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June 5, 2014

Skewed Left

The Economics of the Singleton Extension

by Zachary Levine


Leave it to the Astros, a team that's spent the last few years sending fans running to the record books, to the legal dictionary, and occasionally to the therapist, to be the team that in 2014 is sending us back to economics class.

Their general manager, Jeff Luhnow, has both an undergraduate business degree and a Kellogg MBA. Their assistant GM, David Stearns, came from the salary arbitration and collective bargaining team at MLB headquarters. Down the depth chart, their baseball operations analyst, Brandon Taubman, came from the derivatives trading world. Hell, their analogue of a traveling secretary (on this team a more comprehensive “manager of team operations”), Dan O’Neill, per his bio:

…spent seven years in the hedge fund industry with Mesirow Advanced Strategies, Inc. and as partner and chief operating officer of Oak Street Capital Management, LLC in Chicago, IL. Dan holds a B.A. from the University of Illinois and an MBA from the University of Chicago Graduate School of Business.

So it’s not at all a surprise that with the Jon Singleton contract this week, they were the team that was issuing the flashbacks to sitting in the back row of economics class.

And if I remember correctly, I was at the time the one playing the role of former Astro Bud Norris, who was critical of the deal that guaranteed Singleton $10 million but potentially did so at the expense of his upside.

17 comments have been left for this article. (Click to hide comments)

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bowdrie42

The union needs to think less in terms of overall dollars and more in terms of security for those they represent. In this industry, the bottom right quadrant means set-for-life money. More important, that money comes sooner and reaches more players. Injuries and/or failing to perform at the highest level are all too common to turn down set-for-life money. It's important to remember that the union has repeatedly shown it is willing to short change amateurs and MiLB players to make established players richer.

Jun 05, 2014 06:52 AM
rating: 7
 
danrnelson

Excellent point, I could not agree more.

Jun 05, 2014 09:17 AM
rating: 1
 
Aceathon

Killed it. One of the best articles I've read on this website ever.

Jun 05, 2014 08:01 AM
rating: 3
 
Scot

What would Singleton have expected to make going year-by-year?

the next 3 years, he'd be basically at the minimum, $0.5M. And if he hadn't signed the deal and gotten promoted immediately, he wouldn't have been eligible for arbitration after 2016 (assuming the Astros would have kept him in the minors until they were sure he wouldn't be super-2 eligible, he would have gotten pretty close to the minimum on 2017. If we assume that Singleton is very good but not great, assume he gets something like $4M-$8m-$10M in arbitration (Paul Goldschmidt is getting $3.1/$5.875/$8.875M for those years in his deal; Freddie Freeman is getting $5.125M/$8.5M/$12.0M). With those numbers, Singleton's salaries look something like:

2014: $0.5M
2015: $0.5M
2016: $0.5M
2017: $0.5M
2018: $4.0M
2019: $8.5M
2020: $12.0M
2021: ? (FA eligible)

So he'd get $6M through 2018, compared to the $10M he's getting with the contract. The Astros only end up saving money in 2020 - Singleton would probably have made ~$27M going year-by-year, which isn't that far above what the contract pays him. Though 2021 ends up being a major bargain for the Astros.

BUT... the above assumes that Singleton pretty much immediately steps up, and remains healthy and productive for the next 6 years. If he struggles, or doesn't live up to expectations, or gets hurt, his expected salaries going year-by-year drop.

the deal is basically neutral through the years that would have been team-controlled anyway. If Singleton is a superstar, the 2021 option could end up costing him $20M compared to what he would have got going year-by-year - but he's FA eligible after that year and will get a mega contract anyway. If Singleton is good but not great for the next 6 years, the 2021 option might cost him $5M. If Singleton sucks and/or gets hurt, the contract makes him $5-6M more than he would have gotten going year-by-year.

I think this was a good deal for both sides. Sure, you can construct a scenario where it costs Singleton a lot of money. but that's not the most likely scenario, IMHO.

Jun 05, 2014 08:10 AM
rating: 5
 
BP staff member Jason Wojciechowski
BP staff

It's neutral given that the team would have still avoided Super Two if he hadn't signed the contract, and I think it's that monkeying with the clock / leverage that I think people are reacting to. If they'd called him up when he was ready, and you exchange an arb year for a minimum salary year, the picture changes a bit.

This doesn't go to whether Singleton should or should not have signed the deal, and it's also just one step further from the normal, non-extension-related, service time shenanigans, I.e. I don't know if the Astros are actually acting any worse than any team, and in any event I don't have a good solution to the Super Two problem any more than anyone else does, but it seems worth noting anyway.

Jun 05, 2014 09:50 AM
 
CRP13

"If they'd called him up when he was ready".

