of adding to his roster before the season starts, MLB.com’s Alden Gonzalez reports. Gonzalez provides a deep rundown of the club’s remaining roster considerations.
Jamey Wright To Retire
Veteran righty Jamey Wright, who was in camp with the Dodgers on a minor league deal, is set to retire, MLB.com’s Ken Gurnick was among those to tweet. The 41-year-old didn’t appear professionally last season after he was released late in camp by the Rangers.
Wright has pitched in 19 big league seasons over his lengthy career, which was divided roughly into two portions. He entered the league in the rotation and ultimately made just under 250 starts, the vast majority of them coming between 1996 and 2006.
The results weren’t always there, as he ran up a 5.13 ERA and 1.06 K:BB ratio in that role, but it’s fair to note that he spent a good portion of that period working in an inflated run-scoring environment. And, of course, Wright spent six seasons with the Rockies — the team with which he entered the league.
Wright ultimately shifted to a relief role after joining the Rangers in 2007. After that transition year, he went on a seven-year run in which he compiled a 4.03 ERA over 498 frames, with 6.7 K/9 against 3.9 BB/9.
The timeless right-hander turned in a productive campaign as recently as 2013, when he tossed 70 innings for the Rays and carried a 3.09 ERA with 8.4 K/9 against 3.0 BB/9 — all career-best single-season tallies (except, of course, the innings). In his final season, with the Dodgers in 2014, Wright again topped 70 frames but fell back to a 4.35 earned run mark.
All told, Wright suited up for ten MLB teams. His longest run was with Colorado, but Wright also spent three years with the Brewers. He appeared in two seasons in Los Angeles and also had repeat appearances for the Royals, Rangers, and Mariners. As if that weren’t enough, Wright enjoyed single-season stints with Tampa Bay as well as the Giants, Indians, and (only briefly) the Cardinals.
MLBTR wishes the respected veteran the best of luck in his future pursuits
Diamondbacks Release Sam LeCure, Wesley Wright
The Diamondbacks have released relievers Sam LeCure and Wesley Wright after the decision was made that neither would make the active roster to open the year, the club announced.
LeCure, 31, was hoping to get back to his days of being a sturdy pen presence. The righty topped 300 innings between 2010-14 with the Reds, compiling a 3.53 ERA. While he had good results in the majors last season after spending most of the year at Triple-A, he’s continued to see a drop in his velocity and strikeouts per nine.
The left-handed Wright, who’s also 31, was in much the same situation, having thrown less innings but compiled comparable results to LeCure over the four seasons leading up to 2015. But he dealt with shoulder issues last year, limiting his availability significantly.
The veteran southpaw did have a solid spring, at least, allowing only two earned runs and posting eight strikeouts against three walks in 8 1/3 innings. That wasn’t the case for LeCure, who surrendered seven earned and managed only five K’s in his eight frames.
Brewers Release Franklin Morales, Will Add Chris Capuano To Roster
The Brewers have released lefty Franklin Morales, per a club announcement. Tom Haudricourt of the Milwaukee Journal-Sentinel reported on Twitter that Morales had been informed that he would not make the club. As an Article XX(B) free agent, he would be due a retention bonus if not placed on the active roster.
Milwaukee stood to promise Morales $2.3MM if he made the club under the minor league deal he signed over the winter. That contract also included $1.5MM in available incentives.
Morales was coming off of a nice bounceback season last year with the Royals, in which he threw 62 1/3 innings of 3.18 ERA ball with 5.9 K/9 and 2.0 BB/9 with a 49.5% groundball rate. While the peripherals suggested that he benefited from some luck (as well as the Royals’ defense behind him), Morales was undeniable excellent against left-handed hitters — who slashed just .194/.250/.320 against him.
The move appears to open the door for fellow southpaw Chris Capuano to make the club, as Haudrcourt notes on Twitter. Indeed, he’s been informed that will be the case, per colleague Todd Rosiak (also via Twitter).
Matt Harvey Questionable For Opening Day With Undisclosed Medical Issue
Matt Harvey will miss the rest of Spring Training and his status for his Opening Day start is up in the air due to what Mets GM Sandy Alderson described as “a non-baseball medical issue that we have to address.” Alderson and manager Terry Collins told reporters that (including ESPN New York’s Adam Rubin) Harvey informed the Mets about the problem after some type of symptom developed this morning, and the right-hander will undergo further tests.
A source familiar with Harvey’s condition tells Mike Puma of the New York Post (Twitter links) that the problem “isn’t major” in the sense that it would cause Harvey to miss a lot of time, which is obviously good news on both a personal and professional level for the ace righty.
The Mets were naturally guarded with details out of respect for Harvey’s privacy and possibly due to the fact that his ailment isn’t quite confirmed. “I think it’s a little early to attach any level of concern. We need to wait for more medical information before we decide if it’s of concern or grave concern or no concern,” Alderson said.
Collins and Alderson both stressed that the ailment was non-orthopedic in nature, so not related to Harvey’s shoulder or elbow. Obviously, this was the first thought of many in regards to a Harvey-related injury given how he already missed all of 2014 recovering from Tommy John surgery. Harvey returned from that procedure in fine form, posting a 2.71 ERA, 8.9 K/9 and 5.08 K/BB rate over 189 1/3 innings in the regular season and then a 3.04 ERA over 26 2/3 innings in the postseason as the Mets advanced to the World Series.
Rangers Release Jeremy Guthrie
The Rangers have released veteran starter Jeremy Guthrie, as per Rangers executive VP of communications John Blake (on Twitter). Guthrie was let go by the club after he exercised the opt-out clause in his minor league contract, Evan Grant of the Dallas Morning News reports.
Guthrie, who turns 37 in April, earned a World Series ring with the Royals last season though he didn’t make the club’s postseason roster. The right-hander suffered through the worst season of his 12-year career, posting a 5.95 ERA, 5.1 K/9, a career-worst 14.1% home run rate and a league-leading 29 homers allowed over 148 1/3 innings. Kansas City declined its end of Guthrie’s $10MM mutual option for 2016, giving him a $3.2MM buyout instead.
Guthrie has been a reliable innings-eater over the years, and despite his struggles, he could get another look from teams. The righty told reporters (including Jeff Wilson of the Fort Worth Star-Telegram) that he is receiving consideration from two clubs about a new contract.
With Guthrie out of the mix, A.J. Griffin and Nick Martinez are the remaining contenders for the fifth spot in the Texas rotation. One of those two will hold down the fort until Yu Darvish makes his expected return from Tommy John rehab in late May or early June.
Red Sox Release David Murphy
The Red Sox have released outfielder David Murphy, the club announced. Murphy opted out of his minor league deal with the team yesterday, and the Sox had 48 hours to either release him or add him to the 25-man roster.
Murphy, 34, was signed last month to add some left-handed hitting depth to Boston’s outfield. Murphy’s chance at a roster spot, however, seemed to diminish as the Red Sox seemed to prefer two internal lefty-swingers (Brock Holt and Travis Shaw), and Murphy has no interest in a Triple-A assignment, hinting that he’d consider retiring before going back to the minors.
As Murphy’s release wasn’t unexpected, the Orioles and other teams have already been rumored to be interested in the veteran. Baltimore has been linked to such left-handed hitting outfield options as Murphy and the Pirates’ Matt Joyce since the O’s already seem disenchanted with Hyun Soo Kim. Murphy hit .283/.318/.421 with 10 homers over 391 plate appearances with the Angels and Indians last season. This is just my opinion, but a reunion with either of those teams wouldn’t be out of the question since both L.A. and Cleveland have unsettled outfields.