On Opt-Outs and the Value to a Team, Again

Yeah, I’m writing about opt-outs again. I know, I’ve already written about them a couple of times this winter, so I’m running the risk of beating a dead horse even further, but opt-outs continue to be a source of some controversy, especially since they’ve been handed out so commonly this winter. Last week, Rob Manfred weighed in briefly, stating that he didn’t see the value in opt-outs from the team perspective.

“The logic of opt-out clauses for the club escapes me,” Manfred told FOX Sports on Thursday night. “You make an eight-year agreement with a player. He plays well, and he opts out after three. You either pay the player again or you lose him.

“Conversely, if the player performs poorly, he doesn’t opt out and gets the benefit of the eight-year agreement. That doesn’t strike me as a very good deal. Personally, I don’t see the logic of it. But clubs do what they do.”

I didn’t write about Manfred’s comments when they were published because of the fear of the dead-horse phenomenon, and because all I’d have to add to those comments is that the logic teams are seeing is a chance to save money on long-term commitments by including opt-outs in order to reduce the total amount of guaranteed money they’re including in their offers. But Manfred knows that; he just can’t say it publicly. As commissioner, he’s limited in what he can say about player compensation, especially with a CBA negotiation upcoming, and so I figured I’d just let the comment be.

But then today, Rob Neyer wrote about Manfred’s comments, and added a few of his own. And since his point about opt-outs is the one that I most stridently disagree with, I figure it’s worth bringing this issue up one more time. First, though, Rob’s take on opt-outs.

There is something about these opt-outs that I don’t think has been mentioned often enough. Yes, they’re obviously a tremendous financial benefit for the player. But they’re also pretty, pretty, pretty good for the wealthy teams. If you’re the Cubs or the Red Sox, you’re absolutely thrilled if Jason Heyward and David Price play terrifically in their first three seasons, because that means you’re getting your money’s worth and you’re probably winning baseball games.

But everybody knows the risky thing about these contracts is the so-called out years. So would smart organizations like the Cubs and Red Sox be terribly disappointed if Heyward and Price let someone else pay the freight down the road? Leaving the clubs with a sudden windfall of sorts, and the attendant flexibility?

I think not.

This remains a popular sentiment, and based on the comments I’m still getting in my weekly Wednesday chats, is still a point that a lot of people buy into. And I will continue to maintain that it’s basically wrong; if David Price or Jason Heyward play really well over the next three or four years, the Red Sox and Cubs will not be happy that the players opted out of their deals, because the players will only opt-out if they have below-market contracts — meaning that the team either has to give them a raise in order to keep them around or will have to pay other players current market rates in order to replace Heyward or Price on their roster — and are positive-value assets for the club at that point. They will be happy with their initial decision to sign the player several years ago, since using the opt-out means that the first part of the contract worked out well for the team, but they would have been even happier with that decision if they had not included an opt-out and got to retain a quality player at a below-market price.

Every time I make this point, a significant number of responses reiterate the comment Rob made above; that an opt-out gives teams the chance to get all the good years of a player’s performance but then also not have to incur the risk of the ends of the deal. And I get why it’s easy to think this when we’re dealing with some hypothetical future decision in 36-48 months, but to illustrate my point, I think it’s helpful to look at players currently under contract and evaluate whether we think teams would be better off if they had included an opt-out in those deals at the time they were signed.

Let’s go back three years, and take a look at the crop of players who signed long-term deals back in the 2012/2013 off-season, either via free agency or by extension with their current team. Here are all the $100 million deals signed that off-season.

Josh Hamilton: 5 years, $125 million, $25 million AAV
David Wright: 8 years, $138 million, $17.3 million AAV
Cole Hamels: 6 years, $144 million, $24 million AAV
Zack Greinke: 6 years, $147 million, $24.5 million AAV
Buster Posey: 9 years, $167 million, $18.6 million AAV
Felix Hernandez: 7 years, $175 million, $25 million AAV
Justin Verlander: 7 years, $180 million, $26 million AAV

The Posey deal is obviously the outlier there, because he was still four years from free agency when he signed his long-term extension with the Giants, so his deal is quite a bit different than the rest. In fact, if Posey hadn’t signed that extension, he still wouldn’t be eligible for free agency this winter, so obviously, the Giants wouldn’t have considered giving him an opt-out before their six years of control had expired. So we’ll mostly gloss over his deal, because it’s a different animal than the rest.

The other six deals, however, fit perfectly into the type of player who is getting an opt-out this winter. These guys were all some of the very best players in baseball at the time, and several of them remain that even now, though a couple of them have declined precipitously since the deals were signed, and exemplify the risks teams take when they sign long-term contracts. All those guys signed for something close to the same amount in terms of per-season salary, with number of guaranteed years being the primary differentiator; Greinke was the only one who negotiated an opt-out clause into his deal at the time, but he also had more leverage, since he was a free agent, while Verlander, Hernandez, Posey, Hamels, and Wright all re-signed with their own organization before becoming free agent eligible.

So, looking at what we know about these players right now, would the teams that own these contracts be happy if they had included opt-outs in the contracts when they signed them? Let’s just go through the list.

Hamilton: an opt-out would be irrelevant. The relationship between the player and team soured very quickly, and the Angels ended up paying almost all of the remainder of Hamilton’s contract to send him to Texas. Hamilton would have no interest in opting out of his current contract, and the inclusion of it in the deal would have had no impact on anything.

Wright: Wright has five years and $87 million left on his deal, and coming off a season where he spent most of the year rehabbing a back injury, it seems unlikely he’d do better than that on the open market. And given the relationship Wright has with the Mets, and the fact that the team just went to the World Series, it seems unlikely that he’d actually be all that interested in leaving. Most likely, I think Wright would just decline to use the opt-out, since 5/$87M with the team he wants to play for is probably better than any other deal he could get in free agency.

Hamels: The first case where granting an opt-out would have been demonstrably terrible for the franchise. Had the Phillies included an opt-out in Hamels deal, they’d have been marketing a rent-a-pitcher at the deadline, as Hamels clearly would have voided the remaining 3/$73M left on his deal in order to seek a raise in free agency. The Phillies would have gotten less in return when trading Hamels than they did because they were selling multiple years of a below-market asset, and including an opt-out would have hurt the franchise’s ability to rebuild.

Greinke: Another case where it’s clearly a net loss for the team. The Dodgers had Greinke under contract for 3/$71M, but were outbid by the Diamondbacks when trying to retain him; he not only got three additional years tacked onto his deal, but also upped the AAV of his deal by $10 million per season. The Dodgers lost one of the best pitchers in baseball, and while they still have his $24 million per year to spend on a replacement, they’re not going to get a pitcher anywhere near his quality for that kind of money anymore.

Posey: Unrepresentative example, but yeah, the Giants wouldn’t want Buster Posey to be heading to arbitration this winter, staring at a potential long-term deal in free agency next winter. They’d clearly have to give him a big raise to keep him in San Francisco over what he’s guaranteed now.

Hernandez: Maybe the most interesting test-case for the question, since Felix represents almost every circumstance that people bring up as an example of why opt-outs can be good for a team. The first three years of the extension have gone very well, but his 2015 season threw up a good amount of red flags; his strikeout dropped four percentage points, his home run rate spiked, his walk rate got worse, his velocity continues to trend downwards, and he threw his fewest number of innings since 2008. There are plenty of reasons to think that Felix probably won’t survive as an elite pitcher over the remainder of his contract, but even with all those warning signs, he’s pretty clearly underpriced at 4/$104M.

Steamer still sees him as a +4.5 WAR pitcher for 2016, and while I don’t think he’d quite get Greinke’s contract coming off a poor season by his own standards, he’d blow by the deal Jon Lester got last winter, and I’d think something in the 6/$180M range is probably closer to his market value. If the Mariners wanted to divest themselves of the remaining risk on Felix’s contract, there’s no question there would be a bunch of teams signing up to try and trade for him and his 4/$104M contract. I’d imagine a team like the Dodgers might even offer to add an extra year at a higher AAV in order to get him to waive his no-trade clause, as he’d be underpriced even at something like 5/$140M.

So the Mariners could try, if they wanted, to essentially opt-out of the last four years of Felix’s deal. They’re choosing not to, and that action suggests that they value the remaining four under-market years of the deal — even with the obvious red flags his 2015 season threw up — more than they value the chance to reallocate that $104 million to other players. The Mariners seem to be happy with their asset, even if they would agree that he may very well be in decline and headed for a fall-off. Would Felix opting out save them from themselves, potentially? Perhaps you could see it that way. But would the franchise really be better off with an aging roster led by guys like Robinson Cano and Nelson Cruz but no ace to give them dreams of getting one last playoff push before the team needs to rebuild? And if 2016 doesn’t go well for the team, would they really be better off not having Felix as a trade chip this summer when teams are looking for pitching at the deadline?

Even in a scenario where a heavily-worked pitcher has a significant amount of money left on his deal, I don’t see how the Mariners would benefit from having Felix opt-out of his contract right now. They’d be worse in the short-term, wouldn’t be able to replicate his value for the amount he has left on his contract, and would lose the opportunity to either contend in 2016 or potentially trade him for value at some point in the next couple of years. Yes, they’d divest themselves of the risk of his arm blowing up in March, but they’d divest themselves of more value than risk, and that’s not a trade-off teams want to make.

