Archive for the ‘Los Angeles Dodgers’ category

Perverse Incentives

February 22, 2018

On the subject of Kenta Maeda‘s contract with the Dodgers, one obvious problem with the contract, at least as far as Maeda is concerned, is that none of the incentives are applicable to relief pitching.  This could create perverse incentives for the Dodgers going forward.

Two off-seasons ago, Maeda signed an incentive laden deal that guaranteed him $25 million over eight seasons, but could be worth $105 if every performance incentive is achieved.  Maeda made just over $20 million over his first two seasons of the deal, because he met many of the performance incentives.

However, by the end of the 2017 post-season, it’s a real question how much longer Maeda will be a regular major league starter.  He made 25 starts in 2017, but was dropped from the Dodgers’ deep starting rotation several times. At the same time, in 10.2 relief innings pitched in the post-season against the highest level of competition, Maeda allowed only a single run, suggesting that his MLB future may eventually come down to pitching out of the pen.  Needless to say, some Japanese ace starters in NPB have proven more effective as relievers in MLB — see, Kohi Uehara.

Maeda isn’t likely to take the Dodgers closer role from Kenley Jansen in the short term absent the latter’s injury, but it’s easy to imagine Maeda becoming the Dodgers’ top set up man.  The Dodgers will have to make that decision based on what is best for the team, but if Maeda as a top bullpen pitcher comes to pass, Maeda is screwed.

Maeda’s agents negotiated a contract based solely on Maeda as a starter.  If he becomes a top Dodger reliever, he’ll only earn $3.275 a year.  Brandon Morrow, the Dodgers’ top set-up man in 2017, just signed a two-year $21 million deal with the Cubs.  You can see the potential unhappiness that Maeda will feel if the Dodgers decide that his greatest value is in the bullpen.

Precisely because no one can predict the future, if I were the Dodgers management, I would offer to re-open Maeda’s contract now solely for the purpose of creating some performance incentives for relief appearances and games finished.  Maeda wants to be a starter, and the Dodgers want Maeda to a starter, but if it becomes apparent that Maeda’s greatest value to the team is out of the bullpen, then that’s what has to happen.

The Dodgers should get ahead of the situation by negotiating some relief pitcher incentives with Maeda.  They wouldn’t necessarily have to be too generous, since all the parties realize the Dodgers don’t have to renegotiate relief incentives in the first place.

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Performance Incentives and Contract Negotiating Inertia

February 22, 2018

Years ago before I started this blog in April 2009 I wondered why you didn’t see major league contracts that contained as much or more incentive money than guaranteed money.  It seemed fairly obvious to me that for players over 29 or 30 coming off a bad year following at least some very good years in the not too distant past, they would be ideal candidates for contracts that didn’t guarantee much up front but could pay the player generously if he was able to recapture a some portion of his old magic.

At the time, I more or less assumed that there were limitations set by the collective bargaining agreement regarding just how much of a major league contract would be in the form of incentives.  However, since starting this blog, I’ve looked through the collective bargaining agreements and never seen anything that limits the amount or percentage of the contract that can be payable as performance incentives that have to be earned.

Instead, I do believe there are written or unwritten limits on the nature of performance incentives.  You can’t get a performance incentive for winning 20 games or hitting 30 home runs, but you can get an incentive based on playing in a certain number of games, accumulating a certain number of plate appearances or pitching a certain number of innings.  You can also get performance incentives for winning or finishing in the top five of Cy Young or MVP voting or by making the All-Star team.

In the last few years, we’ve seen all kinds of contracts which are mostly performance incentives.  Today, Chris Tillman finalized a deal with the Orioles that guarantees him $3 million, but contains an additional $7 million in innings pitched incentives.  Two off-seasons ago, the Dodgers signed Japanese hurler Kenta Maeda to a deal that guaranteed Maeda $25 million over eight seasons but could be worth a potential $105 million if all of the many, many different performance incentives were achieved.

