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February 11, 2011

Expanded Horizons

Pujols Plays His Cards

by Tommy Bennett

With less than a week to go until pitchers and catchers report to spring training, an annual ritual nears its final stages. Players with one year remaining on their contracts and the teams that employ them have been playing out the largely predetermined roles of Blue-footed Boobies in their mating dance. Teams hope to lock up their players beyond the upcoming season at a discounted rate. Players hope to guarantee a certain minimum level of income for the future without giving away too much of the money they could stand to earn on the free-agent market.

In the context of this kabuki theater, how much can we trust what teams, players, and agents have to say publicly about the process? Consider the biggest fish in the contractual backwater this year: Albert Pujols. Set to become a free agent after the 2011 season and reportedly seeking a contract in the ballpark of $300 million, Pujols has thus far been unable to reach a mutually satisfactory deal with the Cardinals. That failure may not seem so stark—after all, the parties have almost an entire year to work out the terms of an extension. Or do they?

Pujols will arrive for spring training on February 16. According to reports, he has instructed his agent—Dan Lozano—not to discuss contract terms with the Cardinals after that date. Thus, if the Cardinals are enthusiastic about getting a deal done, their exclusive window is closing rapidly. After Pujols reports to camp, the Cardinals will have to wait until after the season—when their leverage will have almost entirely disappeared—to rekindle discussions. There is evidence that the parties remain far apart in negotiations, and that the odds of a final deal being in place by the deadline are long indeed. The specter of Pujols in—gasp!—Cubbie blue looms large.

Pujols isn’t the only player to impose this kind of deadline, thereby depriving his team of an untrammeled exclusive negotiating window. Rickie Weeks has also set such a deadline, is also in the last year of his contract, and has also been trying to work out a multi-year deal with his club. But Weeks, unlike Pujols, has at least some semblance of a commitment device to make his threat credible. He and the Brewers have a date with an arbitrator on the 17th of February; if no deal is struck by then, the parties will have their hands forced. Given that the offers exchanged by Weeks ($7.2 million) and the Brewers ($4.85 million) are quite far apart, both parties may have incentives to agree in the next week.

What about la maquina? He says he has a deadline, but is it credible? Sure, you may be thinking. Pujols is a class act, 100% ballplayer. His word is his bond. That all may be true, but what good will it do when tested against the inexorable allure of rational self-interest? In this case, an analogy to a profit-seeking monopoly firm may be instructive.

Imagine a market for widgets in which there is exactly one firm, the monopolist. Because the monopolist sells a unique product, it has market power to charge a price that is higher than that which it could charge in the presence of full competition. This is great for the firm—firms seek profits, and monopolies get profits almost by definition. But it’s bad for the consumer, who has to pay a premium to stay well-stocked with widgets.

One day, an upstart competitor threatens to enter the market for widgets. The widget competitor is jealous of the monopoly’s profits and realizes that if it can get a widget factory up and running, it can make money by charging slightly less than the monopoly—but perhaps still more than the price under conditions of full competition. The competitor likes this idea because even upstart competitors seek profits.

The monopolist, sensing the threat from the competitor, hatches a brilliant and devious plan. Why not, the board asks, carry out a preemptive strike in the price war? The monopolist decides to cut prices even below what it costs to make an individual widget, or in other words, to lose money on a per-widget basis. If it can hold out long enough to keep the competitor out of the market, it can go back to the good old days of pure monopoly profits. And because the monopolist had such a long period of unchallenged dominance, it has amassed a hefty war chest indeed. So the monopolist calls its contacts at the Wall Street Journal and gets them to run a story about how the monopolist plans to slash its price on widgets.

What will the competitor do? Here game theory becomes helpful. If we have only two firms and the payouts are such that the monopolist will be better off profit-wise in the long run by accommodating the competitor (i.e. raising its prices again) than by continuing to keep prices low, it will do so. That is true even if the best outcome for the monopolist is if the competitor never enters. The reason is that entry and accommodation is the equilibrium under these circumstances.

That means, somewhat counterintuitively, that the monopolist cannot credibly commit to keeping prices low in the long term simply by deciding to do so. Instead, the firm must lash itself to the mast somehow. Often, firms can do this by building extra factories or signing big contracts that lock it into a particular level of output (which in turn affects the price it sets).

The question remains whether Albert Pujols has any such commitment device. Without one, it is hard to believe that he will not simply act the monopolist. Imagine that the following hypothetical scenario arises on February 20th, after the supposed deadline has passed. Cardinals GM John Mozeliak calls up Lozano and offers 12 years, $330 million. You are Pujols. What do you do?