Verlander: Like Hamilton, a pretty easy “yeah, I’m good” conversation with the agent. Verlander has 4/$112M left on his deal and looks like an average or slightly above average pitcher at this point. He would get less money in free agency, so he wouldn’t opt-out, so neither side would gain anything from having had the opt-out included.

Of course, the reason teams are giving opt-outs is to lessen their financial commitment in salary, so if the Tigers or Angels had offered an opt-out to Hamilton or Verlander in exchange for taking less guaranteed money, they’d actually be getting some benefit from the opt-out, as they wouldn’t have as much dead money on the books as they do now. In the Tigers case, if they had saved $15 or $20 million in salary by giving Verlander an opt-out, they would realize that financial savings without experiencing any kind of lost asset, since Verlander wouldn’t use the opt-out he paid to get.

So it’s actually the scenarios where the player doesn’t opt-out where including the opt-out is good for the team, assuming they got a financial offset for including the provision in the contract. The scenarios where the player does opt-out, though? Those aren’t great for the team. In those cases, the team is losing value, which is why no one thinks the Dodgers benefited from Greinke opting out this winter, and no one would think the Mariners would be better off if Hernandez had an opt-out he could use tomorrow.



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Dave is the Managing Editor of FanGraphs.


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Drew
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Drew
5 months 10 days ago

The yankees could benefit from Tanaka opting out because of the increased chance that he needs Tommy John surgery

%
Guest
%
5 months 10 days ago

sigh

The Real McNulty
Member
The Real McNulty
5 months 10 days ago

If the Yankees tried to trade Tanaka now at full salary, would they get something in return?

Yes

The opt out would prevent them from getting that benefit.

Think, please.

Baseball Guy
Guest
Baseball Guy
5 months 10 days ago

I think I’ve finally figured out why the “opt outs are good for teams” crowd thinks that way: They don’t or can’t distinguish between an opt out and a team option. There is a rather large difference, in that if Tanaka had an opt out and used it, it would be HIM making the decision. Not the Yankees. So what your argument boils down to is assuming players and their agents make bad decisions for themselves.

isasson
Member
5 months 10 days ago

I wrote about opt-outs on Spark Sports, here’s the link: http://sprksports.com/?p=4579

follow me on twitter @isas03

Larry
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Larry
5 months 10 days ago

No they’re just stupid.

John Elway
Member
5 months 10 days ago

Fear the dead-horse phenomenon. I sure know I do.

Just neighing.

Michael
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Michael
5 months 10 days ago

Wright has 5 years left?

Dswerdloff5
Member
Dswerdloff5
5 months 10 days ago

yeah he is under contract through 2020

Michael
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Michael
5 months 10 days ago

Article originally stated theinitial contract was for 6 years (which is why the 5 years left seemed off).

j6takish
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j6takish
5 months 10 days ago

Fans that think opt outs are good for the team are using the benefit of hindsight. They only remember when a player opts out then sucks on his 2nd contract. Yankee fans really wish they could have walked away from A-rod/CC and other fans see the Yankees as “missing out” on the chance to walk away. People don’t remember the guys who suck so badly during their first contract that they never opt out. Vernon wells is the downside of putting an opt-out clause in a contract.

That being said, I do wonder if teams are weighing the downside as being less detrimental than you are. We need this player right now, lets give him an opt out and hope he walks away in 3 years but if not he doesn’t…..well we were planning on paying him for 8 years anyway when we signed him.

Yirmiyahu
Member
5 months 10 days ago

That could be. It really puzzles me that people have so much trouble understanding this. If teams could include team opt-outs, everyone would agree that it would be a clear detriment to the player.

If not for the opt-out, the Dodgers would’ve had Greinke for $71M/3. Any team would gladly signed Greinke for that. Instead, the Dodgers lost that substantial surplus value.

Just Saying
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Just Saying
5 months 10 days ago

“If teams could include team opt-outs”

You mean like club options that are regularly included in deals?

Yirmiyahu
Member
5 months 10 days ago

Yes, exactly. Wish I’d noticed Brian L’s comment before I posted.

Does anyone dispute that club options are good for teams and bad for players? Does anyone dispute that player options are good for players and bad for teams?

j6takish
Guest
j6takish
5 months 10 days ago

Club options are “suboptimal” for players, I wouldn’t say bad. The player is still getting paid, just a below market rate. Usually a club option is the trade off for signing a deal early in your career. The player gets life changing money right now instead of having to wait 6 years and risk injury. if the deal goes sour, the player still gets paid for the whole contract just minus the club option. A team gets NOTHING if a player opts out, these aren’t similar at all

Just Saying
Guest
Just Saying
5 months 10 days ago

I actually agree with you. It amazes me how many people miss the point with opt-outs. But I’ve seen the comment a couple different times about teams not being able to have opt-outs and I wanted to clarify because it bothers me.

JayT
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JayT
5 months 10 days ago

@j6takish, the team gets a draft pick if the player opts out.

rogue_actuary
Member
Member
rogue_actuary
5 months 10 days ago

Yirmiyahu,

Aren’t team options generally included in contracts signed prior to free agency?

Opt-outs, on the other hand, are signed by free agents.

To your questions, I think that these questions are the problem with the thought processes on this issue. Before a contract is signed, the opt-out is neither good nor bad for the team. It is negotiated. Players make concessions for such a clause. After the contract is signed, everything is sunk up to the point of the opt-out. At that time, the team is facing signing, say, Greinke at 6 years and $215M, and watching him walk away. That option was valuable enough to Greinke that he took some number of millions of dollars less when the contract was signed. Because he signed a very large contract, I feel like a lot of people don’t tend to consider any player concessions when the contract is signed. It didn’t feel like he was conceding anything at that time, did it?

He was 29 and coming off of a 5-win season. Supporting that were his 4.7 and 3.9 win seasons before that. If you assume a 4.5 win starting point for 2013, keep it the same in 2014, knock off half a win each subsequent season, use $6.5M/win for 2013, and assume 5% inflation, I come up with a 7-year deal worth $176M.

He signed for $147M over 7 years.

So, I agree with your assertion that opt-outs are bad for teams after they are signed, but I disagree with that same assertion when taken in the context of the negotiated agreement.

cs3
Guest
cs3
5 months 10 days ago

“If not for the opt out the Dodgers would have had Greinke for $71/3”

This is not true. If they weren’t willing to include the opt out then there’s no way he would have agreed to that contract in the first place. His annual salary would have been much closer to the current market value.

Jason B
Guest
Jason B
5 months 9 days ago

Closer to, yes, but still not what he’s making now. When he signed that deal he wasn’t coming off a sub-2 ERA, top-2 CY finish season.

grumbleshoes
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grumbleshoes
5 months 10 days ago

A player would benefit from a team opt-out in a circumstance where the team irrationally undervalued the player.

This is the part where people’s heads explode and they exclaim “but that would never happen!” but the likelihood of it happening is a conceptually separate matter from whether or not the team opt-out creates a path that’s potentially beneficial to the player.

Similarly, a team would benefit from a player opting out in the circumstance where the market irrationally overvalued a player. This, again, is the part where people’s heads explode and they say “that would never happen!” However, if you observe the history of 9 figure contracts in baseball, it happens all the time.

Market perception and actual player performance are two different things. The fact that there’s a market perception that Price will be worth $X more than his remaining contract, and will be offered that, doesn’t mean Price will pitch to the value of the contract he’s offered.

The only remaining downside is that the Red Sox fail to make some sort of trade that capitalizes on the difference between the market’s perception of Price’s future value and his actual future value.

This argument is flawed for two reasons. For one, trading is an inefficient barter system, laden with obstacles such as no trade clauses, idiosyncratic negotiation postures from teams, and all sorts of signalling and friction that make the reality of executing a trade different from the hypothetical thought experiment that simply stipulates a trade should be possible.

For another, forgone trade value mitigates the benefit to the Sox, it doesn’t eliminate it. Imagine that the Sox are looking to avert a CC Sabathia esque albatross contract, and they could have got some Ubaldo Jiminez-like trade package into the bargain. Again, it’s uncertain whether that trade would be there in the first place. But supposing the opportunity was there, and the Red Sox failed to take it, that would just be something to add to the balance sheet of positives and negatives. It may amount to a small negative combined with a huge positive, resulting in a net benefit to the team.

And at this is the part where people start throwing a bunch of other arguments at the wall that are conceptually unrelated to the opt-out. “Maybe the Red Sox are just as irrational as the rest of the market, so they’ll be the ones to re-sign him.” Maybe. But that just means they could fumble the opportunity presented by the opt-out, not that the opportunity wasn’t there. “What if David Price continues to pitch well?” He might! That, too, is a possibility. It’s a possibility that exists alongside the possibility that the opt-out benefits the team.

People might dispute whether pitchers actually decline in their mid 30’s. I would find such a dispute to be ridiculous, but it was an argument put forward in full sincerity in previous threads on this subject. But again, none of these arguments turn on the basic logic of the opt-out itself.

It really puzzles me that people have so much trouble understanding this.

isasson
Member
5 months 10 days ago

I wrote about opt-outs on Spark Sports, here’s the link: http://sprksports.com/?p=4579

follow me on twitter @isas03

Matthew Murphy
Member
5 months 10 days ago

I find the Yankees example funny as an argument for why opt-outs are good for the team. The reason why the Yankees got stuck with bad 2nd contracts with A-Rod and Sabathia are precisely because of the opt-outs.
If neither of these players had an opt-out clause, Yankees would have had A-Rod through 2010 instead of having to sign him to a mega-extension coming off his 2007 MVP campaign. They’d also be off the hook for Sabathia now, instead of potentially paying him $25M/season for two more years as a below-average starter.
A-Rod and Sabathia are the perfect example of why opt-outs are good for the player and bad for the team.

