The Miami Marlins must be crazy. That seems to be the conventional wisdom in the wake of the franchise’s decision to commit $325 million dollars over 13 years to Giancarlo Stanton. But, is this reaction to an admittedly mind-boggling contract based upon sound analysis, or simply a visceral response to the exorbitant salaries of professional athletes and an aversion to the notion they might actually be worth them?
In the rush to judge a contract that won’t expire until 2027, several exaggerated claims have been made by those who believe Stanton’s contract is destined to consign the Marlins to years of payroll inflexibility and diminishing returns. Below are several misconceptions being promulgated along with rebuttals that suggest the Marlins may not be so crazy after all
1) Almost every long-term deal has ended badly. By ignoring history, the Marlins are repeating an industry-wide mistake.
As the chart below demonstrates, long-term contracts are not inherently disastrous. Among deals of at least $90 million and seven years signed since 2001, and for which at least four years have been completed, about half have worked out for the team. Using fangraphs’ estimates of value, three of the 12 long-term contracts ended up in the black, while three others were within a reasonable range of the player’s estimated monetary contribution. A similar breakdown exists for current deals.
Lucrative, Long-Term MLB Contracts
^Based on Fangraphs’ calculations of player value. *Years included are to-date 2014. #Total value excludes portion of Arod’s contract forfeited by suspension.
Note: Includes seven year deals of at least $90 million signed between 2001 and 2011. 2001 valuations are based on that year’s fWAR multiplied by 2002 dollar value of one win over replacement. Option years are not considered, nor is deferred money factored into the calculations. In some cases, such as CC Sabathia and Arod, contracts are considered independent of opt outs.
Source: Cots Contracts and fangraphs.com
It’s worth noting that fangraph’s valuations significantly penalize players that rate poorly according to defensive metrics, and several of that ilk appear on the list of heftiest contracts. What’s more, these valuations only take into account the regular season. So, for example, if you assume Derek Jeter rates slightly better than the worst defensive SS in baseball history and ascribe even modest value to his .838 OPS in 734 postseason PAs, his value would surge past the total dollar amount of his contract. Several other players with lucrative long-term deals would also see a boost from these favorable assumptions. And, one more thing: valuations based solely on performance completely ignore the business side of the equation. Once again, Jeter is a perfect example. Because of his marketing prowess, the Yankees may have derived more value from the Hall of Fame shortstop in his sub-par farewell season than at any other point in his career. Although not every player has the same cachet as Jeter, it’s impossible to deny the marketability of players like Todd Helton and Joe Mauer, as well as the attraction of talents and personalities (for better or worse) like Alex Rodriguez and Manny Ramirez.
Finally, although there are some real clunkers on the list above, the rate of success for long-term deals given to players entering their age-28 season or younger is impressive. And, that’s the comp group most relevant to Stanton, who will be only 25 next season (28 entering the fourth year of the deal, when the 13-year term effectively becomes 10 years). In fact, it makes more sense to evaluate Stanton’s contract based on the future performance of players like him at age-24, rather than all who have signed long-term deals.
Subsequent Career Performance of Players with 20-30 WAR before Age-25 Season
Note: List includes age 25 to 38 performance for all players with 20-30 bWAR before their age-25 season. Excludes active players: Jayson Heyward, Mike Trout, and Giancarlo Stanton.
Source: Baseball-reference.com
Since 1901, 28 players, including Stanton, have amassed between 20 and 30 wins above replacement before their age-25 season, and 17 (excluding three active players) from that group tacked on at least 40 additional wins above replacement over the course of their careers. When considering players of Stanton’s unique ability and early-career success, teams must not only measure the risk of signing a long-term deal, but also the potential detriment of taking a pass.
2) There’s no way Giovanni Stanton will be worth $25 million when he is 37 years old.
Critics of long-term contracts seem to obsess about how the deal will look at the backend, but pay no mind to the potential for front-end surplus. Robinson Cano’s 10-year, $240 million contract provides a perfect illustration. Fangraphs estimates Cano provided $28.8 million of value last year, or nearly $5 million above his average annual salary. If the second baseman can maintain a surplus over the next few seasons, it will mitigate some of the potential deficit that may occur at the backend of the deal, even if you assume constant performance value and no salary inflation (see misconception #3). Instead of focusing on the waning years of a long-term deal, a fair analysis needs to take into account the entire term.
3) Committing to 13 years is foolish because it creates a long-term fixed cost that is tied to uncertain output, resulting in unnecessary risk.