This is the implication I keep seeing that I disagree with. A player coming out of rehab and suspension, who was a disaster on the field last year? He wasn't ready earlier in the year, and there's a good argument to be made that he could still be in the minors now, with very little rationalization.

So the monkeying with the clock/leverage argument is based on shaky ground in the first place, in my opinion.

Jun 05, 2014 12:33 PM
rating: 0
 
Dodger300

Obviously, the Astros beg to differ with you regarding how ready he was, since they did in fact call him up.

The EXACT minute that they got cost certainty, no less.

They didn't even try to fake anyone out by making him wait even a day.

Jun 06, 2014 01:54 AM
rating: 0
 
mrenick

Norris clearly has an Astros sized axe to grind. He's been nothing but critical and disparaging since he was traded. What I'm not sure about is why anybody cares what Bud Norris has to say. What are his qualifications for judging singleton's contract? Being a current MLB player hardly qualifies one as being the arbiter for another player's financial decisions; especially when given the context of current lifetime earnings.

If singleton excels at the MLB level, he will have cost himself some money. But now he's set regardless of anything else that happens. Very few people have that kind of security. However, excelling at the MLB level is a fairly difficult task. Or so I'm told.

Anyway, fascinating article. Skewed left is my favorite series on the site.

Jun 05, 2014 08:22 AM
rating: 4
 
BP staff member Zachary Levine
BP staff

Thanks, and that's definitely fair. Using the Norris quote was more as a setup to talk about the issues because it's something we've heard lots of times before. What he individually thinks about this specific deal, you're right, isn't of that much consequence especially since he does have his own Astros ties that tend to come up.

Jun 05, 2014 09:30 AM
 
mrenick

I didn't mean that as a slam on the introduction. I'm just confused by how much traction that tweet has received. It's nuts that such a ridiculous tweet/opinion has been referred to as having some sort of legitimacy when discussing the merits (or lack thereof) of Singletons contract.

Jun 05, 2014 10:03 AM
rating: 0
 
CRP13

Zachary, there have been other reports of Norris being difficult when he was in Houston, and recently the Chronicle quoted him being a sourpuss towards the Astros again (pretty well-covered story nationally, actually).

Can you shed some light on if Norris was particularly cantankerous when you covered the Astros?

Jun 05, 2014 12:35 PM
rating: 0
 
Grasul

Great article.

Jun 05, 2014 09:31 AM
rating: 0
 
wlwright0413

Bud Norris is a West Coast guy bitter over being traded to the East Coast and angry over his own financial situation ... in his five years of major league work he has earned $9,650,000 and won't be free until 2016. Union, union, union ....

Jun 05, 2014 09:42 AM
rating: 1
 
BP staff member Maury Brown
BP staff

Zach, just wanted to say this is a great article

Jun 05, 2014 10:59 AM
 
penski
(286)

To me, this article (and organized sports in general, really) underscores the important interplay between cooperation and competition. If an organized group of individuals goes too far in one direction or the other (too competitive or too cooperative), then change is inevitable (i.e., not sustainable).
Sports are only fun to play and follow if the playing field is relatively flat. In other words, the participants must agree to certain rules that apply to everyone (cooperation) in order for the resulting competition to be interesting.
It's the same deal with more important things like species survival. To take just one example - the one used in this article - the overfishing problem that has resulted from too many people acting in their self-interest will inevitably lead to significant change in humanity's ability to acquire food from the oceans. Humanity, at the very least, must first agree to limit how much can be harvested from the ocean as a whole (cooperation) before letting the competition of best fishing practices play out. Otherwise, the game changes and must be played differently.

Jun 05, 2014 15:44 PM
rating: 1
 
fgreenagel2

Nice job Zach. I really appreciate the economics class essays.

Jun 05, 2014 21:19 PM
rating: 0
 
Plucky

I have a totally unverifiable theory about these extensions, which can accomodate Norris's comments without assuming they are just about sour grapes- That the owners and union are already pretty far along on the next CBA, that it will include some substantial (upward) changes to the current compensation system for players still under team control, and the outline of these changes are already more or less agreed to (but are highly secret and NDA'd as is de rigeur), and they intend on finalizing them before next offseason. Everyone wants peace to continue, the game is swimming in $, and Selig probably wants one last CBA inked or semi-inked before he retires.

If this is the case, then a good chunk of the higher pay teams are 'risking' is money they will probably have to shell out to players under control anyways under the next CBA. As team-friendly as a lot of these deals look, I bet they look a lot better under the next CBA. Regardless of what Norris thinks personally, he is implying that the union is actively advising players generally not to sign these extensions. The union really only needs one star to grind through arbitration to reset the scale upward (like Cabrera did), so my suspicion is that they are telling players "trust us, just wait until the All-Star break before you sign anything" rather than "don't sign the early extension"

Jun 06, 2014 13:09 PM
rating: 1
 
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