%
Guest
%
5 months 10 days ago

A-rod was primarily re-signed by Randy Levine against the wishes of Cashman and the rest of the front office, but sure, keep that narrative up

TKDC
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TKDC
5 months 10 days ago

What at all does this have to do with the comment?

Bpdelia
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Bpdelia
5 months 10 days ago

That has nothing to do with what he said. He’s absolutely correct. I’m a Yankees fan and it was a helluva lot easier to talk about letting him go than to not sign a guy coming off of his third MVP in 5 years.

The Yankees would have HUGELY benefited from not having opt outs in those deals.

Because no team ever just let’s a prime she star walk if they can afford it. The dodgers just got beat. But they bally wanted greinke back and if not for that opt out they’d have one of the best free agent pitcher values in the game right now

J6takish
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J6takish
5 months 10 days ago

I didn’t say they were good for the team. People who don’t understand opt outs are assuning that an opt out saves you from the ugly years at the end of the contract and that the Yankees were just too dumb to walk away

Baseball Guy
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Baseball Guy
5 months 10 days ago

And if they didn’t include the opt out in the first place, they wouldn’t have had to even make that decision, right.

grumbleshoes
Guest
grumbleshoes
5 months 10 days ago

They didn’t “have to” sign A-Rod and CC to extensions. Opt-outs are not accompanied by magical Harry Potter spells that force GMs to sign bad extensions.

The Yankees made judgments about the future value of those players to their team. They turned out to be mistaken.

Snarfle
Guest
Snarfle
5 months 10 days ago

Well not right now, but actually Boras has talked about using Chris Davis as a test case for an “opt out + dictum curse” clause where Davis would get a free shot at Peter Angelos with his wand, and there would be a limited number of spells he could utter. There’s a lot of stuff to figure out about who else could be in the room and if they are allowed to countercurse, etc. Anyway, this is a “when” not an “if”. Boras was surprisingly candid about this during the Winter Meetings.

Ian R.
Guest
Ian R.
5 months 9 days ago

Right, but if the Yankees had simply let those two players walk away after they opted out, they’d be better off still. That’s especially true in Sabathia’s case – he had one more good year (2012) after the opt-out, and then proceeded to decline precipitously.

A-Rod’s case is, admittedly, tougher for the team, since he remained an effective player for several years after the opt-out and because there was so much pressure for the Yankees to bring him back to hopefully break the all-time home run record. It’s worth noting, though, that the opt-out ended up highly beneficial to the team that originally gave him that contract, as the Rangers were no longer on the hook for a chunk of his salary after he opted out.

So, A-Rod’s situation is unique and complicated, but in Sabathia’s case, giving him an opt-out clause was a very good thing for both player and team. It’s just that the team followed that up with the absolutely terrible decision to sign him for the next seven years.

Jay Levin
Guest
5 months 8 days ago

It is certainly true that opt outs will start to look better once teams start having the sense to just let the guy walk. The Yankees clearly should have let both A-Rod and Sabathia do so, and that isn’t just hindsight. It was obvious in both cases, not because the players weren’t still good, but simply because a new contract at that age is inherently terrible.

Having said that, opt outs will always be stupid for the team.

Brian L
Guest
Brian L
5 months 10 days ago

If we just called these “Player Options” would there be any debate? There’s no controversy over whether a “Team Option” is a win-win or not…

olethros
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olethros
5 months 10 days ago

Team Options come with a buyout for the player, though.

HappyFunBall
Guest
HappyFunBall
5 months 10 days ago

Player buyouts are typically a small fraction of the option year salary. If a player option was to be constructed such that Greinke, for example, had to pay the LADs $1M to walk … I don’t think it would change much of anything for either party.

Option Theory
Guest
Option Theory
5 months 10 days ago

So do the player options. They are just paid up front at the time of the signing. That is, the player accepts a lower guarantee in exchange for the option.

soaktherich
Guest
soaktherich
5 months 10 days ago

They were called player options until some NY writer coined the term opt-out when A-Rod’s was coming up. Then Sabathia had one and the die was cast. Now we just have to wait for someone to come up with a catchy name for team options.

TangoAlphaLima
Guest
TangoAlphaLima
5 months 10 days ago

I got it, I got it!

Opt-… wait for me here… INS!

No, not good? Okay, back to the drawing board.

Baseball Guy
Guest
Baseball Guy
5 months 10 days ago

No, they’re not the same as player options. A player option is for one year. There may be several stacked up, but each year the player decides whether to stick around. An opt out is a one-time decision usually early in a contract.

Matt
Guest
Matt
5 months 10 days ago

You are stating this based on past examples. But there is no reason why team options can’t be for multiple years or why player options can’t be for individual years.

Wait a couple of years for when Harper becomes a FA – then you’ll have a new example of a player getting multiple player options year-to-year (unless they change the system)

Deelron
Member
Deelron
5 months 10 days ago

Hayward just signed a contract with 2 possible (2019 is conditional) opt outs.

Trotter76
Guest
Trotter76
5 months 9 days ago

The essence of team or player options is that they are at the end of the contract, not in the middle. I have never seen a player option (using that terminology) for multiple years, but essentially that’s what an opt-out is. When accepting the player option, it’s always been for multiple years. Does it have to be that way? No. But in our limited experience, that’s what it is.

William
Guest
5 months 10 days ago

I think the point you’re missing is that if the player opts out, his team can then re-evaluate whether they think he is worth an extension. Based on that evaluation, they may decide: (1) he is not, and let him walk; (2) he is, and offer a new deal; or (3) another FA in the market is a better value, even at market rates. In 2 of those 3 scenarios, the team is better off. In the middle scenario, they wind up paying a higher rate, but they are under no obligation to do so. Also, remember, the player presumably gave up something to receive the opt out, so that is value that accrues to the team as well. In addition, the team will likely receive a draft pick, so there’s more value added to the equation.

I am also disagree with the notion that “no one thinks the Dodgers benefited from Greinke opting out this winter” because there is reason to think LA may end up benefiting in the long. Also, whether anyone thinks that way now is less important than how they think by the time the original deal would have concluded. After all, no one would have thought the Yankees would be better off if CC left after his opt out, but, in retrospect, we know that to be true.

William
Guest
5 months 10 days ago

Meant to also include the following link, with more thoughts on why opt outs are good for individual teams, but not ownership as a whole.
http://www.captainsblog.info/2015/12/18/rob-manfreds-commissioner-heyward-price-arod-opt-out-cop-out-an-attempt-to-save-owners-from-themselves/23199/

Yirmiyahu
Member
5 months 10 days ago

If Greinke didn’t have his opt-out, the Dodgers would’ve had him for $71M/3 remaining. If they thought that was too expensive, or that Greinke was at risk of an injury, they could’ve traded him and gotten significant prospects back. So where’s the downside for the Dodgers?

And you’re right that the players (theoretically) left money on the table to receive an opt-out. But that’s not what people are referring to when they claim that opt-outs benefit the team.

As far as CC Sabathia, the wisdom of the opt out doesn’t change simply because we now know what happened after the fact. Even if the Yankees had a crystal ball, they still would’ve been better off if Sabathia had NOT opted out. At the end of 2011, Sabathia had $92/4 left on his deal. That was a ton of surplus value. The future-knowing Yankees would’ve traded him and landed a trove of prospects.

%
Guest
%
5 months 10 days ago

“The future-knowing Yankees would’ve traded him and landed a trove of prospects.”

This is literally exactly the opposite of how the Yankees operate and have operated for about a decade and a half

ReuschelCakes
Guest
ReuschelCakes
5 months 10 days ago

I think your Yankee Defense Goggles allowed you to miss the point entirely.

%
Guest
%
5 months 10 days ago

I’m not defending the Yankees so much as pointing out that while yes, it would certainly have been the smart thing to do, it has never been a part of the way the team is run. Ignoring the fact that the *New York Yankees* would never trade away an immensely popular star player to posit a hindsight “they oughta” is something done to deeliberately make a point ignorant of reality.

ReuschelCakes
Guest
ReuschelCakes
5 months 10 days ago

okay, I’ll try one more time…

Yirmiyahu’s point was that William was confusing ex-ante and ex-post analysis. William’s post itself said that “no one would have thought the Yankees would be better off if CC left after his opt out.” So IF for some divine reason the Yankees DID know that (using the crystal ball sold by Yirmi), they would have been better off trading him and NOT having him opt out.

It’s not clear you get the point of ex-ante versus ex-post.

Maybe you do. But if you do, then by definition you are arguing that the Yankees would KNOWINGLY (with their crystal ball) being doing something which is detrimental to their team. Which seems like a worse argument… You tell me what your point is here.

%
Guest
%
5 months 9 days ago

“But if you do, then by definition you are arguing that the Yankees would KNOWINGLY (with their crystal ball) being doing something which is detrimental to their team.”

You are correct, this is my point.

William
Guest
5 months 10 days ago

People may not be referring to the money left on the table, but it’s a big part of the equation. In the event the Dodgers think Greinke is not worth the remaining the years, the question becomes what’s more valuable: prospects received via trade (and remember, some of these deals may involve no trade clauses) or a draft pick and the money saved over the first term of the contract? I think that’s debatable, but it’s worth noting that the potential trade market will not be equally robust for each player who opt outs (I am thinking about contracts that are still prohibitively long and expensive as well as cases like Rafael Soriano).