Unless the U.S. economy and/or the market for player salaries descend into a sustained period of deflation, fixed costs are not necessarily a bad thing. In fact, many businesses strive to achieve long-term assurances about their cost structure, and often attempt to lessen risk by using hedging instruments to lock-in future prices. Granted, baseball player contracts are much different than oil futures, for example, but the comparison illustrates how fixed costs can be beneficial.
Inflation Adjusted Value of Giancarlo Stanton Contract
Note: Calculations based on average CPI rate of 2.4% from 1994 to 2013 and average player salary growth rate of 4.29% between 2003 and 2013. Asseumes full payment of annual salary at the beginning of each year.
Source: www.aqua-calc.com, espn.com, Cots contracts, inflationdata.com
The chart above shows Stanton’s annualized contract adjusted for both the consumer price index and average MLB player salary inflation. Referring back to misconception #2, while it is debatable whether Stanton will be worth $25 million in 2027, it’s almost assuredly true that $25 million won’t be worth nearly that much at the end of the contract. As a result, in 2027, Stanton doesn’t need to perform like a modern-day $25 million player in order for the Marlins to breakeven. If his performance is equivalent to a player making $15 million in today’s game, the team will still be in the black. Looked at from the end of the contract, if baseball salaries continue to inflate at the same rate, Stanton’s $25 million dollar salary today would be more like $41 million in 2027.
4) Including an opt out after year-six further increases the Marlins’ risk burden and makes a bad deal even worse.
The logic behind this argument goes something like this: if Stanton gets hurt or does poorly, Miami will be stuck with him for 13 years, but if he over-performs, Stanton will opt out after only six years. The first part of the statement is indisputable. If Stanton’s career tanks, the Marlins will assuredly regret the contract (although, if injury is the culprit, an insurance policy could cushion the blow). However, the second part is where the argument goes astray.
If Stanton opts out after six years, it will presumably be because he has performed well, meaning the Marlins would have likely enjoyed a surplus during that period. In addition, the team would have enjoyed this largess while avoiding the heightened risk in the backend of the deal. That’s why opt outs can be a win-win for the team, although, as noted above, Stanton is a rarer case in which the Marlins might actually be better off keeping the player for more than six years. Nonetheless, the opt out still has the potential to allow the Marlins to enjoy the best of Stanton at a reduced price, which means it isn’t nearly as one-sided as many seem to think.
5) Regardless of how good Stanton is, no athlete is worth that much money!
This is an emotional argument. Baseball has never enjoyed greater prosperity, so it’s only fair that players share the wealth (particularly the best players). And yet, media and fans alike recoil at the thought of athletes signing lucrative, long-term deals. Meanwhile, very few bat an eyelash when teams sign multi-billion dollar TV contracts. This disproportionate response seems to suggest that players are gobbling up an unfair share of baseball’s revenue pie, but on the contrary, the owners are the ones who are keeping more for themselves. Not only has MLB players’ share of industry revenue declined over the past decade, but it stands below the approximately even-split enjoyed by the other major professional sports leagues. So, yes, Stanton and players like him are worth that much.
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Show where the players share has gone down over the decade? And where is the even split in other major sport? Show some dat on this.
Click on the link.
Well you must have missed when my eyelashes batted…..no athlete is worth that money and the billion dollar tv contracts are paid for by the general public, who largely could care less about Stanton, or baseball in general. The more the tv network pays for baseball rights, the more they charge the advertisers. The more they charge Coke, Bud, and Chevy…the more some family suffers who can’t afford the raise in price of consumer goods. So when the taxi driver can’t afford a six pack, he raises the price for a trip to the airport. When the plumber gets pissed off at how much the taxi ride to the airport is, he raises the price to fix your toilet. When the doctor sees the bill from the plumber for fixing the toilet, he raises the price of an office visit. So when fangraphs says Cano is worth 5 million more than his contract, and you write about it…its just you and fangraphs taking turns giving each other handjobs because all of you are so deep inside the proverbial box, that you don’t even know there is a box. You see, eventually the taxi driver can’t raise the price to the airport anymore, so when his kids ask to go to the yankee game he is ashamed to say he can’t he can’t afford 500 bucks to take the family to a game and eat a 9 dollar hot dog. Fangraphs wouldn’t know “worth” if it came and bit it on the dick. Get real.
Thanks for sharing your thoughts Dave. In every debate, there’s room for all kinds of viewpoints, even incoherent ignorance such as yours.
Yes, incoherent ignorance. I’m so ignorant. hehe