Assuming that there were in fact no collectively bargained limitations on contracts for which 70% to 80% of the value of the contract was in the form of performance incentives, why did it take so long for teams and players to reach the kinds of deals that we see routinely now?  It is particularly strange when you consider that for a very long time minor league contracts for veteran players have routinely provided the player 7 to 10 times as much money for major league roster time as for minor league roster time.

I think that a lot of it has to do with the inertia of past contract negotiating practice, as I suggested in one of yesterday’s posts.  In the past, a player worth a guaranteed major league contract (and his agent) expected that most of the money of the contract would in fact be guaranteed.  That was the whole purpose of collectively negotiating for guaranteed annual contracts.  Everyone in MLB was a little suspicious of the idea of major league contracts that provided more than t0% or 20% of the potential contract amount as unguaranteed performance incentives.  So long as both players and managers took for granted certain salary structures, there wasn’t much reason to adopt a different form of contract, even if it would have made a great deal of sense to do so.

Why have things changed in recent years?  I think Maeda’s contract really changed the way everyone in MLB viewed MLB contracts, and his contract was based on certain somewhat unique circumstances that at the time seemingly applied only to him.  As a Japanese star, Maeda was basically guaranteed a four-year $20 million contract in NPB when he became a free agent.  NPB limits free agent contracts to a maximum of four years and has a de facto salary scale that made Maeda’s future NPB earnings highly predictable.

The Dodgers eight year $25 million offer beat any guarantee Maeda was likely to get from an NPB team (plus, of course, Maeda was determined to test himself against the best in MLB).  Also, Maeda is a small right-hander who had thrown a lot of NPB innings.  MLB has had a long-standing prejudice against small right-handed pitchers, particularly when they’ve already thrown a lot of innings.

I think Maeda’s contract was something of a revelation for MLB teams.  Reliable MLB 4th and 5th starters now command $6M to $10M a season (see e.g., Jhoulys Chacin), and the Dodgers were getting someone potentially better than that for a guarantee of less than $4 million a season.

Meanwhile, the contract has worked out for Maeda, who has pitched well enough and often enough to make far more money pitching for the Dodgers than he could have made in Japan.  In fact, I suspect that the Dodgers in 2017 made it a point to get Maeda his 25th start, when another performance incentive kicked in, because Maeda was clearly worth the extra money and the contract hadn’t taken into account that Maeda might be highly valuable to the the team as a sometime relief pitcher.

The other big factor is how much starting pitchers are now worth.  Chris Tillman was really good from 2013 through 2016, but was pretty awful in 2017.  He isn’t worth more than a $3 million guarantee based on his age (30 in 2018) and his 2017 performance, but if he returns to his 2013-2016 form in 2018, a reasonable possibility, he could easily be worth $10 million.  He’s going to have to be pretty good to pitch 200 innings, when the last of the incentives kicks in, in a season in today’s game.

Once one team and player do something obvious but contrary to prior practice, then all the other teams quickly jump in.  You could say the same, for example, for the Dodgers signing Jackie Robinson in 1946.  However, until that first team and player do it, everyone is worried about the possibility that a dramatic change will upset the apple cart.

Teams have always wanted to pay players based on their immediate past performance and anticipated immediate future performance.  It’s just taken awhile for the contract negotiators to catch up.

 

San Francisco Giants Sign Tony Watson

February 20, 2018

The Giants gave lefty short-man Tony Watson two years for at least $8 million but with a player option that could (probably will) bring the deal to three years and $10M.  It’s merely one more indication the Giants are all in for 2018.

Watson is 33 in 2018, and he seems clearly on the down-phase of his career.  He peaked in 2014 and 2015 at the ages of 29 and 30, and his 3.38 ERA in 2017 split between the Pirates and the Dodgers wasn’t particularly impressive.