Aside from issues related to how easy it would be to make a trade, there are other optical issues involved with trading a popular, successful player versus having him opt out. It’s much easier for a team to let a player walk away because he opted out and demanded too much, versus trade him when he is popular and productive. The latter might not sit well in the clubhouse and with a team’s fanbase.

ReuschelCakes
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ReuschelCakes
5 months 10 days ago

I don’t understand any of this. The first paragraph seems to be some weird, straw man hypothetical argument…. but it doesn’t address the fundamental point of Yirmiyahu: there is large surplus value that is destroyed via the opt out. You address contracts with DEAD money (e.g., Soriano) but that’s not what he’s talking about…

The second paragraph:

“issues related to how easy it would be to make a trade” — why would it be difficult to make a trade?

“optical issues involved with trading a popular, successful player versus having him opt out” — what the what? are we just saying anything that we want and passing it as logic now?

“might not sit well in the clubhouse and with a team’s fanbase” — oh, I guess we are just saying anything we want…

Snarfle
Guest
Snarfle
5 months 10 days ago

There’s no way the prospects you get for Greinke at 3/71 are less interesting than a sandwich round draft pick. Sandwich round.

Kevin
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Kevin
5 months 10 days ago

But if what you are saying is true, and there is some other team who values that player more than the current team does, then the team that currently has the player would be able to trade that player and get more value back, because if he were to opt out, it means the current contract is below what their market rate is. The example Dave uses is Hamels – if Hamels had an opt out after 2015, there is no way the Phillies get as much in return from the Rangers as they did.

It doesn’t matter if the current team doesn’t value him at whatever the current contract is – if he opts out, it means there is some team out there that values him more. If there weren’t, they wouldn’t opt out.

Kevin
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Kevin
5 months 9 days ago

I like the David Wright comparison point here. At this point Wright is owed $87/5, so opting out seems like something he wouldn’t be too interested in doing. But, if we’re working in the hypothetical world in which Wright signed a contract with an opt-out, we should imagine that the contract was for less guaranteed dollars. So instead of $87/5, let’s imagine he’s owed $70/5 (you can quibble with that amount, but I’m going to work with this assumption).

At $14M AAV, Wright probably does have some surplus value, and making the decision around the opt-out is more tempting for Wright. Similarly for Hernandez, if he were owed $85/4, this is probably a different decision than $104/4.

My bottom line:
The obvious benefit for teams is around the amount they have to commit in a deal. Price is owed fewer dollars in a worst-case-scenario than he would be without the option. Yes, this benefit is offset by the possibility that Price walks after three or so years (which is unambiguously bad for the team), but that’s why it’s a negotiated arrangement.

This doesn’t seem as complicated to me as it seems to be for others.

Expo45
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Expo45
5 months 10 days ago

If a player would opt out, it implies that his contract is below market, as Dave said. If the team was below the market and wanted to pursue either option 1 or option 3, they could trade him for value and keep the money or sign that other free agent. In none of those scenarios would the team not be better off without an optout (and in 2 they’re significantly worse off).

The Greinke and Sabathia situations actually illustrate Dave’s point very well. Greinke is situation 1: the Dodgers offered him a big raise, but not market value. They’re much worse off than if they had him locked in for 3/71. Sabathia was situation 2: the Yankees decided they still needed him and had to pay out the nose to keep him. Had his normal contract run its course with no opt out, it would have been a decent deal (23 RA9 WAR for 161 million). Now they’re committed to a terrible deal because they were forced to roll the dice again.

The ONLY situation in which a team would be happy with an opt out at the moment it happened is if a player grossly overestimated his value and opted out when he shouldn’t have.

ReuschelCakes
Guest
ReuschelCakes
5 months 10 days ago

“The ONLY situation in which a team would be happy with an opt out at the moment it happened is if a player grossly overestimated his value and opted out when he shouldn’t have.”

Exactly — and any logic predicated on another party making irrational decisions is bad logic.

Note that there is a theoretical argument that the discount to the contract (AAV lower) more than negates the probability-weighted value of the opt out to the player… but (a) that still doesn’t make it a win-win and (b) no one here is making that argument…

William
Guest
5 months 10 days ago

You just can’t assume the team will be able to trade the player and receive value in excess of what they could have recovered in the case of an opt out. It’s just not that easy. You also can’t assume the prospects received in a trade will have value. If you layer on favorable assumptions to either side of the equation it will appear one sided. The bottom line with the opt out is it saves a team money up front (and helps to land the player they need right now) and then has the potential to help them avoid absorbing the lower value that often comes on the back end of a long-term deal.

ReuschelCakes
Guest
ReuschelCakes
5 months 10 days ago

“You just can’t assume the team will be able to trade the player and receive value in excess of what they could have recovered in the case of an opt out”

I don’t know what this means… are you saying that the “excess value” that is destroyed by the opt out isn’t real? That if the contract had no opt out that you couldn’t make a trade to extract this value? Why would you assume you CAN’T do that?

“You also can’t assume the prospects received in a trade will have value.”

You are confusing ex-ante and ex-post value.

“If you layer on favorable assumptions to either side of the equation it will appear one sided”

This is precisely flaw in your logic.

“The bottom line with the opt out is it saves a team money up front (and helps to land the player they need right now)”

I’m with you.

“and then has the potential to help them avoid absorbing the lower value that often comes on the back end of a long-term deal.”

Nope, no longer with you. By definition if that value is “lower” than the player won’t opt out. If that value continues to be “higher” than the team is worse off because the player is gone and you have to re-invest that $$ at market rather than at a value higher than market.

LilDebbie
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LilDebbie
5 months 10 days ago

I hear William’s argument, I really do. Fair enough to think it possible that, even if the player has recently done well and could get more money on the market, a team has unique concerns about him such that they don’t even like his current deal. Great, we’re on board.

Assuming the above, though, *and* assuming the team can’t make a trade, the team could still waive him and let another team take him for the remainder of his contract. The opt-out, however, takes that decision out of the team’s hands. Now, the player just leaves — the team can’t make the decision, which itself has value.

The opt-out is inherently player-friendly, which is why teams give it (or should be giving it) in exchange for fewer $$$. There may be smart reasons to make that financial decision! But that’s separate from whether the player option itself benefits the team, which it assuredly does not.

William
Guest
5 months 10 days ago

@ReuschelCakes Your argument is based on assumptions favorable to your position, so there’s no point debating, but I’ll try one more time. Teams can snap their fingers and make trades. A player might exercise a no trade clause. Other teams may not be willing to trade prospects when similar players are available on the market. Also, elements within the organization and fan base may put pressure on teams to not trade established, popular stars (you seem to dismiss this, but teams operate in the real world, not a fantasy league), especially when they perceive the player’s future value differently from the team.

Is it possible that a team would be better off trading a veteran instead of having him opt out? Of course. But, they could end up worse off too. You simply can’t discount the money the team saves in exchange for the opt out. That cash plus a draft pick could very well be worth more than the potential prospects that would come in a trade. And, even it’s not, it helps mitigate the difference.

I will concede your point under the carefully crafted circumstances you have defined, but in there are many variables in the real world, and they allow for the opt out to be beneficial to the team as well as the player.

ReuschelCakes
Guest
ReuschelCakes
5 months 9 days ago

@William

I don’t know what any of your post means, but I assure you our differences are not based on my “assumptions favorable to your position” — as I am explicitly making no assumptions and simply pointing out that ex-ante all possibilities need to be discounted and that ex-post one of the possibilities is that there would be meaningful team excess value destroyed buy the option’s exercise.

Is it possible for the team to “win?” Sure — they are in fact getting a lower AAV over the contract, which includes the years pre-opt out. think of a stock option which expires exactly at the strike price — maximum value for the seller. But that’s unlikely.

Fwiw, all of your malarkey about how trades are hard and prospects don’t pan out and the fan base might not like this and the clubhouse might not like that and there might be no trade clauses and how you “can’t discount money” are all b.s. “assumptions” to box in your own argument to try to be right (which you still fail…)

I just rattled off a number of assumptions in your posts — I’d love for you to find one ex-ante assumption that I am making.

Option Theory
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Option Theory
5 months 10 days ago

But in 2 of those 3 situations, the player is very unlikely to opt out.

hebrew
Member
Member
hebrew
5 months 10 days ago

so this is all happening in a world without inflation, then? that’s the only way your argument makes any sense.

in scenario (1), above – a team is “better off,” if they are correct and the player is not worth his market rate. Keep in mind, though, that option 1 requires an opt-out, and the player doesn’t do that in a vacuum. Heyward doesn’t opt out in three years if he’s not 100% sure he can get a better deal. Which means option 1 is insanely unlikely.

Option (2), in which the player opts-out, and the team offers him a new deal, means the team is now offering the player a raise. Remember, he wouldn’t have opted out otherwise, right? Many times, this raise can simply be chalked up to that aforementioned inflation bug. (i.e., players cost more now than they did a few years ago). In this situation, the team is most definitely not better off, because they are paying more for the same asset, willingly or not.

Option (3), again, requires an increased investment on behalf of the team in order to get the same production. Only a fool would call this beneficial.

I do concede that teams get a small benefit in terms of AAV savings by including the opt-out, but the idea that an opt-out can be exercised by the player, and that can be GOOD for the team, is pretty imbecilic.

