Anatomy of the $100 Million Contract

Thirteen years ago, Kevin Brown became the first Major League Baseball player to sign a $100 million contract. Since then, 27 other contracts have at least hit that number — and this winter will add several more.

Albert Pujols is a virtual lock to surpass the $100 million mark – and Prince Fielder, Jose Reyes and C.J. Wilson are definitely in the running, as well. We know that high-dollar, long-term contracts have rarely worked out for the teams offering them, but I want to take an up-to-date, comprehensive look at this no-longer-rarefied group. I created three visuals that tell us what we should have expected from each player; how his performance throughout the contract compared to seasons prior to the contract; and how his production should be valued at based on open-market rates. I’m only going to touch on a fraction of what these visuals say, so I encourage you to add comments of your own.

To do this, we first should figure the contracts were doomed from the start. For the sake of this post, I considered all contracts as their own entities. Extensions, option years and opt-outs were simply treated as separate contracts.

On the horizontal axis of the first plot is the average WAR in the three years leading up to each player’s mammoth contract. The player’s age in the final season of his contract is plotted on the vertical axis. The size of the bubble is determined by the contract’s average annual salary. The origin of this plot — 5 WAR and 36 years old — has no intended meaning; it only roughly shows the groups’ mid-points. Obviously, the older the player is when the contract ends, the more attrition in performance we can expect. Additionally, the fewer WAR the player produced leading up to the contract means — well, they’re just not very good players. These relative “danger zones” are marked in red. From this, we can categorize Barry Zito, Alfonso Soriano, Carlos Lee, Vernon Wells and Mike Hampton as players who had no business getting the contracts they signed. Blame for these failed contracts should be placed on the teams that doled them out.

Most of the time, teams that hand out free-agent or impending-free-agency contracts end up paying for a player’s past production and not future production. The grid below reinforces this by showing the WAR produced by each $100 million player throughout the lifetime of his contract and the three years leading up to the contract. Outside of only three cases, each player averaged fewer WAR throughout his contract than in the three years prior to it. Leaving out players still in the beginnings of their contracts, we can pick out Ken Griffey Jr., Kevin Brown, Todd Helton, Johan Santana, Jason Giambi, Manny Ramirez, Derek Jeter and the second Alex Rodriguez deal as instances where contracts paid for past production.

Interestingly enough, Soriano has produced at nearly an identical level to what he produced prior to his contract. That means Cubs fans really can’t blame him. It’s also worth noting that while both Jeter and Ramirez were victims of attrition, Jeter was able to spread out his production more evenly over the lifetime of his contract while Ramirez provided the majority of his value early in his contract. Despite being paid similar average annual salaries, this — in combination with rising salaries — is partly why Jeter ranked significantly higher on the grid that follows.

This last grid shows the amount of value in millions of dollars that each player produced beyond — or less than — the average annual salary of his contract given the free-agent-market rates for WAR. The market rates from 1999 to 2001 were extrapolated for completeness. Even though players were not necessarily paid at their average annual rate each year, this gives us a pretty good idea of what we want to know.

We can pull out Miguel Cabrera’s, Carlos Beltran’s and Alex Rodriguez’s first deals as successes for their teams. Unsurprisingly, all the players in this group are found in the lower, right-hand corner of the first plot. To a degree, Rodriguez’s deal benefited from not having reached its full term; and while the Cabrera deal still has three years left, I’m comfortable putting him in this group. CC Sabathia has been every bit the player the Yankees have paid him to be to this point — but given the length of the deal, that contract will have to remain in Purgatory for now.

It’s also too early to make any meaningful claims about several other deals. Carl Crawford and Joe Mauer really didn’t do themselves any favors with their 2011 campaigns, and Mark Teixeira and Jayson Werth aren’t heading in the right direction, either. Meanwhile Cliff Lee, Troy Tulowitzki and Matt Holliday have given themselves good starts. As far as the contracts that haven’t begun yet, Ryan Howard’s contract is going to be a disaster; the Adrian Gonzalez contract is a wait-and-see; and I’m not going to touch the Ryan Braun deal because I’m pretty sure the sun is going to burn out before that deal finally kicks in.

As of 2011, the Hampton and Griffey deals stand alone as the worst $100 million contracts so far. While health issues led to the downfall of those contracts, Hampton didn’t deserve anywhere close to that money, anyway. But with two, three and six (!) years left on the Zito, Wells and Rodriguez deals, respectively, there’s little doubt that the Hampton deal soon will be surpassed.