What Watson has going for him is that he’s veteran pitcher who can pitch.  He can close out games for you if your main closer gets hurt or is ineffective.  The odds that he’ll help the Giants in 2018, if he stays healthy, are good, but 2019 and 2020 are far more uncertain.

If all the oldsters can stay healthy, and that’s a big, big if, the Giants should be a lot better in 2018 than they were in 2017, but that’s no guarantee of the play-offs.

Boston Red Sox Reportedly Reach Agreement with J.D. Martinez

February 20, 2018

The Boston Red Sox have reportedly reached an agreement with J.D. Martinez on a five year contract that guarantees Martinez $110 million and contains opt-outs after both years two and three of the deal.  The deal is front-loaded with Martinez earning $50 million through the first two seasons and $72 million through the first three seasons but only $38 million over the last two seasons.

Martinez is guaranteed a full $40 million less than mlbtraderumors.com predicted, but he gets the two opt-outs.  The effect of the deal is that it is much more future performance driven that the free agent contracts of old, as Martinez will almost certainly opt out if he has seasons in either 2019 or 2020 in which he plays in 150 game and has an OPS at the average of his last four seasons (2014-2017).

What I find interesting about this contract and to a lesser degree with Eric Hosmer‘s recently reported contract with the Padres is the degree to which the contract is front loaded.  In years past, teams always tried to push the highest paid seasons toward the end of the contract term in order to take advantage of the time value of money.  When added to the 100 year old tradition of paying superstars more as they got older, even as their performances began to decline, the time value of money was a powerful incentive for teams to back-load contracts.

What is clearly going on is that teams no longer want albatross contracts, where the teams are paying massive amounts of money for poor performance later in the contract period.  In particular, wealthy teams like the Red Sox expect to contend every year and certainly do not intend five year rebuilding periods that small market teams resign themselves to.

Teams are now obviously more concerned with paying top dollar for the years they reasonably anticipate getting top performance and paying less as the player gets older.  Teams are realizing that no matter how wealthy or poor they are, they have a certain budget for player salaries each season which increases over time at a fairly predictable rate in line with predicted future revenue increases.  If you push back free agent contract compensation to the later years, those are years in which the team is predictably resigning itself to mediocrity or worse.  Added to this are the incentives in recent collective bargaining agreements which punish teams for going over an imposed salary cap.

In the late 1980’s Bill James wrote an article about how the New York Yankees under George Steinbrenner were on what amounted to a second-place treadmill.  At that time the Yankees were building their teams largely around elite free agents, who were really good only for a year or two and then became expensive mediocrities that prevented even baseball’s richest team from building a truly great ball club.  It’s taken awhile for teams to learn the point that James was making all those years ago, but it now seems the teams have learned it.

As time passes, we will see more contracts which reject the old rules of free agent contracts.  I’m certain of this, because we’ve seen over the years the way in which free agent contracts have evolved, for example using team options, player options and opt-out clauses.

Also, I took a sports law class in law school in which the students negotiated various player contracts.  Coming into the practice negotiations with fewer preconceptions about what the contract should look like and negotiating only on the basis of the factual situations involving the player and the team, we came up with some pretty wild contracts.

In representing an imaginary football player in negotiations with an imaginary team that was hoping to win it all the next season and had the money to spend now, I negotiated a two year deal in which the player received 85 or 90% of the contract amount in the first season with most of the 85 or 90% in the form of a signing bonus, so that the money would already be paid out to the player even if he got hurt as soon as he started play for his new imaginary team, since NFL contracts are typically not guaranteed due to the frequency of serious injuries in football.  Also, I wasn’t taking into account taxation or the fact that young athletes tend to spend money as they make it and won’t necessarily be prepared to save enough in year one to handle the steep drop in compensation in year two.

In the real world, past practice tends to shape contracts in the short term, not to mention the fact that the parties involved in the negotiations are better aware of all the real world variables.  Over time, however, real world contracts will ultimately get to roughly the same place as law school experiments if the factual situations are roughly the same (and taking into account all the real world variables).

