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Julio Teheran and Hidden Inflation

Today, Julio Teheran joined the ever growing ranks of young players to sign long term deals early in their careers, agreeing to a six year contract with the Braves that guarantees him $32.4 million, according to Ken Rosenthal. Because he has just one year of service time, this deal buys out two remaining pre-arb years, three arbitration seasons, and then his first free agent year, while also giving the Braves an option for a second free agent year at just $12 million.

The easy comparison is the Madison Bumgarner deal signed in April of 2012. Because that deal was completed after opening day, it’s officially only a five year extension, but in reality, it covers the same time period as this deal for Teheran, and could be more accurately described as a six year deal since the extension didn’t kick in for 12 months from the signing date. Bumgarner got $35 million in guaranteed money for those six years, and he gave up two free agent years as team options for $12 million. Teheran got a little less in guaranteed money, but also surrendered one fewer free agent year. Regardless, the two deals are very similar, and there’s little question that the Braves used Bumgarner’s contract as something of a template for this Teheran deal.

Given how close these two deals are, and the fact that we’re two years removed from Bumgarner’s contract, it’s easy to see this deal as a bit of a rebuke of the rapid inflation suggested by contracts like the one Freddie Freeman got from the Braves last week. In my analysis of that contract, I called his deal a market correction, and suggested that perhaps that deal would make it more difficult for teams to convince players to sign more of these team friendly pre-arb deals that have become so popular in the last few years. Freeman’s deal certainly didn’t stop the Braves from getting Teheran to sign for a price that fits right into the Bumgarner framework.

So, is Freeman’s contract just an outlier, with Teheran’s deal providing evidence that the extension rate for players with no leverage isn’t actually going to explode? That’s a reasonable argument, and maybe even the correct one. But I think we should also keep in mind that inflation isn’t identified just by each new contract being larger than successive contracts, but by players signing similar deals to players who had better performances than their own. And I think that describes this situation pretty well, as Bumgarner was simply a more accomplished pitcher at the time of his extension than Teheran is now.

Here are their career totals through the point at which the extension was announced.

Madison Bumgarner 337.0 6% 21% 46% 0.317 77% 7% 84 82 85 6.3 6.5
Julio Teheran 211.2 6% 21% 37% 0.285 79% 10% 93 103 103 2.4 3.7

Teheran’s been an above average starter by runs allowed and an average starter by FIP/xFIP, and has thrown basically one year’s worth of innings at the big league level. Bumgarner had been an above average starter by any measure you wanted to use, and had sustained his performance for an extra 120 innings at the big league level. Teheran’s track record is nothing to sneeze at, especially given his age, but Bumgarner’s was better, longer, and he was actually younger at the time he signed his deal than Teheran is now.

Now, this isn’t to suggest that Teheran’s deal is bad for the Braves, simply because he probably isn’t as good as Madison Bumgarner. Not many pitchers are, and Bumgarner’s deal is one of the most team friendly contracts in baseball right now; he rated #19 on the trade value series last year, for reference. Bumgarner’s deal shouldn’t be the standard that other pitchers use to set their own prices, because the deal is skewed heavily in the Giants favor. Players of Bumgarner’s ilk should get more than Bumgarner signed for, and not just because everyone is getting more money nowadays.

So, in one sense, it’s easy to suggest that Teheran’s deal doesn’t reflect a large inflationary adjustment, since he got less than Bumgarner did two years ago. But because he’s both not as accomplished as Bumgarner was, and because he only gave the Braves one team option year instead of two, I actually think this contract does represent some continued upwards adjustment over prior contracts, especially when you look at other deals for pitchers with one year of service time.

For instance, the most recent deal signed by a player with similar service time was actually Martin Perez‘s contract with the Rangers signed three months ago. Perez, with five years to go before free agency just as Teheran has now, signed a four year deal that guarantees him just $12.5 million in total, and then gives the Rangers three team options: one for his last arbitration year, and then two for his first two years of free agency. Even if those first two options were guaranteed, making his deal the same six year commitment that Teheran got, his total would only come to $23.5 million, and then the option year is for $9 million.

Teheran got significantly more than Perez got just a few months ago, even though he’s statistically closer to Perez than he is to Bumgarner. Take a look at the comparison between these two:

Julio Teheran 211.2 6% 21% 37% 0.285 79% 10% 93 103 103 2.4 3.7
Martin Perez 162.1 7% 15% 48% 0.303 73% 11% 95 99 104 2.1 2.1

By any of ERA/FIP/xFIP, Teheran and Perez have been pretty similar big league pitchers to date. Teheran has an extra 50 innings pitched, so he’s done it for a bit longer, but there are a lot of similarities here. And again, Perez got $12.5 million guaranteed, or $20 million less than Teheran.

Perez’s deal was in line with most of the other contracts for pitchers with one year of service time that we’ve seen. Matt Moore got $14 million guaranteed, Wade Davis got $12.6 million, Brett Anderson got $12.5 million, and Cory Luebke got $12 million, with all of those deals signed between 2010 and 2012. Realistically, these are the guys that Teheran is actually more comparable too, but he ended up getting something close to the Bumgarner deal instead.

By itself, Teheran’s deal doesn’t look like massive inflation, especially compared to Bumgarner’s contract. But I think there is inflation/market correction here, as Teheran got close to the largest contract ever for a pitcher at this service time level even though he isn’t at that level. Inflation isn’t just escalation in total dollars, but also the ability for lesser players to sign deals that were reserved for better players in the past. And while Teheran is a good young arm, the fact that he was able to move out of the Perez/Moore/Davis/Anderson/Luebke group and into the Bumgarner group suggests that prices are continuing to rise, even for high risk pitchers that are nowhere near free agency.

As we’ve noted, these previous early career extensions have been heavily team friendly, so there’s plenty of room for growth in guaranteed dollars while still remaining a good strategy for the teams to pursue. Teheran may be less of a bargain than some other pitchers in his position, but that doesn’t make him not a bargain. Had he stayed healthy for the next few years, he likely would have been setup to receive something close to $25 million in arbitration, so a healthy Teheran sold his first free agent year for something like $7.5 million, and then gave the Braves an option that could cover his second free agent year for an additional $11 million over the buyout. These are nothing prices, and if Teheran stays healthy, this deal will work out wonderfully for the Braves.

Even if he pulls a Ricky Romero, the costs just aren’t that high that they’ll do any real damage to the Braves payroll flexibility. With any pitcher, there is injury risk and downside, and Teheran is certainly no guarantee to continue to pitch well for the next five or six years. But the Braves risk here is pretty limited, and their upside is pretty high if Teheran does stay healthy.

That’s why these deals so often work out for the clubs. The risk/reward balance is still skewed towards the reward side for the signing team. But the needle is moving. Freeman’s deal moved the needle a lot. This moves it a little. But it’s still movement, and I think we can expect fewer and fewer of the $10-$20 million guarantees in the future. To sell off a free agent year or two, players should get more than they have, and Teheran’s deal shows that even the non-premium arms are moving that direction.