This brings me to the guy I’ve left out. While the Albert Pujols deal should certainly be called a success for the Cardinals, it would be careless to group him in with anyone else on this list. In fact, the difference between Pujols’ contributed value beyond his salary and the second highest ranking contract is greater than the difference between the second ranking contract and the lowest ranking contract. Over the lifetime of his seven-year, $100 million deal signed prior to the 2004 season, Albert Pujols’ production was worth roughly $132 million more than what he was paid. Pujols production was worth on average $22 million in excess of what he was paid in the four free-agent years his contract bought out. To give you some perspective, Evan Longoria has produced at a level of $26 million per year in excess of his average annual salary during the past four years. While it’s not quite an apples-to-apples comparison, it demonstrates the ridiculousness of Pujols’ contract. The Cardinals still had Pujols under team control for three more years when St. Louis gave him the deal — so like the Longoria deal, the team wasn’t expected to pay him at an open-market rate. Still, if  St. Louis decides it  can’t let Pujols get away this off-season, he’ll eventually be a lot closer to being able to call them even.




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38 Responses to “Anatomy of the $100 Million Contract”

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  1. DSMok1 says:

    Excellent research and presentation!

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  2. TK says:

    Very nice article. It’s clear that when you pay a guy 100 million or especially well over 100 million you are not going to get much surplus unless he’s Pujolsian, but the downside is tremendous.

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  3. mike wants wins says:

    This doesn’t even take into account the opportunity cost of having 20+% of your payroll in one guy…..I don’t think Mauer will have a year this bad again for a long time, but that contract is going to greatly restrict their organizational options for years to come. Let’s say they get lucky, and Joe Benson is the best OFer in baseball in 2 years…..will they be able to give him a $15-20MM deal, if Mauer already gets that much? Can they afford to keep a JJ Hardy (or, gasp, even Cuddeyer) and a legit bullpen?

    The Yankees don’t care how bad a contract is, they can just cut the guy or move him to AAA or have him be “injured”. Maybe Philly and Boston can do that also. But MN? Nope, they lost all kinds of flexibility and opportunity with that deal (no matter how good or bad it turns out).

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    • I don’t see how they aren’t factoring that in. In fact, every analysis about a contract or trade has opportunity cost as a built in assumption.

      I think it’s pretty obvious to everyone that the reason the bad contracts are bad is not because the fans give a shit how much money the players are being paid, but because they could take that 20 million per year and get more production out of it – most likely with 2 or more players.

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      • mike wants wins says:

        We’ll just disagree. The opportunity cost to the KC Royals of signing a guy for $100MM is different than the opporunity cost to the NYY. There is nothing here about that.

        Also, as someone points out below, is there really a middle option? Can you actually (often) buy very good production for “just” very good compensation, or does the market almost force you to overpay for this type of player? If you have to choose between having no stars, and having some stars, the relationship between value or not for a contract for this type of player may be different than having three players that are mediocre for the same price.

        I’m interested in an analysis on how many teams win games, that don’t have superstars on them. Is a team required to have superstars to win (note, I’m not stating that having them means you win), and if you can’t draft and develop them, then you have to sign them.

        There is a lot more at play here than just “take that $20MM and buy 3 other players instead”, at least I think there is. Also, as mentioned below, what was the value to the Twins of signing Mauer, and not letting him go the first year they are in a new stadium?

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      • Aaron Lehr says:

        I agree that this article doesn’t touch on the impact the contract has on each team, but I also don’t think that is the point. If it was, the Yankee contracts, for the most part, wouldn’t be viewed as bad at all because they can afford them.

        Mike, are you implying with your last paragraph that there is value from a revenue standpoint of keeping Mauer around for their first year in a new stadium? If anything, I think letting Mauer go in that situation lessens whatever perceived “blow” there might be to their bottom line. Teams get revenue boosts with new stadiums no matter what. I think if you gave the Twins a redo, they might rethink that contract, no matter how popular Joe Mauer is.

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    • jmarsh123 says:

      I think it’ll be very hard for them to keep JJ Hardy considering they traded him last offseason and he signed a contract extension with the O’s.

