Let’s talk about Joe Mauer. In spring training 2010, the defending MVP and reliable six- or seven-win Mauer signed a contract extension with the Minnesota Twins that will run until 2018 and pay him roughly $23 million per year. It’s by far the richest contract the Twins have ever given out. I suppose that if anyone were going to get that contract from the Twins, Mauer, who hails from Minnesota and apparently believes so deeply in the cause that he is the father of actual twins, would seem to be the perfect candidate. Still, it was a big commitment from the “small-market” Twins. Such contracts are usually only legal in New York and Los Angeles.

Of course, there were gainsayers at the time, mostly because these contracts never seem to end well. Inevitably, someone brings up the words “aging curve” and says that in the last few years, there’s no possible way that Mauer (or whoever) will be able to justify his salary. It’s the sort of contract that can wreck an entire payroll. On the flip side were the optimists. Mauer’s skill set was getting on base, but there were signs that he was starting to develop a power stroke (a career-high 28 home runs in 2009), and while it was understood that he would eventually need to move from behind the plate, he might move to third base.

Fast forward to the fifth season after Mauer signed his big extension and he is a first baseman hovering around replacement level. He did have a few years where he put up good value. He still gets on base better than the league average, but he is no longer providing value by wearing shin guards. Nor did that power stick around. We’ve perhaps reached the dog days of the Joe Mauer contract.

A week or so ago, a listener on Effectively Wild asked whether small market/small budget teams actually had an advantage because when they had a player like Mauer, they could simply say “We don’t have the money to sign him.” In doing so, they could avoid the trap of the long-term contract. While it might make fans angry in the short run, it gives the team the freedom (and incentive) to look for other players who are under-valued, and maybe to spread that money around to three or four different options, all of whom might be pleasant surprises and collectively worth more than the one big signing.

Are big contracts always a waste of money? There are plenty of cautionary tales to say "yes," but is there a case to be made for signing them anyway?

Warning! Gory Mathematical Details Ahead!
The math isn't actually that gory this time. I looked at position players from 1999 to 2013, using WARP. At each position, I ranked players from highest WARP to lowest and came up with five main categories and a phantom sixth, about which more in a minute.

Category 1 – All-Stars, the top five WARP in each year at each position
Category 2 – First-division starters, players ranked sixth to 15th in each year at each position
Category 3 – Second-division starters, players ranked 16th to 30th in each year at each position
Category 4 – Backups, players ranked 31st and higher (the minimum in categories 1 through 4 is 200 PA)
Category 5 – Fringe (potentially injured) players, who had fewer than 200 PA
Category 6 – Didn’t play in MLB that year

For each player, I plotted where he was one year later (x + 1), three years later (x + 3), and five years later (x + 5).

I started by looking at All Star–caliber (Category 1) players from 1999 to 2008 and what became of them. (Someone out there is probably mumbling something about “independence of observations.” Yeah … I know.)

Category Season x + 1 Season x + 3 Season x + 5
All-Star 41.1% 30.7% 18.6%
First-Division 34.5% 28.4% 17.5%
Second-Division 16.4% 19.3% 19.8%
Backup 4.5% 10.7% 8.9%
Fringe 2.3% 3.4% 5.2%
Didn’t Play 1.1% 7.5% 30.0%

I then restricted the sample to players who were between 27 and 32 during their top-5 season because those are the players who are most likely to be signed to a long-term big-bucks contract. The results were mostly the same.

Category Season x + 1 Season x + 3 Season x + 5
All-Star 41.6% 27.3% 12.2%
First-Division 33.6% 30.7% 20.6%
Second-Division 17.2% 18.1% 19.7%
Backup 5.9% 14.3% 12.2%
Fringe 1.3% 2.5% 7.1%
Didn’t Play 0.4% 7.1% 28.2%

In general, the fantasy people play in their minds when a team signs a player like Mauer to a big contract is that he will remain young, beautiful, and an All-Star forever, but what we see is that even one season after being top-5 in the league, it’s more likely that he will be below that All-Star level than back at it. His most likely landing place outside the All-Star level is still a first-division starter, but in a quarter of cases, an All-Star year was followed by a sub–first division season.

Looking at players (no age limit) who had a three-year track record of being All Star–caliber (i.e. top-5 three years in a row, years x through x + 2), the results are more encouraging but not bulletproof.

Category Season x + 3 Season x + 5 Season x + 7
All-Star 63.3% 39.4% 18.3%
First-Division 21.1% 26.5% 22.9%
Second-Division 10.1% 21.4% 18.3%
Backup 2.8% 4.6% 0.9%
Fringe 2.8% 2.8% 1.8%
Didn’t Play 0.0% 10.1% 37.6%

In the first year after that run of three top-5 seasons, about two thirds of players posted another All Star–caliber season, but one in seven had a big slip right away. Three years out, 40 percent of this “proven track record” group were still top-5, but nearly a third had slipped down to second-division status or worse. By five years, the majority were below the first division.

Let’s flip the question around. What were the All-Stars of today doing a few years ago? If the idea of a long-term deal is to secure the services of an All-Star level player a few years down the road, then is signing today’s All-Star a good strategy for identifying tomorrow’s All-Star?

I took all top-5 players from 2004 to 2013 and then looked at what they were doing in year x – 1, x – 3, and x – 5.

Category Season x – 1 Season x – 3 Season x – 5
All-Star 35.0% 28.0% 20.5%
First-Division 30.5% 22.3% 13.0%
Second-Division 21.3% 15.8% 10.5%
Backup 5.5% 3.3% 2.3%
Fringe 6.3% 10.5% 7.5%
Didn’t Play 1.5% 20.3% 46.3%

A third of the players who finished in the top-5 at their position had not even been in the top half of starters the year before, but still, there’s quite a bit of consistency from one year to the next. Going out three years, though, we see that things are shaken up much more, and if we look at today’s All-Stars five years ago, almost half of them didn’t play in MLB. (Most of them were probably prospects in the minors who got called up and flourished.) You could make the case that signing an All-Star is a losing proposition because his All-Staritude just doesn’t last.

At least that’s how most people think about the question.

Bad Investment?
Most big-ticket free-agent contracts (or extensions) contain salaries suggesting that the team believes they have an All-Star on their hands for the next few years. And we can see that the kings of the mountain, at least among position players, change a lot more frequently than fans would like to admit. And yes, when one of these investments goes bad, it can torpedo a payroll. Despite all that, we know that a couple of these major deals are signed every year. When something exists, there is always a reason for it. It’s not always a good reason, but there is a reason.

Suppose your goal was to make sure you had an All-Star caliber player on your roster for the next five years. Let’s say that you have a guy on your roster who has lit it up over the past few years and might be willing to sign long term for a salary befitting his station. A decision to extend him, like the Twins did with Mauer, should not be based on the fear of “losing him.” Instead, it should be made because signing him had a better chance of accomplishing a goal than did the other possible alternatives.

If you start with a player who has three consecutive top-5 finishes at his position, you’ve got about a 40 percent chance he’s still at least a first-division starter in five years, and almost 20 percent that he’s still an All-Star. It’s not a great success rate, but it’s not awful. You could take all that money and try to use it to sign prospects or focus on breakout guys languishing as backups. And it’s true: All Star–level hitters are about as likely to come from those second-division/backup/fringe tiers as they are from previous All-Stars. But let’s flip that question around, what are the chances that someone starts off as a second-division starter and then turns into an All-Star.

What He Was in Year x All-Star in Year x + 1 All-Star in Year x + 3 All-Star in Year x + 5
All-Star 41.1% 30.7% 18.6%
First Division 15.2% 11.6% 5.9%
Second Division 6.1% 5.2% 3.2%
Backup 1.8% 1.6% 1.0%
Fringe 1.1% 2.0% 1.3%

If your goal is to have an All Star–level performer in three or five years, you should invest in an All-Star now. It’s not a foolproof method, but it is by far the best one. Yes, signing a good player to a long-term deal now is likely to end in disappointment, but it has a much higher success rate than some of the other options. (Which is why those players come with a higher price tag!)

Yes, there are players who struggle for a while, then bloom into beautiful flowers. It’s easy to look at the success stories and forget how many struggled for a while and then … kept struggling. Yes, 40 percent of top-5 performers at their positions were second-division players the year before (or worse), but that misses the point that there are so many of those second-division guys out there. Even citing the idea that five years ago, nearly half of the All-Stars of today weren’t playing in the big leagues (therefore, go for prospects!) only means that there were 20 or so prospects that made it. Out of how many minor leaguers? It’s one thing to say that a team should invest in a minor leaguer or a down-on-his-luck veteran, but that team needs to make sure that they pick the right one. Chances are, they will be wrong.

Trust Me, They Know
I think there’s a weird belief among fans that we’re in on some big secret that teams are not. Teams are very aware of that players probably won’t hold their present value past a few years. They certainly hope he does. There might even be a part of the general manager that is stretching the truth in his mind so he can believe that this time, this one will have the magic, this one won't lose his value. But overall, teams get it.