Owners would love to get back to the world before free agency, not only when players could not access a free market of teams competing for their services, but also when a player’s compensation was determined a year at a time and was thus largely linked to the immediately preceding year’s performance and thus anticipated next season performance, and could be quickly reduced if the player ultimately had a bad season the next year.

Both Martinez’ contract with the Red Sox and Yu Darvish‘s recent contract with the Cubs require the players to perform at an extremely high level in the early years of their respective deals to fully reap the potential benefits of the contract.  That is well to the advantage of their signing teams, and this year the teams have been able to impose these terms on these players.  We’ll see what happens next off-season, but I think we’ll be seeing more of the same.

 

San Diego Padres Reportedly Reach Agreement with Eric Hosmer for $144 Million

February 18, 2018

The San Diego Padres have reportedly reached a deal with Eric Hosmer that will give him $144 million over eight seasons with an opt-out after year five.  The deal is front-loaded, paying Hosmer a $5 million signing bonus and $20 million a year for the first five years, but only $13 million a year for the final three.

The deal is two years and $12 million guaranteed more than mlbtraderumors.com predicted for Hosmer, and in my mind it tends to support management’s claims that the slow free agency period this year has more to do with advanced analytics than collusion.  Hosmer is younger than most of this off-season’s free agents and his big contract suggests that teams are just a lot more leery of over-30 free agents who are likely entering the down-phase of their careers right quick.

The biggest winners of the Hosmer, even more than Hosmer himself, are next year’s young free agents Bryce Harper and Manny Machado.  They will be two years younger than Hosmer is now, and they’re better players.  If Harper and Machado have typically strong seasons in 2018, I would expect both to beat the $325 million deal that Giancarlo Stanton received from the Marlins three off-seasons ago.

Even with Hosmer’s apparent signing, six of mlbtraderumors’ top ten free agents remain on the board.  Hosmer had the Padres and the Royals bidding against each other for his services.  Now that Hosmer has signed with San Diego, the Royals may decide they need to bring back Mike Moustakas to prevent their fans from revolting.  However, there hasn’t been much chatter about Moustakas or the four remaining top pitchers, and one team obviously in the market for pitching, the Minnesota Twins, just traded not a whole lot for Jake Odorizzi in what appears to be a straight salary dump by the Rays.

With Yu Darvish signing for much less than expected, it looks like Jake Arrieta is going to have to come to terms with the fact that no team is likely to give him a $100 million offer.  My guess is that Arrieta will have to accept a three year offer for a $80 million guarantee with a team option for fourth season.  As for Lance Lynn and Alex Cobb, teams will probably wait to see which of the two is the first to crack and accept what interested teams are willing to pay him.

Evidence of Collusion?

February 18, 2018

A lot has been made of the incredibly slow free agent market this off-season and the fact that teams seem less willing to spend on free agents than they were only a few years ago.  The MLBPA and player agents have expressed their concerns that teams are again colluding, and Scott Boras pointed to recent statements by Commissioner Rob Manfred that several free agents had received offers over nine figures, information he would not have unless teams were sharing information about their offers with each other or the Commissioner’s office.

However, Manfred’s statements don’t mean a whole lot, since he can claim media reports as his source of information that several free agents have received offers over $100 million.  Rumors have abounded that all of Yu Darvish (now proven), J.D. Martinez and Eric Hosmer have received offers above the golden $100 million mark.  In fact, at the start of the off-season, all three were predicted to do well better than a mere $100 million in guaranteed money.  The real dispute is that these players are only getting $100M to $126M guaranteed offers instead of the $140M to $160M guaranteed offers anticipated.

One fact that suggests teams collectively are fighting to keep player salaries down is the 22 salary arbitration cases this off-season that went to decision.  That’s the most salary arbitration cases to go to decision since the 1994 strike, and it beats the previous highs (14 in each of 2001, 2015 and 2017) by more than 50%.