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    • Aaron Lehr says:

      The last chart is the most quantitatively oriented, and gives insight into which contracts would actually make sense for most teams (i.e. not the Yankees or Red Sox).

      I did a quick, back-of-the-napkin analysis around the Reds a few weeks ago with the following assumptions… a team of replacement players wins 48/49 games; the Reds would like a payroll in the mid 80s (in millions of dollars); it might take around 42/43 WAR to have a decent shot at winning the division.

      Selecting those last two assmuptions made it easy to figure that the Reds need to pay, on average, $2M per win above replacement. With that “rule” in place, would any of these contracts make sense for the Reds (aside from Pujols)? For several it is too early to tell, but for most (if not all) that are close to completion, it clearly doesn’t make sense.

      I did this in response to a discussion around Joey Votto, who could surely command over $100M in his next contract. The Reds are going to pay him $19M in 2013. This will likely be below market value for his performance, and most people said the buyout of his arbitration years was a good move. But for a team like the Reds, the above paragraph would indicate that he needs to have close to 10 WAR for his contract to be in line with their organizational constraints.

      Teams like the Reds should take note of the last chart, and realize that even a slight “surplus” is not worth it.

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      • todmod says:

        That analysis is overlooking the fact that pre-arb players skew the scale a lot. The Reds shouldn’t pass up anyone they’d have to pay more than $2 mil/win, they should make sure they have enough young cost-controlled talent to spend more.

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      • Jeff says:

        One thing to consider is that you can only put 9 guys on the field at a time–almost all of that 42/43 WAR on a playoff-caliber team will come from the starters plus a couple heavily used bench players or relievers.

        That bunch, as a group, probably has to produce about 3 WAR on AVERAGE–something that’s just about impossible to do without a couple of 5+ WAR players somewhere on the roster.

        You have to pay well (or draft well) to get those 5+ WAR guys but it’s awfully tough to win without them.

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      • Aaron Lehr says:

        @todmod: You’re right, I didn’t consider that. I suppose I’d have to take all the cost controlled players, come up with projected WAR and subtract all those out. Then recalculate.

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  4. Chris K says:

    Should be 5 WAR and 30 y.o. as the origin, right? Even so, some of the ages seem wrongly plotted…

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  5. Hurtlocker says:

    Very nice article,. It makes you wonder why teams continue to pay these huge salaries with little or no return?

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    • Aaron Lehr says:

      This question reminds me of when people say, “Imagine if Rays had the Yankees’ money…”

      To me, that’s a fallacy. Any team that has the Yankees or Red Sox money cannot operate the way the Rays do. I think most people agree that Theo Epstein is a good GM. Is the Crawford deal a good contract? What would have happened if Epstein let the Yankees gobble up all the guys he gave bigger contracts to and said, “No that’s ok, we believe in our young guys.” I know this is seriously devling into a fictional world where we can’t possible know all the factors, but hopefully I’m making some sense.

      Yankee fans/management, and to a lesser extent, Red Sox/Angels/Cubs/etc fans/management demand that their organizations put competitive teams on the field every year, and letting a competing organization win a prized free agent, when your organization has the means to land him, is viewed as unacceptable.

      Maybe I’m not searching outside the box, and with several years of focused work toward an end goal, the Red Sox actually could operate like the Rays. I just find it difficult to envision.

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    • Ari Collins says:

      Echoing Aaron’s comment a bit:

      The reason they continue to pay great salaries for good production is that the alternative is to not pay great salaries and miss good production.

      Look at the second graph. Almost half the players (12/27) averaged 4 wins over the life of their contract, with four more in the 3+ win range. They might have been overpaid, but many of them produced nonetheless. And if you have the money to spend, losing out on solid production because you don’t want to be overpaying is the real mistake.

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  6. Anon says:

    Does this consider the effect of deferred salary? The Cardinals have deferred salary without interest in most of their large contracts (lowering the present value of the contract).

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    • Josh Goldman says:

      No it doesn’t consider deferred salary. The numbers would look a bit different if it did. It’s certainly a tactic that makes sense for teams because 1) increasing salaries help to counterbalance decreased productivity and 2) it allows for more roster flexibility early in the contract, when we can assume the team is really making a push to win.

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  7. Anon says:

    The Helton and Jeter deals don’t look bad from this analysis. The team paid a couple million annually over market rate stated here, but that is likely a good investment for the cornerstone of a franchise.