Dan
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Dan
5 months 9 days ago

I assure you that it can be good for the teams if a player provides significant excess value the first 3-4 years of a contract and then opts out.

Would it be better for the team if they provided that same excess value and then couldn’t opt out? Of course. But arguing between good and better doesn’t diminish the good in the first scenario. But since teams are getting a discount in AAV for including the opt out, they are getting a bigger benefit the first few years than they otherwise would have.

hebrew
Member
Member
hebrew
5 months 9 days ago

as to your last sentence: definitely. but the team is the one assuming all the risk in the deal in order to get that benefit.

the team benefits in the first few years more than the player does.

however, as soon as the opt-out comes, the player wins. he can either opt-out for more money, or stay locked in and be fairly (or over) paid.

the only way the team continues to “benefit” after the opt-out is if the original contract continues to be market rate for that player. And in that case, the team is only benefiting to the point that “not losing” can be considered a benefit. It’s definitely not a gain.

Kevin
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Kevin
5 months 9 days ago

This raises an interesting point.

There is obviously a break-even point around AAV where the raise makes sense. Let’s consider a hypothetical player’s contract.

Let’s assume this player is going to be owed 6/180, with the salary being a constant $30M year, for simplicity. And, after the third year the player has an opt-out, and can choose between taking the remaining 3/90 or testing the market. Let’s suppose that during the negotiations, the player was willing to not include the opt-out, in exchange for an additional $3 AAV, which would have taken the deal to 6/198.

In this scenario, the team can be planning on paying the raise – that is to re-sign the player after the opt-out, to a deal in the $35M AAV range, let’s say it’s 4/140. So instead of paying the player 6/198 or 6/180, the team winds up paying 7/230, which is not only a lower AAV than the non-opt-out contract (e.g. less than $33M), but it’s also back loaded and includes a decision point for the club: namely that they can choose not to re-sign the player after year three.

That all being said, this feels like a stretch to me. I think that any player who’s debating between three options at 6/180 (with an opt-out), 6/198 (no opt-out), or 7/230 (backloaded), most players would take the 7-year deal.

Teams want to minimize their long-term commitment, for obvious reasons, so yeah. I’ve talked myself into a circle here.

hebrew
Member
Member
hebrew
5 months 9 days ago

the statement I really don’t understand is “includes a decision point for the club: namely that they can choose not to re-sign the player after year three.”

The club isn’t the one making that choice, in reality. The player is, right? and the player is only opting out if he’s getting a raise, right?

So the club’s “choice” is basically refusing to pay market rate for their player after he opts out?

That’s what I just can’t wrap my head around.

The only way I can see it is that the club is getting a small AAV savings (no more than a half-win a year) and the “flexibility” of not re-signing their presumably star player in a few years, and in return, they risk everything: they risk losing their player in a few years, and (even worse) they risk having to pay Josh Hamilton for the next 6 or 7 years, when he stinks.

The player, on the other hand, gets to make more money with every contract. He’s betting on himself to not get injured. That’s his only risk.

Am I missing something?

Baseball Guy
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Baseball Guy
5 months 10 days ago

You’re completely missing the concept of value, especially marginal value (is a player worth more than his salary). If he is — which players like Greinke are, by a large distance — they can either keep him or trade him for a massive return. What could the Dodgers have gotten for Greinke on a 3/$70 contract? Name your price, basically. That is gone with the opt out.

You all keep persisting on this, but it’s not really a philosophical debate with two sides. It’s basically just math. There is absolutely no way possible an opt out can be good for a team (unless you include in the calculation the savings they got in AAV for including the opt out in the original negotiations).

A million here, a million there
Guest
A million here, a million there
5 months 9 days ago

Do the post-option years, as non-guaranteed money, count toward the CBT? If not, then back-loaded contracts could save present luxury tax dollars. Probably a factor for the Red Sox.

DNA+
Guest
DNA+
5 months 10 days ago

I honestly do not see the point of these comparisons. As you have stated, the opt out changes the dollar amount. You’ve considered all these deals with respect to the actual dollar amounts in the contract, not the reduced dollar amount they would have gotten if they’d been given an opt out.

doc ellis
Member
doc ellis
5 months 10 days ago

This is true for the opt-out analysis as well. If we’re evaluating the Dodgers and Grienke, you need to inflate the AAV in the counterfactual world where he didn’t get an opt-out, he’s making 6/$165 or 7/$175 or something similar, and the dodgers wouldn’t be getting the 3/$71 surplus they have.

This doesn’t defeat the point of the comparisons. In fact, it supports Dave’s larger point — that the opt-out is only a value to the team in that it reduces the years or AAV it would otherwise require to sign a free agent. But it does cloud the hypotheticals he’s using to support the point that teams who have players opt-out are losing value.

The idea that opt-outs “favor” a team or player is somewhat flawed. An opt-out is simply a contract structure that meets both team and player preference. Presumably the Cubs could have offered Jason Heyward a shorter deal with high-enough AAV that he would have preferred that over the signed deal, or a longer deal with higher AAV or more guaranteed years that was sufficiently rich that he wouldn’t have wanted the opt-out. But Heyward decided he wanted another couple possible bites at free agency and the Cubs decided to give him opt-outs to ensure they could get his services for at least the next few years and not extend themselves in years or AAV to do so.

The more interesting questions here are what these opt-outs are worth to players, how they affect roster construction with uncertain contract duration, and so on.

Renegade
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Renegade
5 months 10 days ago

As much as it amuses me to perpetuate the “Heyward took less to sign with the Cubs” spin, I don’t think he actually took less money. Including the bonus (which moves up to 2020 if he opts-out) Heyward is basically on a 3/$78M deal, with a 5/$106M deal tacked on.

The contract is all but designed to force Heyward into opting-out.

While the Nats and St. Louis were said to have offered either 9/$200M or 10/$200M, even assuming those deals would also have an opt-out – they just aren’t likely to have been so front-loaded.

Tim
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Tim
5 months 10 days ago

No ones talking about it since it hasn’t happened this winter, but the situation changes a little for a smaller market club. While they might be able to squeeze in star money for a little while. They can’t do it on the lower production years. So you get enough of a discount that you are able to sign the player, and then them leaving is a positive since the only time your able to pay them a premium is when they are for sure a premium player. A smaller market team is able to make it work on a 3/54M for a star, and they differ some of the later year money, so that if they are stuck with it they can manage. Its not ideal, but its similar to Oak giving Cespedes 4/36M to get him. They would have loved to have kept him for last year plus like 2/18M, but he signed because they kept it 4.
Maybe “Its a trap”, but I would have to think that these deals could give smaller market teams the flexibility to stretch for a little bigger FA prize, and make it work for them. We just aren’t seeing it since most FA’s that manage opt-outs are going to larger market teams. The point could be made though that only adding the OO allowed the Cubs to sign Heyward, who would be on another team without them.
Not saying the articles wrong at all, I think its very valid. Just thinking in the abstract more, where I could see a exec like Billy Beane finding a way to use the OO clause to make an otherwise impossible contract happen.

big picture
Guest
big picture
5 months 10 days ago

Okay, let’s assume Greinke and Price are roughly equivalent players which is a fairly gross assumption but their new contracts were both made in the same free-agent market so they can be compared easily.

There have been multiple analyses of the value of an opt-out clause to players putting the value at roughly $10-13 million. (http://www.fangraphs.com/blogs/the-value-of-the-opt-out-clause-in-the-david-price-contract/). If you look at the first-three years of Price’s contract he’s making $30/year while Greinke is basically making $34/year (which is a little more complicated considering the deferred money). The difference…you guessed it $12 million. Somehow that happens to be right in the range of estimated value to the player of getting the opt-out.

Assuming Price opts out (which he is likely to do) and resigns elsewhere, the Sox will free up $127 mil over 4-years and get the value of a compensation pick (estimated at $5-8 mil: http://www.fangraphs.com/blogs/what-is-a-compensation-pick-worth/). Assuming the high end, the Sox end up netting $8 mil in a compensation pick and $12 mil in actual salary. The question is what they can do with that savings before and after the opt-out.

Will the roughly $4mil/year savings before the opt-out appreciably help the Sox compete in the short-term…maybe.

Where the Sox likely lose is on the back-end of the deal. If you think they can sign Harvey, Fernandez, Keuchel, or Kershaw in 2019 for the equivalent of $32mil/year (the rest of Price’s contract) or even $34mil/year (Greinke’s contract) you are sorely mistaken. Free agent prices will be likely be pushing roughly $10mil per WAR and $40mil/year contracts will not be out of the question. Even an aging former-star pitcher equivalent to Price’s value could conceivably get somewhere around $150mil for 4-years (basically losing the Sox $15 million in value, even assuming the $8 offset for the compensation pick).

Really, what the folks who advocate for the opt-out should be saying is that it is team-friendly in the short-term from a win-now mindset but that the potential long-term downside can be very large if the player still shows the high-skillset at the time of the opt-out that netted them the big deal in the first place.

Larry
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Larry
5 months 10 days ago

Your analysis “confirming” the value of the opt-out at $12 is laughably wrong.

big picutre
Guest
big picutre
5 months 10 days ago

I didn’t “confirm” the value…the fangraphs article I linked did that…all I did was note that the difference in actual dollars prior to the Price opt-out is roughly equivalent to the “value” that others have pegged as the opt-out value.

Well-Beered Englishman
Guest
Well-Beered Englishman
5 months 10 days ago

Just want to point out that Jorge Posada has been unseated at the top of the search rankings.

