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January 3, 2012
Behavioral Spending: Inside the Back-Loaded Pujols and Reyes Contracts
Each day, here at Baseball Prospectus and elsewhere, bright minds work diligently to quantify player value. Eyes scan stats, watch games, and spin numbers, all in that effort to find nirvana where we can quantitatively say this team is good or bad based upon its makeup.
It’s an impossible endeavor, of course. There are variables outside of control at play. Before you think I’m talking about injury, think again… I’m talking owners and the influx of revenues.
OK, it’s more than that. It’s also risk.
Risk may be the single most important part of the game today in terms of how contracts are negotiated and, ultimately, how rosters are constructed. “Risk” for the Clevelands, Pittsburghs, and Oaklands of the world are far different than the risk that the Yankees and Red Sox take on. The margin for error is much different due to the extreme differences in revenues to toy with. Make a critical error with a free agent signing with the Indians, and you potentially damage payroll flexibility for years to come. Make that mistake with the Yankees, and you can absorb it easier by either replacing that player through free agency or by not dinging the pocketbook nearly as badly.
It’s not a metric, but it is something that was a large part of my discussions with the head of analytics for a National League club at the Winter Meetings. This person’s opinion I hold in high regard not because of his brilliant ability to spin numbers but because he fully grasps the big picture.
The Winter Meetings were the best study yet in behavioral spending. Both the Marlins and Angels have two separate reasons for being able to spend grandly this year. All told, the two clubs accounted for 92 percent of the spending on free agents on deals confirmed by the league to be part of the Winter Meetings.
For the Marlins, it comes from revenues associated with their new stadium. Nearly all their premium seating and suites are sold out. Plus, ownership no longer has to share other revenue streams that were once controlled mostly by the Dolphins when they were at Sun Life Stadium.
For the Angels, it’s not money now in hand but the money about to be garnered. In signing Albert Pujols and (and to a lesser extent C.J. Wilson), there is a huge marketing element that comes into play as the club now basks in a new television rights extension with FOX Sports that owner Arte Moreno had been working on since February of 2011. The deal is reportedly between $2 and $3 billion. Moreno was quick to point out at the time the agreement was reached with Pujols and Wilson that on top of the lucrative media-rights revenue stream, “Basically, we have no debt on the team,” which is more impressive when you consider that the Halos filled Angel Stadium to 86.1 percent of seating capacity last season (ranked 9th overall in the league), compared to 89.1 (ranked 6th) in 2010 and 88.8 in 2009 (ranked 5th).
So, in both these cases, decisions come with less initial risk. It also may cause owners to make decisions they might not otherwise make. Money has a strange way of clouding your thoughts.
The Marlins deal for Jose Reyes is a great example. Logically, you can’t say whether the new stadium will garner the kind of revenues at the gate later in the contract as it will initially. It’s certainly possible, but it’s not a given. With that, many (myself included) thought the deal would be frontloaded. Instead, it’s heavily back-loaded (see details below).
The Marlins have not said this, and maybe they will deny it, but they don’t allow no-trade clauses. What could have happened with the Reyes deal is ostensibly an “artificial no-trade deal” —the dollar amounts at the end of the contract making it harder to move him in a trade.
The Pujols deal, in my mind, actually makes more sense. Before you bash me summarily about the head and shoulders, it makes sense from a long-term dollars perspective. Adding arguably the best player in the game today, Arte Moreno may be able to garner hundreds of millions more out of the television deal. Even if Pujols is a shell of his former self in say, five years, having Pujols as a chip to bargain with as part of the TV deal absorbs that loss.
As was the case with the Reyes deal, the Pujols contract is heavily back-loaded. Reportedly, Pujols allowed for the contract to be designed as such to bring in C.J. Wilson. Here’s how the Pujols deal breaks out:
Another change to consider when evaluating these deals is how the market for free agents has continued to escalate. Total years in a deal have expanded. In speaking with a former longtime GM from the ‘80s, he said his club would have never dreamed of offering more than three years to a starting pitcher. Now, that’s the jumping off point.
In other words, if you wanted Albert Pujols, you had to get in bed with the devil and talk about a 10-year deal. That was just the price of dealing with him. As they say, you can’t win the lottery if you don’t play, even if getting hit by lightening has better odds.
Ultimately, available revenues and how availability sets the free agency market plays into the physiology of a club’s dynamic. As that analytics man said to me, “A good agent can influence owners to make poor decisions. A well run organization has a solid plan and doesn’t deviate from it haphazardly.”
So if this behavioral spending—a subjective thing—holds true, we can make some predictions.
Depending on how the new ownership of the Los Angeles Dodgers plays out, it’s likely that they will be the Angels or Marlins of next year’s Winter Meetings as a new television rights deal that could hit well in excess of $3 billion is struck (depending on how FOX’s efforts in court plays out now, but that’s for another day). And it may not just be the Dodgers. As other new television deals or stadiums come online, depending upon their teams’ overall roster structure, owners are going to push to spend their money while they have it (though smart owners and GMs don’t spend for spending sake).
In terms of total dollars spent, here’s how each club spent in free agency during the Winter Meetings (see the table below), broken out by year and total contract outlay over the life of the agreements. Some nuggets: