Long Term Contracts
One of the popular themes in every offseason discussion is the inherent risk of multi-year contracts. MLB has gone through a market correction the past two years with contracts coming down in both annual average value and length. Every year, we see teams trying to dump albatross contracts from players who were supposed to be the keys to their franchise. On the other end of the spectrum, we also have seen the Mariners take the risk-averse nature to the extreme, losing out on opportunities to acquire impact players due to their fear of the bad contract.
Unfortunately, there hasn’t been a ton of research published on the topic. For all the time spent writing about baseball, I find it rather amazing that no one has spent the time breaking down the success rates of long term contracts. I don’t have the time to delve into this topic too deeply, so anybody looking for inspiration on a topic, take this as a suggestion; it’s work I’d love to read.
I was interested enough, however, to do a bit of cursory work. This is by no means thorough and isn’t nearly scientific enough to draw any firm conclusions from. It is relatively interesting, however, so I’m posting it here. I compiled a list of 106 players who, going into the 2005 season, are still signed under a contract that guaranteed them at least three years and bought out some portion of their free agency. Rather than just evaluating players signed as free agents, I also think it’s important to include players who re-sign with their clubs for large amounts of money in exchange for giving up the right to hit the market. I’m sure I missed a few players, but overall, I doubt there are enough errors to change the results much. I divided the 106 contracts into four very ambigous, subjective groups:
Mulligan – the signing club would undo the entire signing, giving up all previous and future performances, if given a chance.
Void Now – the signing club reaped enough rewards early on to still sign the contract, but would opt out of the remaining years if they could.
Good Deal – the player produced enough to justify the contract, and the team is happy with the deal.
Tough Call – Players on the fringes of each category. They don’t fit solidly into any of the categories, and the contract was probably fair, though not a boon to either side.
The breakdown by group is as follows:
Mulligan: 51 total contracts, 48 % of total signed
Void Now: 10 total contracts, 10 % of total signed
Good Deal: 31 total contracts, 29 % of total signed
Tough Call: 14 total contracts, 13 % of total signed
Not a very pretty picture. Half of all the long term contracts currently in effect have led to buyer’s remorse. Less than one-third of them have turned out completely in favor of the signing club. In addition, a decent number of the contracts that currently fit into the “Good Deal” category are recent contracts where the player has lived up to the billing but the contract still has the potential to become an albatross.
It is clear that, over the past five years, owners have been paying far too much for far too many years. Long term, big money contracts are, in general, a bad idea. There are instances when the risks are justified, but it is clear that to build a continuously successful franchise, you must get a large bulk of your contributions from players producing in the first six years of their career.
For those interested, here are the breakdowns by group:
Chan Ho Park
Ken Griffey Jr