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January 31, 2014

Pebble Hunting

The Opt-Out Hater's Case for Opt-Outs

by Sam Miller


There are certain things that seem so obvious that I can’t even conceive of a counterargument. Then somebody presents a counterargument! This is why places like BP exist, to provide the counterargument to the obvious, and expose the nuance, and remind us of how often we only see one part of something. Nothing is ever so obvious as you think.

I’ve been horrified by player opt-out clauses for five years. They have always seemed to be terrible for the club, unless they come with some significant discount that the player takes to have that clause in his contract. (We’ll never know whether this discount is there, because each player’s maximum price is difference; eyeballing such deals—like Masahiro Tanaka’s, for instance—I’d argue that there’s no clear evidence of such a discount.)

But there’s a counterargument out there, thank goodness. It posits that player opt-outs aren’t so bad for the club as they seem; that when a player exercises his opt out, the club gets to bank all the value the player provided and let him walk away just when his decline phase begins. If a team signs a player to a seven-year deal, it knows with confidence that the best years are going to come in the first half. A player opt-out, when exercised, is essentially a way of paying for those best years without paying for the less productive back half.

I’ve long thought of this as the Joe Sheehan Theory, because I first read it here:

Mike (SoSH): Thoughts on the Sabathia contract? I know you want to...

Joe Sheehan: ...I hated the opt-out at first glance, but thinking about it more, maybe it's inspired. Even if Sabathia has three good years and the last four contract years look good at that point, maybe you would want out anyway, since that's when the risk increases. If this ends up a 3/96 deal...I actually like that a lot.

That was in 2008*—Jay Jaffe made a similar point at the time, similarly specific to the Sabathia move—and the idea that a player option can be an inspired move by the club seems to be picking up momentum. Cee Angi argues for it, regarding Tanaka. Mike Petriello, regarding Kershaw. And here’s Keith Law:

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Related Content:  Free Agents,  Contracts,  Opt-out Clause

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<< Previous Article
Premium Article Transaction Analysis: ... (01/31)
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Pebble Hunting: Watchi... (02/04)
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