Yirmiyahu
Member
5 months 10 days ago

WBEM, you always keep your eye on the ball.

samuelraphael
Guest
samuelraphael
5 months 10 days ago

Why is he always up there?

Kevin
Guest
Kevin
5 months 9 days ago

Because he’s so much better than Mike Trout. Obviously.

Bob
Guest
Bob
5 months 10 days ago

Where’s that article that looked at who actually has opted out and how generally poorly the subsequent contracts/performance went for the teams who kept their players? Did Dave read that one?

Jason B
Guest
Jason B
5 months 10 days ago

How does that factor in? Or, it’s a different question that you’re asking, not the one that Dave is addressing here.

The analysis here is of the initial contract and the value of the opt-out, and who the opt-out provides value to. The actual value provided after the opt-out can be estimated at the time (and is estimated by the team when they ink the player to the deal) but can only be known (with certainty) in hindsight.

Kdc
Guest
Kdc
5 months 10 days ago

“because the players will only opt-out if they have below-market contracts”

Your entire argument rests on this point and this point is not necessarily accurate. It could be that they’re opting out because their contract is below market, or it could be that they want to sign another longterm deal.

Honest Question
Guest
Honest Question
5 months 10 days ago

Can you point to even one instance of a player opting out of an at or above-market long term (ie, declining a one year QO isn’t the same thing) deal? I think not, but if you could it would certainly be interesting with regards to this question.

%
Guest
%
5 months 10 days ago

Both A-Rod and Sabathia’s remaining salaries were at or above market price

Kevin
Guest
Kevin
5 months 10 days ago

There is no way that’s true. After the 2012 season, which is when CC opted out, he had somewhere in the neighborhood of 4 years/ $92MM left. He then signed for 5 years / $122MM. That means that 5 years/ $122MM was his market price at that point, and so his original contract was below market value.

%
Guest
%
5 months 10 days ago

Sabathia opted out after 2011 not 2012, and his remaining contract was 2012-15 @ 23M per. His new contract did not change those years, it added one guaranteed year 2016/25M and the 2017 vesting option 25M/5M buyout if it does not vest. So it added, essentially, 1/30M.

The two next best pitchers available that offseason were CJ Wilson (5/77 given by the Angels, and allegedly with a 6/100 offer from the Marlins) and Mark Buerhle (4/58 from those same Marlins). So Sabathia’s original remaining contract was quite a bit higher in both remaining total commitment (4/86) AND AAV (23M) from the actual contracts signed.

%
Guest
%
5 months 9 days ago

Y’all are up and downvoting these as if I totally didn’t prove the point

chuckb
Guest
chuckb
5 months 10 days ago

Why would they want to sign a different long-term contract if their current contract is for more than they’re worth? Only George Costanza does this and he didn’t have someone like Boras or another professional agent representing him.

jdbolick
Member
Member
5 months 10 days ago

Because agents prioritize total guaranteed money over average annual value. If a player has 3 years and $60 million left on his contract but the agent feels confident that he can secure a 6 year deal for $90 million, the player will almost certainly opt-out. Remember that a player’s second or third turn through free agency is during their decline phase, so the roles are essentially reversed from their early years when teams are looking to maximize value by signing extensions before a player’s value increases. In this case the agent is looking to lock in total money before the player’s value decreases.

%
Guest
%
5 months 10 days ago

Not just their decline phase, but also more likely to be their family-having, kids-needing-college-fund phases as well

ReuschelCakes
Guest
ReuschelCakes
5 months 10 days ago

Again, find examples of players doing this and it would be more compelling….

Also, the team paying 6/90 is ABSOLUTELY paying more for the first 3yrs than your 3/60 — don’t confuse AAV and value

jdbolick
Member
Member
5 months 10 days ago

Again, find examples of players doing this and it would be more compelling….

I don’t understand what you mean given that Vernon Wells is the only player ever to not opt-out.

TC
Guest
TC
5 months 10 days ago

He is asking to provide an actual real world example of your hypothetical where someone opted out of their contract in order to take a significantly discounted AAV for more years.

jdbolick
Member
Member
5 months 9 days ago

What part of “Vernon Wells is the only player ever to not opt-out” did you not understand? Players always opt-out unless they believe they’re being massively overpaid.

HappyFunBall
Guest
HappyFunBall
5 months 10 days ago

If a player were to opt out of, say, 3/60 in order to sign a 5/90. More years, more total $$$, but perhaps a lower AAV

ReuschelCakes
Guest
ReuschelCakes
5 months 10 days ago

are there examples of this happening?

this is also a weird scenario… for you to believe that the player is actually taking “less” for years 1-3 you’d have to peg them at like $18 versus the $20 in the original contract, which would mean that your contract would imply years 4 & 5 are also $18… which couldn’t happen given normal decline curves.

jdbolick
Member
Member
5 months 10 days ago

What in the world are you talking about? MLB contracts typically pay out roughly the same amount (within a million or so) each year of the deal.

ReuschelCakes
Guest
ReuschelCakes
5 months 9 days ago

@jdbolick: I don’t think you understand the concept that annual salary and value over the contract aren’t the same thing… just b/c you pay X in year Y doesn’t mean that the contract was based on receiving value in that proportion. Look at any FA contract and the value is typically assumed to be heavily weighted to the front end and the $s slightly weighted to back end..

therefore, if your market as a player was for 3yrs and 20/y and you took “less” for those 3yrs (3/54) there is no way that you’d also receive an implied 2/36 for the following 2 yrs — those assumptions would never come to pass. so even a 5/90 contract would implicitly assume something equal to or greater than 3/60 for the first 3yrs

make sense?

jdbolick
Member
Member
5 months 9 days ago

ReuschelCakes, you’re not making any sense. We all understand that free agent contracts are signed with the expectation that any surplus value will be on the front end and that the back end is likely to pay the player more than he is worth, but that has nothing whatsoever to do with this discussion despite you trying to shoe-horn it in. Major league contracts are for set terms, they do not vary based on how much actual value a player produces, aside from incentives. The dollar amounts for 2016, 2017, 2018, etc. are fixed. You don’t get to pretend that the dollar amounts in those years were bigger up front and smaller later when they actually were not, just because you bizarrely want to match up the salary with value.

JayT
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JayT
5 months 10 days ago

If a guy is signed to an AAV that is market value that doesn’t necessarily mean that he is getting market value. The number of years also comes into play, so if a guy is opting out because he can get more years, then he isn’t currently making the market rate. If a guy is on a $20 million per year contract for three years, but he could sign a $20 million per year contract for six years, then he isn’t making the market rate.

The Ghost of Stephen Drews Bat
Member
The Ghost of Stephen Drews Bat
5 months 10 days ago

Dave used the word frequently and I think it helps with deciding what side one wants to be on this issue. The word is: value.

“Value” is subjective in the realm of baseball, with value differentiated among teams and there are a host of factors which lead to the subjective-hold value has to a team. However, I believe the two most important factors which led to value are: win-now and/or financial capabilities.

This offseason, teams like the Dodgers, Red Sox, Giants, Diamondbacks, Cubs are currently in win-now modes with considerable financial capabilities to upgrade their roster to win more ball games. Among those teams, the Red Sox (Price), Cubs (Heyward), and Giants (Cueto) offered opt-out clauses within the first 2-3 years. I believe they are placing tons value on winning within the 2-3 timeframe that those teams are content with success for the short-term in exchange for major reggression in the long-term. The Sox, Cubs, and Giants are placing a huge amount of value into winning-now, and they have the financial capabilities to do so.

An example I can think of is the 2009 Yankees. Huge contracts to Tex, Sabathia, and Burnett, yet, I can ensure you, fans are happy those players got a championship (regardless of the contracts).

I think Dave misses this out on his present-value calculations: value is not only in money, but winning games as well.

JayT
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JayT
5 months 10 days ago

But all those teams would still get the present value if none of those contracts had opt-outs. If say the Giants’ window closes in two years, but Cueto is still good, then he will opt out and the Giants will be without that asset. If there was no opt-out, and in two years the Giants get bad but Cueto stays good, then they could trade Cueto for prospects that will be a part of the next good Giants team.

If a player opts out of a contract, and gets more in free agency than he was owed, the team loses out on value. Because even if they didn’t need the player any more, they still could have traded him. I think the return Cole Hammels got is a perfect example of this. Do you think the team would have been better off if he had been able to opt-out last year? the team signed him when they were in a win-now mode, so by your logic, they should have been happy to lose his salary when they were bad, but no one thinks that because he stayed good and his trade brought back significant value.

jj
Guest
jj
5 months 9 days ago

But the value is now and getting the player to sign is what the teams are trying to do. I’m not sure where all the confusion is. Teams do what they think they need to do to get players signed. Teams with win now and in the next couple years have a huge incentive to get the players so give them an opt out, move it forward or give them an extra one, if this helps get the player signed. Sure the opt out itself has nothing of value to the team, the player does, winning does, winning your first WS in 100+ years does.

Only Glove, No Love
Guest
Only Glove, No Love
5 months 10 days ago

The key term in Neyer’s piece is “wealthy”. That makes all the difference. Wealthy teams don’t want to pay for decline years of star FAs at any discount. They want a better player. The flexibility of the open roster spot is hugely valuable to a wealthy team.

The A’s worry about how to fill 9 everyday spots. The Cubs worry about having only 9 spots to cram as much talent as they can into…

hebrew
Member
Member
hebrew
5 months 10 days ago

how is a player opt-out providing team flexibility though? the team doesn’t decide if the player opts out, last I checked.