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  8. Cardsfan says:

    Great article – Now when is Cameron going to admit he was wrong about Matt Holliday?

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  9. Noah Isaacs says:

    Awesome graphs Josh. I think one thing that it is important to note is that while WAR captures a player’s a players on-field value, albeit imperfectly, a player’s value to a team, as a business, cannot be truly appreciated by such a stat. In terms of baseball performance, the Howard deal looks terrible, but it doesn’t mean that it will be a net loss for the Phillies. You would have to see the Phillies’ marginal revenue due to Howard to get a clearer picture. Also, the bigger the market, the greater the marginal revenue per star, which implies that teams like the Yankees cannot only afford to “overpay” for free agents, but that they also stand to gain more revenue per star than other teams. Sometimes seemingly dumb baseball moves are smart business moves.

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    • Aaron Lehr says:

      I would tend to be skeptical of this logic since it is incredibly difficult to measure. I also think you’re overvaluing the idea that revenue can be greatly impacted by a single player.

      Did Tampa’s revenue suffer because they lost Crawford and Pena? I don’t honestly know the answer to that question.

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    • Josh Goldman says:

      You’re absolutely right, Noah. To avoid making this a 10,000 word post, I decided to keep the analysis context-neutral.

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  10. cliff lee's changeup says:

    Few if any Yankee fans feel ripped off by Jeter.

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  11. WiersNRAF says:

    Very nice. What program did you use to make the graph?

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  12. vivalajeter says:

    Excellent research. I’m skeptical of some of the $$ & WAR data. Johan Santana, for instance, has outperformed his xFIP by over a full run since coming to the Mets (in about 600 innings). Part of this might be because of the ballpark, but part of it is that he’s not valued properly according to WAR (he’s consistently outperformed his xFIP since becoming a starter). I don’t think it can be fully attributed to luck.

    Aside from that, it’s pretty clear that the majority of these contracts are only beneficial in the best-case scenario.

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  13. Hurtlocker says:

    The Jeter deal will really look bad next year as he continues his decline. As a Giants fan I can’t wait for the day when the Zito elephant is out of the room.

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  14. Coby DuBose says:

    This is a decent follow-up to your article, Josh. Found this perusing the web.

    http://legal-ball.blogspot.com/2011/11/signing-jesus-to-long-term-deal.html

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  15. Mac says:

    I don’t think focusing on value should be the main point here. Instead let’s look at that chart of seaonal WAR post-contract. Even though almost everyone is in the red on the value chart, the group still averages 3.94 WAR per season per year. It’s skewed heavily by A-Rod and Pujols though. Throw them out and the that number drops to 3.35 WAR.

    In a vacuum, a 3.35 WAR guys is a good player. For teams with deep wallets, plugging a hole with a 3 WAR guy is a great investment, even if they had to “overpay”. It’s ridiculous that the free agent market uses past perfomance as a driver for salary, but these players are generally not horrible.

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  16. Scott says:

    Awesome article. Love the visuals. For some reason, the 100M club is as salient in my mind as 3000 hits and 500 homers. As these deals continue to fail, it’s always fascinating to see just how much money is thrown at aging stars.

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  17. jesse says:

    Though we all know it doesn’t affect marginal values and whatnot, how about a flags fly forever data point to the final infographic. Which of these teams won pennants and ws during the course of the contract?

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  18. Mike in Milwaukee says:

    As an avid Brewer fan I’m disappointed to see Ryan Braun excluded from this evaluation….

    What do you mean by “I’m not going to touch the Ryan Braun deal because I’m pretty sure the sun is going to burn out before that deal finally kicks in.” ?

    You seemed to have no problem evaluating Troy Tulowitzki, but exclude Braun?

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    • The Nicker says:

      Braun isn’t currently on a $100 million deal, buddy.

      His $100 million deal doesn’t kick in until 2016, hence not being able to analyze it.

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  19. David33957 says:

    The last post here – until today – was November 11, 2011. Here we are, late August of 2012, and I have just-re-read this great analysis in the context of the Red Sox big trade of two $100-million contracts.

    Adrian Gonzalez and Carl Carwford are now LA Dodgers, and it appears that Ben Cherington is going in a different direction regarding the sizable contracts that are mentioned above.

    With increasing data that big contracts don’t really pay off that often, It’ll be interesting to see if $100-million contracts become the new Market Inefficiency.

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