Maybe Player Opt-Out Clauses Aren’t Such a Bad Idea
In recent years I have routinely railed against the rise of player opt-out clauses in long-term contracts, at least as far as the sense it makes for teams to agree to them. My main complaint has been that an opt-out clause gives all of the upside to the player regardless of how he performs in the future: if he under-performs, he still gets the big up-front multi-year guarantee; if he performs as the team hopes he will, he can (and always) does opt of out of the deal after a few years and sets himself up for another bite at the huge free agent contract apple.
Needless to say, these deals almost always mean that the teams giving the opt-out clause (usually the Yankees and the Dodgers) have to eat several years at the end of the last contract where they are paying out $20 million plus per season for very little performance. The opt-out clauses haven’t made a lot of sense to me, because the teams with the resources to make these kinds of deals usually end up making the biggest initial guarantee in the first contract and don’t, at least on the surface, need to provide the opt-out.
However, something that I was looking at today has made me re-think my position somewhat. Fangraphs has been providing player “values” going back to 2002, and what I noticed to today is that the “values” of the very best players has escalated sharply during that time.
From 2002 through 2006, five players had assigned values of $40 million plus, or exactly one per season. None of those five player seasons had a value as high as $50 million, although Barry Bonds came close a couple of times. Since 2007, the number of $40 million plus season values has exploded, with the following number of players valued at more than $40 million each season between 2007 and 2014: 6, 13, 15, 6, 30, 12, 25 and 26. The most valuable player seasons now top out with assigned values of more than $70 million.
On the other hand, player contracts, while steadily growing, don’t seem to have kept up with the values assigned by fangraphs, at least for the very best players. Yes, Giancarlo Stanton became the first player to receive a $300 million guarantee, but his contract covers 13 seasons and he’s still only 25, so he can be expected to have some very high value seasons in the future, at least if he can stay healthy.
Miguel Cabrera and Clayton Kershaw signed long-term deals that legitimately pay them over $30 million a season. However, the overall size of the guarantees aren’t a big as the contracts Alex Rodriguez signed before the 2001 and 2008 seasons respectively.
Salaries should begin to escalate rapidly the next few years, at least if the fangraph values are reasonably accurate and based on the relative value of players compared to the total value of all major league salaries each season. The Great Recession and the rise of teams locking in young stars to long-term contracts at below market rates early in their careers are presumably the major reasons why salaries haven’t risen even more in recent years. Teams may have been afraid to spend on free agents after the Crash above and beyond the actual short-term damage to their revenue streams, and signing youngsters to long-term deals is attractive to many young players because it acts as an insurance policy against future injuries — they take less money because they are guaranteed a relative windfall no matter what happens in the future.
Anyway, if salaries are not, in fact, keeping up with the legitimate values of the very best players, then the opt-out clauses make a lot more sense. If Clayton Kershaw is really worth $50 million plus per season, why would he accept a long-term deal for a little more than $30 million a year, unless he could opt out somewhere down the line when salaries have become closer to the actual value of Kershaw’s past performances?
At any rate, in the case of the Dodgers contracts with Kershaw and Zack Greinke, the opt out clauses probably convinced the former ace not to test the free agent market as soon as he otherwise could have and saved the team money on the front end guarantee with the latter ace. In the case of the Marlins and Giancarlo Stanton, if Stanton opts out after the 2020 season, the Marlins will almost certainly let him sell his talents to another team, and they will have received his age 25 through 30 seasons for what is now a bargain price of $107 million.
With the year he’s having, the Dodgers will be under a lot of pressure to re-sign Greinke this off-season to a contract that they will probably regret in its later years. However, the Dodgers got well more than what they paid for in his first three years in Dodger Blue.Los Angeles Dodgers, Miami Marlins, New York Yankees, San Francisco Giants, Texas Rangers