Only Glove, No Love
Guest
Only Glove, No Love
5 months 10 days ago

Exactly. To get an elite FA, a team has to include decline years. With a cleverly constructed contract including opt outs, a team can make it very likely that the player does in fact opt out. See CHC and Heyward.

Add inflation and then year over year increasing costs of signing FAs and the likelihood of opting out is almost certain absent serious injury… And that risk can not be addressed currently.

Jim
Guest
Jim
5 months 10 days ago

The Cubs are in the unique position of knowing there is a windfall of revenue coning their way in 2019, due to the likelihood of a team owned sports channel, especially if the team continues its strong performance. The first 3 years of Heyward are an investment to the value of that product…after which pushing market values higher likely benefits the team in the long run

JayT
Guest
JayT
5 months 10 days ago

They would still have gotten Heyward’s value for those first three years if they had been able to sign him to a full eight year deal though, so that just doesn’t matter.

Nick
Guest
Nick
5 months 10 days ago

The opt-out always just seems like a form of insurance to me. Theoretically, a player takes less money upfront to have an opt-out in the later years. So if you’re paying a player 3/60 with a 5/95 player option, you might have to pay him 3/85 if you wanted him on a strictly short term deal. (If somebody had offered Grienke 1/45 this winter, don’t you think he would have taken it?) Thus, the insurance policy in this case costs the player $25M, but guarantees him a $95M extra in case he gets hurt or has skill deterioration.

But Player X can’t go to Lloyd’s and say “I’d like insurance against me starting to inexplicably suck” so this is how the player gets it.

Joe
Guest
Joe
5 months 10 days ago

There is no way Greinke would have taken 1 year deal for $45 mil when he ended up signing for over $200 mil. He would most definitely take a 4 year, $200 mil contract versus the one he took, but no one offered that. The AAV is not as important as the total value of the contract because of the risk involved (especially for pitchers, but all players as well). At what point does the AAV become high enough for a 1 year deal that a player would accept it over a 6 year deal? I am not sure, there is probably a calculation that could get you an estimate, but you would have to take into account that Greinke’s value is likely never going to be higher than it was this offseason as a 32 year old pitcher coming off a historic season (in terms of ERA, he was “more mortal” according to FIP). If Greinke repeats last years performance then the 1 year $45 mil deal works out, but that’s an awful big risk to take with $200 mil in guaranteed money sitting on the table.

Also, I do believe players are able to take out insurance polices on themselves in the case of injury. I have heard of this being done by projected 1st round draft picks from college football as a form of protection against losing their signing bonus if they end up getting hurt and dropping. Though no, I don’t think you can take out insurance against a non-injury related drop off in ability.

N8*k
Guest
N8*k
5 months 10 days ago

From the team’s perspective, they are also just hedging their bets. Their optimal scenario isn’t as high (surplus value at the time of the opt-out), but their worst case scenario isn’t as bad (on the hook for a smaller amount).

JD
Guest
JD
5 months 10 days ago

The one thing you are overlooking is that the end of the contracts haven’t happened yet. I agree that at this point the M’s, for instance, would not want to lose Felix. However, if that decline does happen and some other team is paying his above-market value contract, the M’s would look back on his opt-out decision as a positive one for the franchise since they didn’t have him on the books. Now looking at the Cubs and Heyward, their window will be wide open for the 3 or 4 years they have Heyward (assuming he opts-out and signs elsewhere) but after that things become a bit uncertain as their young stars will be up for new deals soon and chances are they won’t be able to pay them all. It’s possible that 3 or 4 years of Heyward will be perfect for the Cubs since it will make their team as strong as possible in the near future and if he does perform well, he will opt-out and free up some money to pay Bryant, Schwarber, Russel, etc.

N8*k
Guest
N8*k
5 months 10 days ago

Role Play Time: You are the GM of the Mariners.

You assume Felix is in the decline phase of his career. Are you wishing he had an opt out so you aren’t on the hook for his decline years or are you glad he doesn’t because now you can trade him for prospects?

Do you want prospects or do you not want prospects?

J. Dipoto
Guest
J. Dipoto
5 months 10 days ago

*snarky voice* Man, I wish Felix had the option to opt-out of this contract so I could avoid the bad optics of a trade…

JD
Guest
JD
5 months 10 days ago

That’s the thing, you never truly know when someone is in the decline phase, so it’s tough to trade someone like felix. If the Mariners were to trade him this offseason, I don’t think that would go over too well with the fans because while they aren’t world series favorites, they are in a win now mode. Going by that, I don’t really think trading him is an option at this point, irregardless of his contract situation. Now if the M’s had the mindset of say the Reds then yeah, trading him for prospects would be more valuable than having the money freed up

Larry
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Larry
5 months 10 days ago

So swap him for another good pitcher/player you don’t think will decline?

Josh
Guest
Josh
5 months 10 days ago

I can appreciate this type of analysis. I think having some actual comps is important to illustrate the point. Worth revisiting Rob’s statement though, because it mirrors something I brought up in one of your earlier posts on this topic.

“So would smart organizations like the Cubs and Red Sox be terribly disappointed if Heyward and Price let someone else pay the freight down the road? Leaving the clubs with a sudden windfall of sorts, and the attendant flexibility?

I think not.”

The key for me is the “terribly disappointed” — it doesn’t appear to me that Rob is arguing that opt outs are team friendly. The argument, instead, is that big market teams can use their ability to absorb the risk in order to include these clauses and take some savings on the overall deal. If the player opts out, it may be undesirable, but it’s not a total loss.

Boston knows that it’s unlikely Price is a valuable component in the 6th/7th years of his contract. He may opt out because he has positive value after year three based on the perceived value of years four and five (with his late 30s becoming a “cost of doing business” to the signing team). While Boston can no longer capitalize on years four and five, they know they definitely don’t have to pay for six and seven. They’re a draft pick and $30M/yr richer on the cusp of free agency (it just so happens to be before a potentially historic FA class).

The point Rob makes is not basically wrong — in fact it agrees on some level with your contention that the opt out is player friendly. It is. If you are a player, you want an opt out. If you’re 20 or so MLB teams, you don’t want to give them out under any circumstance. If you’re a larger market team and you can gain a savings, absorb the risk, and have confidence you could replace the player’s production with dollars allocated to the contract the player just opted out of, it makes more sense.

Josh
Guest
Josh
5 months 10 days ago

On the Greinke deal:

Scenario A:
Greinke opts out. Team offers QA which he declines, netting team a draft pick if he signs elsewhere. They consider Heyward/Price more valuable than Greinke going forward and allocate the dollars from his contract to acquiring one of the two. They now have a draft pick and a preferable asset.

Scenario B:
Greinke opts in because the last three years have not given him positive value. Conventional wisdom is that he’ll struggle to hover just above league average over the next three years.

Scenario C:
Greinke has no opt out. Team considers Heyward/Price more valuable than Greinke going forward. They trade Greinke and the remaining 3/73.5 on his contract. They now have a trade package and the ability to allocate Greinke’s money to Heyward/Price.

Scenario D:
Greinke has no opt out. His original contract was for 6/160 instead of 6/147 w/ clause. The last three years have not given him positive value. Conventional wisdom is that he’ll struggle to hover just above league average over the next three years.

We can agree that Scenario D is the worst possible outcome considering the circumstances. They paid the most money for the least performance. We can also agree that Scenario C is the best possible outcome, in which the Dodgers paid only for valuable years of Grienke’s contract, and got the assets they want now and going forward plus a trade package. Scenario B, which finds Greinke opting in because of poor performance is only slightly better than Scenario D, because the money is less. Scenario A seems closer to the optimal Scenario C than any other. It’s clearly not as good as C, but it’s definitely not as bad as other outcomes for the Dodgers. As Rob points out, they shouldn’t be “terribly disappointed.”

janson
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janson
5 months 10 days ago

Scenario A is not hypothetical. Greinke did opt out. And the Dodgers have not been able to replace him by “allocating his dollars” because (player salary or $/WAR) inflation has eroded the value of the now-freed resources.

Josh
Guest
Josh
5 months 10 days ago

The dollars freed up could have been used to sign Heyward and would have been within $6M of Price’s AAV. They could have signed Samardizija and Kazmir, or some variation involving FAs. The Dodgers chose not to pay Heyward/Price’s asking price but the dollars from Greinke’s deal were and will remain available to them.

N8*k
Guest
N8*k
5 months 10 days ago

I disagree with the point that these opt outs work better for big market teams. Big market teams can afford to risk having a bloated contract.

Contracts with opt outs are actually less risky because while the upside is lower (no contracts with surplus value) the downside isn’t as low (lower overall $). To me, this seems to be more beneficial to small market teams.

Tyler
Guest
Tyler
5 months 10 days ago

Is the opt out beneficial to small market teams if they can use the non-realized value of the opt-out to sign a player they otherwise would not have been able to afford, and try to fit the opt-out outside of their contention timetable? Sure, the player opts out if they do well, and they can’t trade him when they’d really like to to start the rebuild, but they may not have been able to sign him in the first place without the value of the opt-out offsetting their smaller spend potential.

soaktherich
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soaktherich
5 months 10 days ago

Good question for the Marlins front office.

Studes
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Studes
5 months 10 days ago

Keep fighting the good fight, Dave.