The players went 12-10 in the 22 cases this off-season and went 7-7 last off-season.  Historically, the owners have won 57% of all salary arbitration decisions (319 out of 562) going back to 1974, including the results from the last two off-seasons.  There’s certainly something in both the number of salary arbitration cases going to decision and the outcomes to suggest that for the last two off-seasons at least (while there were 14 salary arbitration decisions in early 2015, the owners won eight of them, and there only four arbitration decisions in 2016) teams are taking a harder line on agreeing to raises for salary arbitration eligible players their teams intend to keep.

Obviously, one can’t make too much out of the salary arbitration results for only two off-seasons.  Each off-season features individual decisions by eligible players and teams in negotiating a salary increase or going to arbitration hearing, and the salary arbitration process is now advanced enough that both sides have fairly good ideas of what are reasonable salary proposals based on precedent and where the arbitrators can accept only one of the two numbers submitted.

At the same time, when taking this year’s exceptionally high number of salary arbitration decisions into account with the obvious drop in interest in and the bidding on free agents this off-season, it does appear that teams are as a group making greater efforts to limit the amount of revenues they have to pay out to players as compensation.  Whether that’s a result of active collusion between the owners, or merely the result of normal market capitalism as effected by better player value analytics and the terms of the new collective bargaining agreement, remains to be determined.

For what it’s worth, even though owners have won roughly 57% of all salary arbitration decisions, the players love salary arbitration while the owners hate it.  The reason is that now even the poorest, stingiest, least interested in winning teams have to pay their good salary arbitration eligible players the same amount of money as the wealthiest teams have to pay.  Salary arbitration in conjunction with free agency has caused the enormous increase in player salaries since 1974.

Also, I strongly suspect that free agents have less value today than they did, say ten years ago, is because we have had the longest period without expansion since MLB’s expansion era began in 1961.  When you add in that MLB teams are bringing in more and more foreign talent from more countries, the level of play at the major league level is extremely high and it’s relatively easier to replace or acquire talent outside of free agency.

I contend that the current circumstances are akin to MLB in the 1950’s when there had been no successful MLB expansion since 1901 and black and dark-skinned Latino stars were allowed to play in the white leagues for the first time since the 1880’s.   The addition of only two additional expansion teams would have a big impact on the relative value of free agents, because there would be more demand for the elite players good enough to reach free agency based on six full seasons of major league service.  You would also see more players like Fernando Abad, who just received a non-guaranteed deal from the Phillies despite a 3.30 ERA with the Red Sox last year, get guaranteed major league deals.

Chicago Cubs Reach Agreement with Yu Darvish for $126 Million Guarantee

February 10, 2018

The Cubs have reportedly reached agreement with Yu Darvish on a six-year contract that guarantees Darvish $126 million, but could go up with performance incentives to $150 million.  The deal also reportedly contains a no-trade clause and an opt-out for Darvish somewhere down the line.

This is a big deal for a number of reasons.  The top free agent pitcher has now signed, meaning that the market has been set for the other top pitchers remaining.  Also, it seems to fulfill the teams’ recent desire to limit the amount of free agency guarantees, while still giving Darvish life-long security and the possibility of making considerably more money than the guarantee if he continues to perform well.

When teams first started giving opt-out clauses to players also receiving record-breaking guarantees, I thought the opt-out clauses were crazy.  Obviously, I was wrong, in that opt-out clauses are clearly now being used as a means to prevent record-setting guarantees.

mlbtraderumors.com predicted that Darvish would get a $160 million guarantee over six seasons, a number to which Darvish ultimately didn’t come close.  However, he gets to opt out if he continues to be a mound stud.

The Players Association and the agents aren’t going to be happy with this deal, but it’s hard to feel sorry for players who are still receiving nine figure free agent guarantees.  It’s been long since past time for teams to start paying free agents based on how they will likely perform going forward, rather than how they have performed in the past.