For the first time, I’m seriously entertaining the notion that the 2020 MLB season will be wholeheartedly canceled. The agreement between MLB and MLBPA to not hold games until the CDC’s recommendations against mass gatherings have ended makes it incredibly difficult to play enough games to make both the regular season and playoffs meaningful.
This carries a lot of repercussions throughout baseball and beyond, but the one I want to examine today is Gerrit Cole’s contract. Now, is long-term value of a free agent contract the most important thing to be talking about right now? Nope! Is it the second or third most? Also no! But as long as we have to keep writing about baseball, we might as well discuss all aspects of it.
Cole, of course, signed the largest free-agent deal for a pitcher in history, a nine-year, $324 million contract with an option — should he opt out — for the Yankees to swell it to a full 10/$360 million. He’s arguably the best pitcher in baseball and best free agent pitcher ever, so the deal is commiserate with those talents. Baseball Trade Values even has him still worth positive value, making an even stronger case he’s worth the deal.
Like all long term deals, Cole’s carries risk on the back end - the Yankees will be paying a 38 year old Cole a whole lot of money whether he’s throwing 98 mph, 85, or completely out of baseball. Teams hedge that risk by building surplus value on the front end - if Cole is a seven win pitcher in 2020, he’s worth more than his contract, and that balances out any value lost toward the end of the contract.
But what happens if there is no 2020 season? How does losing Cole’s likely-best, likely-most-valuable season affect our valuation of his contract? I wrote about large deals a couple years ago, and basically the best you can hope for, as discussed above, is that a player breaks even over the full length of a contract. For every Derek Jeter or Alex Rodriguez 1.0, there’s an Albert Pujols or Troy Tulowitzki. You want to avoid the latter and spring for the former, but on the whole, the contract is likely to be a wash.
In 2020, FanGraphs Depth Charts projects Cole for 6.6 fWAR, and he was worth 7.4 last year. Let’s split the difference for the sake of this post and say Cole, in an alternate world, posted a 7.0 fWAR season. At $8.5mm per win, a fairly level estimation of market value, that’s $59.5mm in value, against $36mm in salary, for 23.5mm in surplus value in year one of the contract. That’s a really good start to the deal — builds up a lot of value early and gives Cole lots of room for decline as he ages before his deal truly goes underwater, which it will.
But the way this season is shaping up, it looks like we’re just vaporizing the first year of the contract. Gone is the $36mm due, true, but also gone is those seven wins, and Cole’s contract effectively becomes an 8/$288mm agreement running from his age 30 to age 37 seasons. The loss of any age-20 seasons, uncertainty around a year’s worth of rust, and being closer to the scary end of the aging curve changes the risk calculus for that kind of contract, despite there being less overall financial exposure.
However baseball returns from the COVID-19 pandemic, we’re going to have a whole host of questions to answer. Most of them are relatively unimportant — how high will Mike Trout end up on the alltime WAR leaderboards losing a season in his prime? One thing that we’ll for sure have a lot more to talk about is how we value players, and how massive, global strokes of “bad luck” can take a deal universally seen as a boon and turn it into something less promising.