The reality of baseball is that player ability is fleeting and our ability to predict who will be up and who will be down is much less than we’d like to believe. As much as we’d like to believe that the same bunch of players who are on top now will be on top in five years, it’s just not the case. But as a general manager, you have to try something to capture a few of those really good guys. Sure, if you look at it in isolation, a long-term deal is probably a bad bet, but on the whole, they’re all bad bets! There’s a case to be made that the long-term deal is the least bad of the bets.

If we’re going to point out the shortcomings of the “big extension” strategy, then let’s take a look at the other strategy, which is signing a couple of cheaper players. For one, it’s usually recommended with the silly assumption that teams will not only do that, but somehow magically pick the roses without being pricked by the thorns. Of course, if a team has a magic method for figuring out who’s who, that’s great. But it’s not that simple. We can see above that an All-Star this year is roughly six to seven times more likely to still be an All-Star in a few years than even a second-division starter from this year. So, statistically, a team would need to sign a few options and a four-leaf clover to get what they might get out of an All-Star. They could get lucky and have a cheap superstar for a few years. More likely, they'll have a cheap fringy guy. Or they could pay up and at least have a little more clarity about what they’re going to get. You plays your games and you takes your chances.

The problem is that instead of clarity, the fans want certainty, and there isn’t a lot that’s certain in baseball. I’d argue that the longing for certainty leads fans astray in evaluating the big extension in a fair-minded way. If you look at the big extension as a more sure bet in terms of outcome (which admittedly costs more), it becomes a reasonable approach to team-building, one that can at least be argued for after a good cost-benefit analysis.

Thank you for reading

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This is great reading, thanks!
Couple of points largely in agreement:

(1) The strategy of choosing a Mauer, Longoria, Tulowitzki, etc., on a small to medium market team (while letting others go) is also a marketing/branding strategy, one that can work for a team in revenue - fans like to know that the team is committed to their favorites, try finding an Oakland A's fan wearing a tee shirt with the name of a current player on it - even if in the long run it doesn't work in WAR. This is something the more clever than thou really ought to spend some time studying.

(2) In looking at long-term contracts, it would now be really useful to carefully consider the ideal year for signing the extension. I assume that the trend in the last few years toward signing long-term extensions with second or third year players, paying them a little more than you have to in their "cost controlled" years, guaranteeing their years 27 to 30, but having the extension expire before 35, is a sensible market reaction built on the belief by GMs that they were right to want to build brands around specific players, but that by signing players through age 38 or 40 they were doing it badly.
Great article.

As a Seattle Mariner's fan and expert amongst my baseball friends, I had to explain Robinson Cano's contract as such:

"Look, he'll be an All-Star, probably for 2-5 more years, and maybe a borderline All-Star for a year or two after that, but at age 38, give or take, there will probably be a pretty strong drop-off, at least in power, in which he turns into a .270-300 hitter with 5-10 homers and 20 doubles and doesn't have a lick of range at 2B. Furthermore, towards the very end of his contract, age 40-42 seasons, he'll probably be a nearly unplayable DH who doesn't hit much, yet still making $24 million a year."

To which they were aghast but I had to explain that in order to have those excellent services TODAY, you are basically telling Cano, look we're OK with you being a money-sink, and a mediocre or maybe even a bad player in years 8-10, as long as we can GET YOU HERE now. There are very few players in Robinson Cano's tier of value and to acquire that rare value, sometimes, like life, you have to overpay. In length loaded contracts, you are getting kinda fair value now and brutally robbed later, but it's the only way to acquire that talent.

Of course, in Seattle's case, they also had to add an extra $40-70 million for Cano to play in a less desirable market and lower performing team, but even at the Yankees offer of 7 years, $175, they would still probably get 2-3 years at the end where Cano was earning $25 a year and 'earning' $10 million a year on the field.
The long term mega-contract has become very prevalent lately with the play (or lack thereof) of Lee, Howard, Kemp, Votto, Fielder, etc. Even Kershaw's contract will probably be an albatross in five years. Baseball is generating so much revenue that they have to spend it somewhere, so 30 year old superstar FAs is where it goes. Otherwise the union would accuse baseball of collusion. The lesson in all this is to invest in your farm system every year.
I think there might be another option than relenting to the long term contract: offer an inflated per year salary, but with fewer years. As an example, if a team offers a 10 year, $200 million contract, why not offer a 3 year, $90 million contract? It reduces total risk to the team, but still offers a player what should be a lifetime of security.
Right, but for that to work all the offers would have to be structured that way; if a team wants a player "bad enough" it will "overpay" with a bigger contract and of course the player will take that. But then if all the teams agree not to offer large contracts they might have a collusion suit on their hands...