You might object that if the Cards were willing to go to 12 years or pay that much money, then why wouldn’t they do so before the deadline? That’s fair enough as far as it goes, but there might be reasons that the Cardinals weren’t prepared to make such an offer until later on. But the larger point remains—Pujols and Lozano would be out of their minds not to accept the deal. So how can they make the deadline seem credible?

One possibility is common in these sorts of statements: the player, bless his soul, doesn’t want the contract situation “to be a distraction.” Play the game and leave the rest of that junk in the clubhouse, as it were. But all that talk would be much more believable if it hadn’t been done before. Last year, Joe Mauer made similar statements before reporting for spring training. A month after showing up in Fort Myers, he was the proud owner of the biggest contract ever given to a catcher.

Another possibility is that Pujols will enforce the deadline now so that it constitutes a credible threat later. In doing so, Pujols could send a message to anyone else who might negotiate with him in the future, suggesting that he will keep his threats. Indeed, Pujols has in the past been consistent about not talking about contracts once spring training has begun. But all indications suggest that this upcoming contract is to be Pujols’ last major deal. He is already in his 30s, and any deal will almost certainly take him close to his age-40 season. So what negotiating reputation could there be left to preserve?

But let’s be charitable. Maybe Pujols takes it to be such an essential part of his integrity that he means what he says, and that to go back on his deadline would cause him tremendous mental pain and anguish. Think of it as a sort of personality-based commitment device. Pujols could have just such a personality.

But it does raise the question—exactly how much money would overcome the pain of self-contradiction? Just ask Joe Mauer.

If all of this is true, the Cardinals, news media, and fans would do well not to place too much emphasis on any artificial deadline, and instead look at what the team is willing to offer and what Pujols is willing to accept. At the very least, the passing of the “deadline” will mean something wonderful has happened—baseball has begun its slow migration northward.

Related Content:  Deadline

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

BP Comment Quick Links

chaneyhey

The Cardinals aren't losing leverage .... Pujols is. Pujols is only worth as much as another team is willing to pay him next year and the Cardinals know that they will match any reasonable offer.

Feb 11, 2011 06:32 AM
rating: -1
 
cubfan131

I disagree. I'm sure there are a number of teams willing to pay Pujols more then what the Cardinals can afford. If it is all about money I don't think Pujols resigns with STL. I personally think he would look great playing first at Wrigley for the next 10 years. I figure we can lose without Pujols so we might as well lose with him and stick it to the Cardinals at the same time.

Feb 11, 2011 07:27 AM
rating: 8
 
onegameref

I too see no reason to forego the deadline. He could simply clear it up by saying he won't negotiate in the press during the season. Then if a huge deal to his liking comes in he can accept it without losing face. I prefer him as a Cub for 9 or 10 year deal too. Even his decline phase would work out to the best Cubs 1B other than D Lee at his highest peak. I think AP is a man of his word but $ speaks pretty loudly.

Feb 11, 2011 08:27 AM
rating: 1
 
John Douglass

If Pujols produces the WARP that this week's PECOTA spreadsheet projects--7.7--that would mean that in the first two years of his 30s he decreased by 28.8% from 2009 to 2010 and by 13.5% from 2010 to 2011, going from a 29 year old 12-WARP player to a 31 year-old 7.7-WARP man. I'd think that might give the Cardinals a pretty significant increase in leverage come Thanksgiving, provided his counting stats and MVP popularity decline as well, since the negotiations won't hinge on his wRC.

Of course, if Pujols puts up 7.7 WARP and wins the MVP even in Year 2 of an obvious and steepish decline, that decline is probably moot and Lozano will make the pitch that he's 'still Albert Pujols', and the Cardinals, or someone, will have a pretty toxic contract on their hands in seven years.

Feb 11, 2011 09:18 AM
rating: 1
 
John Douglass

erm, 25.8% rather than 28.8.

Feb 11, 2011 09:19 AM
rating: 0
 
SC

And the "decline" is true in absolute terms, but only because of the peak he reached. You are right, if his output declines by 25%+ each year going forward, whomever signs him will have an albatross of a contract.

But more likely is that the slope of his decline will soften dramatically. His 2010 PECOTA forcasts this kind of decline, a drop from his 10+ WARP years losing about .5 WARP per season for the next five.

Clubs may still be overpaying, giving him 10 WARP money for an 8 WARP player, but as has been demonstrated at BP, players at the top of the value spectrum are worth more than the standard $/WARP calculation you can make for more "average" players. Some of the money you pay Pujols is for being the best 1B in the game, essentially maximizing value in one lineup spot is worth a few more bucks.

