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Baseball's New World

March 12, 2014

Over the past decade, there has been a major shift in baseball’s financial paradigm – and perhaps no team illustrates that better currently than the St. Louis Cardinals. St. Louis recently signed Matt Carpenter to a six-year contract, worth $52 million. The contract buys out Carpenter’s first two years of free agency, ensuring that the first eight years of Carpenter’s career are in St. Louis.

The Cardinals reached a similar deal with Allen Craig prior to the 2013 season. St. Louis and Craig agreed on a five-year contract that bought out all three of Craig’s arbitration years, one free agent year – and included a club option for a sixth year (Craig’s second free agent year). The five-year deal is worth $31 million, and the 2018 option worth $13 million – with a $1 million buyout.

Instead of agreeing to multi-year deals with Carpenter and Craig, the Cardinals could have gone year-to-year with each player, and let the arbitration process play out – and the cost would have almost certainly been less than the guaranteed $52 and $31 million St. Louis is now on the hook to pay. That the Cardinals were willing bet on each player – and buy out two free agent years – is telling of how baseball’s paradigm has shifted.

Looking at the Cardinals, pinpointing when the shift in thought began isn’t difficult. After having one of baseball’s dominant teams in the early 2000s, the Cardinals finally won the World Series in 2006. St. Louis general manager Walt Jocketty’s modus operandi was essentially to trade off young, cost-controlled talent for star veterans, absorbing a large contract in the process. Jocketty acquired Jim Edmonds and Scott Rolen – two of St. Louis’ cornerstone players – via trade, and traded then-up-and-comer Dan Haren, along with Daric Barton and Kiko Calero, for Mark Mulder. The trades for Edmonds and Rolen paid off, whereas the Mulder simply did not work out for St. Louis.

After the Cardinals failed to make the playoffs in 2007, Cardinals owner Bill DeWitt fired Jocketty after 13 years as St. Louis' general manager. Jocketty's Cardinals captured seven NL Central titles, two pennants and a World Series title during his tenure. DeWitt saw exactly what was about to happen – and to an extent, what was already happening: teams could no longer win just by spending money and absorbing large contracts. Instead, teams needed to draft and develop well, and supplement homegrown talent with players via trade or free agency – not the inverse, which had seemingly been true for years. Jocketty was reluctant to subscribe to Dewitt's theory, and was dismissed following the 2007 season.

John Mozeliak was named Jocketty’s successor, and he unified St. Louis’ front office. The Cardinals placed their emphasis on drafting well and developing talent. The new philosophy paid off recently, as the Cardinals won the World Series in 2011, came within one win of returning to the World Series in 2012, before returning to the World Series in 2013 – though ultimately losing to the Red Sox in six games. St. Louis’ World Series roster in 2013 contained 18 homegrown players – and with a top 10 farm system still, the Cardinals are once again poised to make World Series runs for the foreseeable future.

The most expensive contracts in baseball history have all been handed out post-Y2K. Fans may be excited to either acquire a superstar or ensure that a superstar remains on their favorite team – but have the investments paid off? Recent trends seem to suggest that teams are now more willing to gamble on a player’s 4th, 5th and 6th season to ensure that they keep him for years 7 and 8 at a reasonable cost, rather than go year-to-year in arbitration, and allowing the player to enter free agency, where a good player undoubtedly commands a long-term investment.

According to Baseball Prospectus, the following are the richest contract in baseball history:

  • 1. Alex Rodriguez, $275,000,000 (2008-17)
  • 2. Alex Rodriguez, $252,000,000 (2001-10)
  • 3. Albert Pujols, $240,000,000 (2012-21)
  • . . . Robinson Cano, $240,000,000 (2014-23)
  • 5. Joey Votto, $225,000,000 (2014-23)
  • 6. Clayton Kershaw, $215,000,000 (2014-20)
  • 7. Prince Fielder, $214,000,000 (2012-20)
  • 8. Derek Jeter, $189,000,000 (2001-10)
  • 9. Joe Mauer, $184,000,000 (2011-18)
  • 10. Mark Teixeira, $180,000,000 (2009-16)
  • . . . Justin Verlander, $180,000,000 (2013-19)

The charts below illustrate how well some of these players perform throughout their careers – from their third major league season onward. Though WAR (Wins Above Replacement) is an imperfect stat, it is the single best stat to give a snapshot of a player’s value in a given season. The following charts’ Y-axis use FanGraph’s WAR.

(For context, FanGraphs provides a chart on what type of WAR to expect from what type of player: Scrub 0-1 WAR, Role Player 1-2 WAR, Solid Starter 2-3 WAR, Good Player 3-4 WAR, All-Star 4-5 WAR, Superstar 5-6 WAR, MVP 6+ WAR)

 

This list excludes albatross contracts that were handed to Jayson Werth, Barry Zito, Carl Crawford and numerous others. As the charts illustrate, there is a clear drop in production, with the exception of a rebound season here or there, after the ninth or tenth year. The players graphed above were all signed to some of the richest contracts in baseball history – so the production certainly didn’t come cheap.

It’s no coincidence that the New York Yankees, who managed to outspend the industry for years in the 1990s and 2000s, handed out half of the contracts graphed above. It’s also no coincidence that New York has one of the oldest rosters in the league, and have struggled in recent years.

Having a player through his 9th or 10th appears to be the ideal time. The cost of going year-to-year in arbitration may provide teams with a short-term gain, but it could eventually cost a team to lose the player in free agency during prime years, or, pay the player on past and near-future projection at a long-term cost immediately before or during free agency.

The Cardinals aren’t the only team locking players up, of course. The Tampa Bay Rays signed Evan Longoria to an unprecedented nine-year contract almost immediately after purchasing his contract from AAA. The Pirates gave Andrew McCutchen a six-year deal that bought out two years of free agency, while the Rangers, Padres and Indians all agreed to similar pacts with Derek Holland, Cameron Maybin and Carlos Santana, respectively.

For the Padres, Maybin’s contract hasn’t paid off – yet. But even though it’s been a relatively poor investment, the cost has been minimal: Maybin will make $5.1 million in 2014, $7.1 million in 2015 and $8.1 million in 2006 – figures that will not handicap a team.

Teams are willing to hand out major contracts in the pre-arbitration stage a well. San Francisco gave Buster Posey a nine-year contract worth $167 million following the Giants’ 2012 World Series run – buying three seasons of arbitration and the first five seasons of free agency. The contract will keep Posey in the Bay Area through his 12th major league season –risky for a catcher, but, Giants general manager Brian Sabean deemed it worth the cost to ensure that Posey essentially remains a Giant for the vast majority of his career.

Had Posey reached the open market after the 2016 season, he likely would have commanded a contract well in excess of the $167 million San Francisco will pay him.

Fewer superstars will reach free agency during their prime as a result of this trend, making the offseason less exciting, and placing a greater emphasis on drafting and developing talent for major league teams. When the superstars have reached free agency lately, the result has been telling. St. Louis let the Angels overpay for Pujols, while the Yankees let Seattle sign Cano.

Teams who draft well and develop well, such as the Cardinals, Rays and Rangers, benefit greatly from this new paradigm, whereas teams who struggle to draft and develop talent well, such as the Yankees, White Sox and Angels, struggle.

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