Baseball is unique among the big four North American sports in the structuring of its contracts. As the only one of the four without a “hard” salary cap, teams and agents have much more flexibility in negotiating deals. This is especially valuable for the top-end stars, as they don’t need to sacrifice earning potential to help a team stay under the cap.
As such, baseball is the sport most likely to hand out mega-deals, in particular the sometimes dreaded ten-year contract. Still, 2019 is a unique free agent class even in baseball, as we might see two ten-year contracts given out at the same time. Both Manny Machado and Bryce Harper are free agents, both are MVP-level talents at their best, and both are just 26 years old. It’s incredibly rare for one such superstar to reach free agency, and we get two in one winter.
MLB Trade Rumors is predicting 14 years for Harper and 13 for Machado, while FanGraphs is more conservative with ten and nine years respectively. Personally I think MLBTR is being a little unrealistic, but a decade for each player seems more than reasonable barring a 2018-esque free agency collapse. As such, it’s appropriate to revisit the ten-year contract in baseball so we can see if such a deal is worthwhile for either of the two top free agents this offseason.
There have been eight contracts signed with terms 10 years or more. Three were extensions and the rest free agent deals. The rough timeline looks like this:
2001: Derek Jeter signs a 10-year, $189 million contract extension with the New York Yankees, one year before free agency. Alex Rodriguez signs a 10-year, $252 million free agent contract with the Texas Rangers.
2007: Rodriguez opts out of the above deal, agrees to a new 10-year, $275 million contract with the Yankees ahead of the 2008 season.
2010: Troy Tulowitzki restructures contract with the Rockies, agreeing to a total of 10-years and $157,750,000.
2011: Albert Pujols signs 10-year, $240 million free agent contract with the Los Angeles Angels.
2012: Joey Votto agrees to a 10-year, $225 million extension with the Cincinnati Reds.
2013: Robinson Cano signs with the Seattle Mariners for the same years and value as Pujols.
2014: Giancarlo Stanton agrees to a 13-year, $325 million extension with the Miami Marlins.
The list is populated, unsurprisingly, by the cream of the MLB crop since the turn of the century. Jeter and Pujols are locks for the Hall of Fame. Cano and Rodriguez would be if their PED past wasn’t a factor in voting. Votto will come close, while Tulo’s HoF-level talent has been stolen by injury. Stanton is too young to have a case, but if he continues his career the way it’s begun, he’ll end up there. It’s hard to argue just on name recognition that these players aren’t worth the contracts they were given.
So instead, we’ll argue a different case than name recognition. Is it actually worthwhile to sign players to deals this size?
To start, it’s important to distinguish between the types of contracts above. Since these contracts are handed out so rarely, we can really dissect each one as a more-or-less individual event. A-Rod’s two deals came as he was unquestionably the best player in baseball, the first as a free agent after his age-26 season, and the second after his ludicrous, AL MVP 2007 season. Nobody enjoyed more leverage than Rodriguez in seeking these kinds of contracts.
Jeter and Tulowitzki were franchise icons, both extended to avoid losing them to free agency and locked up at the age of 26 as well. Stanton wasn’t just the best player in the history of his franchise, but his extension was both an ownership statement and exit strategy.
Votto was a late bloomer, extended at 31 to hedge any of his own risk of age-related decline before reaching a big free agent payday. Cano and Pujols were trying for that big payday, and both signed because their teams’ owners wanted to make a big splash. All three signed on the bad side of 30.
Since they signed, or in the time that elapsed under these ten-year contracts, the actual performance varies considerably. What you’ll see below is a graph plotting the money committed on these contracts, along with the fWAR accrued by a player over the life of that deal. Note that Stanton, Pujols, Cano, Votto and Tulowitzki are still active, so the fWAR total is from signing through to the end of 2018:
All of these guys are good players, save for old age Pujols. The actual production while under these kind of contracts, however, is pretty volatile. It’s a little easier to look at it in terms of surplus value, that is, what was the market value of the wins produced by these players under contract? For players still under contract, I’ve used the standard $8.5 million value of a win in the below graph. For Jeter and A-Rod, I took a million off to reflect old dollars. Therefore, we get this:
So far, only Jeter, A-Rod’s first deal, and Tulo have been worth the money or better. We’ll come back to this in a second.
The total fWAR produced under ten-year contracts is 219.8, or one and a quarter Babe Ruths. It’s important to note that that total isn’t propped up by just one player, either:
Rodriguez’s hilariously valuable first contract and Pujols’ terrible deal more or less cancel each other out, and otherwise pretty much all other contracts have been as valuable as the next. This is important since it establishes a floor of reliability for signing such talented players.
Now, back to surplus value. Given that five of the eight contracts are still active, it’s hard to say which deal has been worth it and which hasn’t. We know that Jeter and Rodriguez One were, and we know Rodriguez Two wasn’t. Barring sub-replacement level seasons, Tulowitzki has been worth his deal, even if he never plays another game.
For the other four, though, we need to look at what it will take in terms of wins for the outstanding contract to break even. To do this, I took the breakeven point in wins above replacement, the number at which a player is worth exactly the contract he signed:
Pujols is the only guy that I’m almost certain will never be worth his deal. Votto needs just three net wins in his five remaining years to be worth it, which should be doable. Cano needs to net just over seven wins, which will be tough, especially since this year’s suspension robbed him of a possible two wins or so. Stanton needs 14, but he’s just 29, and has put up 11.5 fWAR in just the last two seasons. He should clear his breakeven point with ease.
So we have five deals that have or will almost certainly prove worthwhile, one that’s a maybe, and two that certainly won’t. The last sticking point here is what those last two contracts have in common: the age of the player signed.
Let’s go back to that surplus value chart, only this time, add in the age the player signed the deal:
Overwhelmingly, ten-year contracts are worth it when the player is still in his 20s. The four deals signed before the signor turned 30 have combined for $223,450,000 in surplus value. Not market value of wins, market value less salary. That includes Stanton’s deal, which for now is a net negative but won’t be for long.
Teams run into trouble when giving long contracts to older players. Everyone in baseball knew that the Albert Pujols contract would be bad before he signed it. Robinson Cano is teetering on the edge of being a net negative. When you lock up a young player in their prime, though, you’re going to see a pretty good return on your investment.
No contract comes without risk. Harper or Machado could crater in year one. There’s always what I call the Risk of Road Pizza, the risk that a player will be hit by a bus or some other random calamity that leaves a team holding a fat contract with no baseball benefit. From a baseball ops standpoint itself, though, ten-year contracts make an awful lot of sense when it comes to players who are talented, experienced and 25 or 26. Know anyone on the market who fits that description?