Feb 11, 2011 10:51 AM
rating: 4
 
ddufourlogger

I thought for awhile that he really DIDN'T have the suitors to compete for him at a $25m+/year level, since the Yankees and BoSox aren't going to look at him. But the Cubs, Angels, Dodgers, and heaven forbid, maybe the Orioles? could/would all be players for him. And probably unlikely as well, but maybe the Nats too? They hired Werth, and none of us thought they'd do THAT.

Feb 11, 2011 10:47 AM
rating: 1
 
JasonC23
(97)

No matter who is on their team right now, I refuse to believe that either the Yankees or the Red Sox wouldn't bid on Pujols if he were a free agent. They definitely will.

Feb 11, 2011 11:27 AM
rating: 2
 
Luke in MN

"But it does raise the question—exactly how much money would overcome the pain of self-contradiction? Just ask Joe Mauer."

How exactly does Mauer not contradicting himself about a deadline suggest that Pujols will contradict himself about a deadline?

"Mauer plans on ending contract negotiations if a deal isn’t struck by the end of spring training"

http://sports.yahoo.com/mlb/news?slug=jp-mauer113009

Feb 11, 2011 12:53 PM
rating: 0
 
misterjohnny
(925)

The "deadline" has the effect of telling the Cards to put their best offer on the table before Spring Training, and not drag this thing out. Sure he will accept a great deal after the deadline, but the Cards won't offer him one because they will have already offered as much as they are willing to spend.

Feb 11, 2011 13:00 PM
rating: 0
 
MWSchneider

It seems to me the deadline is simply an arbitrary device to try to force the Cardinals to negotiate seriously. Whether or not he actually sticks to the deadline, ie, has a "commitment device" is irrelevant.First, he may well prefer not to deal with distractions during the season that might affect his performance--and thereby lower his value. Second, it puts the Cards on notice. It sends a message to the Cardinals that he isn't going to roll over for whatever they offer (although considering the amounts being discussed, it's hard to take that phrase seriously).

I'm sure if the Cardinals came to him with an offer he liked after the deadline he would take it--unless he is dead set on testing the market, in which case, the deadline doesn't really matter. My guess is that Pujols knows the Cardinals aren't going to pony up this kind of money and he is preparing the way to leave after the season. The deadline allows him to somewhat manage his image by saying he tried to reach a deal but the Cardinals weren't serious.

Feb 11, 2011 13:25 PM
rating: 0
 
apbadogs

If the Cardinals cave and give him 10 years/$30M a year, they are destined to be a 2nd division team for at least the last 6-7 years of the deal. Pujols is amazing, no doubt, but to invest this much in a player already over 30 years old (do we REALLY know how old he is?) is a franchise killing move.

Feb 13, 2011 04:37 AM
rating: 0
 
Robotey

It's a great gambit by Pujols because he is forcing the hand, establishing the 10-year - $300 million benchmark. If the Cards step up , fine. If not, all suitors can spend the season trying to clear payroll to prepare for the winter 2011 Pujols sweepstakes--a la the NBA where teams prepare for potential free agents many seasons ahead.

While many --including the Cards--may be bearish on Albert's odds of getting an A-Rod size deal--did anyone expect the inflation we saw with Werth and Crawford this past off season? In crunch time a few teams dig deep in their pockets and spend on what they perceive to be guaranteed value--and nothing appears more guaranteed than Albert's production.

Will he decline? Sure. Will he be worth $300 million for the next decade? Unlikely. Just as Werth and Crawford and probably Cliff Lee won't approach two thirds of their value either.

But just as every fantasy owner who's been in an auction league knows, when Albert comes up for bid, it's tough not to go a few extra dollars to land him.

Feb 13, 2011 08:34 AM
rating: 2
 
Tommy Bennett

In my 14 team mixed auction keeper league, he has gone for $70, $73, and $68 in the last three years. So I'm inclined to agree with you.

Feb 13, 2011 09:13 AM
rating: 0
 
Robotey

In my 11 team NL only once he crosses the $45 threshold starts one of the signature do-not-miss-this-moment in the draft. Funny thing is, teams that spend 20% of payroll on Pujols don't always do so well.

Feb 13, 2011 10:29 AM
rating: 0
 
Matt Kory

I don't know about the others, but Crawford should be worth more than 2/3rds of his contract. Looking at last year's 10 year projection from BP which in light of his better than PECOTA expected last season, Crawford projects to be worth around 28 WARP going forward. If I'm correct in valuing 1 WARP as worth $5 million on the free agent market, that makes the next seven seasons of Carl Crawford worth $140 million or $2 million less than the total value of his contract.

Feb 13, 2011 14:01 PM
rating: 0
 
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