Andrew
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Andrew
5 months 10 days ago

I think the best example of this is Greinke. If the Dodgers had him under contract now and wanted him to “opt-out” they probably could have just traded him to the Diamondbacks for more than the haul they gave up for Miller (far inferior pitcher under control for the same years). Now they get a late first round draft pick instead. Granted, had Greinke blown up his arm, only having ~70 million in dead money is a lot better than ~100 he might have had if he hadnt gotten the opt-out. Ultimately opt-outs just serve to lower risk for the team at the expense of lowering the upside potential of a contract.

soaktherich
Guest
soaktherich
5 months 10 days ago

Sounds like the Mariners should trade Felix to the Dodgers for some combination of Urias, Seager, and others. The only reason why they don’t is the stupid money they threw at Cano and the subsequent artificial need to win now. What a mess.

Option Theory
Guest
Option Theory
5 months 10 days ago

Or perhaps they don’t because the Dodgers wouldn’t give up some combination of Urias, Seager, and others.

%
Guest
%
5 months 10 days ago

Your Felix point is all wrong. The argument RE Felix isn’t should Seattle trade him now (which they probably should but like I say, that’s a different point), the argument is they shouldn’t have signed him to that deal to begin with, just like Colorado and Milwaukee shouldn’t have done with Tulowitzki and Braun.

chuckb
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chuckb
5 months 10 days ago

It seems that those who argue that the opt-out benefits the team are relying on the premise that the player plays well prior to the opt-out, thus incentivizing him to opt-out, and then breaks down or becomes awful almost immediately afterward.

This might happen, of course, but you’re still talking about the 5 or 10% scenario, one that no one could possibly predict ahead of time. If it was predictable, his value wouldn’t incentivize him to opt-out and the team would still be stuck with the original contract. The team, therefore, might get lucky that the player opted out of the contract but they couldn’t have known that when they signed it.

It’s sort of like a pitcher throwing a BP fastball over the middle of the plate and having Bruce Harper swing through it for strike 3. It wasn’t a great pitch because it worked. It shouldn’t have worked but the pitcher got lucky because sometimes that happens.

jdbolick
Member
Member
5 months 10 days ago

The premise of this column is flawed, as the 100+ million dollar deals analyzed would have been for a lower total dollar amount had opt-outs been involved.

Yet again, three or four years of quality performance do not guarantee that the player will perform well for the remainder of the contract. It is quite possible that Zack Greinke will regress to a 3+ FIP pitcher and/or get injured, which would make the opt-out look great for the Dodgers. It is also possible that Zack Greinke will continue to be one of the best starting pitchers in the National League and make the Dodgers wish the opt-out had never been included. Even if the latter is true, it does not change the fact that the Dodgers received good value out of the initial three seasons. That contract was still a tremendous success for them, just not the greatest outcome possible. Consider the worst and best case scenarios for the team in this scenario.

Worst case, no opt-out: The team has a vastly overpaid player over a prolonged period.
Worst case, opt-out: The team is on the hook for a slightly less overpaid player.
Best case, no opt-out: The player is superb over the full term of the contract.
Best case, opt-out: The player is superb over the shorter term of the contract.

The opt-out from a team’s perspective is about risk management. Both the worst case and the best case are less extreme for the team with an opt-out than without it, so it narrows the range of outcomes. Think of it like signing a player who is consistently around 2 WAR versus someone who bounces between 0 WAR and 4 WAR. Depending upon the context, a team may prefer the former or the latter. Teams aren’t agreeing to opt-outs against their will. They’re doing so because they’re making a calculation on risk versus reward. If they deem a player to be too risky for the investment necessary to sign someone, the opt-out is a means of reducing some of that risk in exchange for some of the potential reward.

Option Theory
Guest
Option Theory
5 months 10 days ago

But it’s not a symmetrical distribution. The reduced volatility to the downside is a small fixed amount while the reduced volatility to the upside is potentially large and uncapped. That is, the team will be only slightly better off in the worst case and potentially significantly worse off in the best case. They are giving up almost all the upside and keeping almost all the downside.

jdbolick
Member
Member
5 months 10 days ago

A ~10% discount isn’t “small” and the upside is much less substantial than you’re pretending. Due to the nature of free agency in major league baseball, the years you’re potentially losing out on are always going to be in the decline phase, so the odds are very strongly against them generating large surplus value. So no, teams are not giving up almost all of the upside while keeping almost all of the downside. It is a fairly balanced exchange.

Ed
Guest
Ed
5 months 9 days ago

A 10% discount is small when you realize that annual salary inflation averages about 8%. A deal like Price’s is roughly like locking in 3 years at last year’s rate instead of 7 years at this year’s rate. It sounds like a deal today, but it doesn’t when he opts out and you have to pay market rate to replace him.

Also, just because the later years are the player’s decline years doesn’t mean they’re bad years. Yeah, a player can fall off a cliff, but most decline gradually. Opt-opts generally only come in for the higher tier players, so the decline phase is usually still valuable.

jdbolick
Member
Member
5 months 9 days ago

A 10% discount is small when you realize that annual salary inflation averages about 8%.

It isn’t even close to 8%, and that’s not relevant to the question anyway given that the actual level of inflation (FanGraphs uses a 5% estimate) applies to contracts with opt-outs and contracts without opt-outs. The 10% savings is still a 10% savings, and no, that is not small.

A deal like Price’s is roughly like locking in 3 years at last year’s rate instead of 7 years at this year’s rate. It sounds like a deal today, but it doesn’t when he opts out and you have to pay market rate to replace him.

Are you completely unaware of the history of large free agent deals? Please give me as many examples as you can think of where the player was still worth their salary in the final two years of their contract.

carmen fanzone's trumpet
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carmen fanzone's trumpet
5 months 10 days ago

Dave – let’s use the David Price contract as an example. At $31M per season, and if he pitches well from age 30-32 and then can opt out, you state the Red Sox would be disappointed. So let’s ask why? You can a) pay $124M for Price’s age 33-36 seasons, or b) revisit free agency and offer a minimum of $31M/yr to a younger, less innings on the arm top free agent entering his prime years or c) make a trade for a pitcher a year or two away from entering free agency and throw this money at him for an extension. Granted, you would need to give up assets in any trade, but with the influx of Price money and exclusive negotiating rights post-trade, it’s still an attractive option.

If I’m the Red Sox, this sets up a win-win scenario. Not knowing exact contracts, let’s use Chris Archer as an example. A top of the rotation 26 year old, who would be eligible for Free Agency in 3 years (yes, I know in real life he has an extension plus team options) but for arguments sake, would you want age 33-36 of Price or age 30-33 of Archer for the same money? Remember, we’re assuming it’s 2019 and both have pitched well and Price opted out, and the Archer-type pitcher is a Free Agent – the Red Sox could mitigate risk here, so there is value to the opt out.

Atreyu Jones
Guest
Atreyu Jones
5 months 10 days ago

If Price opts-out, they won’t be able to get a younger pitcher who is as good as price on a 4/$124m contract! If that was the going rate, Price wouldn’t opt out in the first place.

carmen fanzone's trumpet
Guest
carmen fanzone's trumpet
5 months 10 days ago

Understood – but in 2019 would you sign Archer to a 6yr/186M contract with an opt out? Again you’re getting a #1 SP for prime years and not paying for the decline.

Regarding Grienke, it appears the Dodgers are opting for trading for a younger pitcher (Fernandez? Archer?) and will use the Grienke money elsewhere. I honestly think they were unprepared for his opt out.

Similar to when John Hart created the idea of locking up young talent through the first few years of free agency with the mid-90s Indians, I think we’re seeing a new way GM’s are preparing to value these prime years higher with the opt outs pushing risk down the road. As stated elsewhere, it’s a scenario that helps the big market teams who can absorb the cost better when one of these free agents ends up a bust.

doc ellis
Member
doc ellis
5 months 10 days ago

Again, look at the Dodgers and Grienke. That’s the hypothetical playing out in front of our eyes. And Grienke opting out doesn’t help the Dodgers. They’re now stuck A) paying more money and years for Grienke or an equivalent pitcher (say, Price); B) spending assets to trade for an equivalently-talented pitcher (say, Archer or Fernandez); C) using the same dollars to get a lesser pitcher (say, Jordan Zimmerman or John Lackey), or D) allocating those dollars for other resources. They would have had to pay Grienke more years or dollars without the opt-out, and would have borne more risk of failure, but with hindsight they’d likely rather have done that than have Grienke opt out.

carmen fanzone's trumpet
Guest
carmen fanzone's trumpet
5 months 10 days ago

I think Friedman dropped the ball not preparing for Grienke opting out. He has the funds have paid the requisite $31M/yr and could have pre-emptively pounced on Price or re-upped Grienke if he had planned his off season.

Now they are in a situation where they are forced to look at a Fernandez, Archer or Kluber and sacrificing a Seager. As I just mentioned above, I think GM’s who write in these opt outs are planning for the player to opt out and paying for the prime years. Ala John Hart type creativity. Friedman didn’t do the original Grienke contract so didn’t plan for it’s eventual opt out.

John Henry probably doesn’t expect to pay David Price $217M, but he’ll be happy if he pays Price $92M and the team is competitive over the next 3 years.

TC
Guest
TC
5 months 10 days ago

Come on now, that is just a silly comment. To suggest that the guy in charge of the Dodgers is the one guy in the world who didn’t see the opt out coming is ridiculous. Yeah everybody else is just doing the opt out wrong, but the Red Sox have it all figured out.

The Chief
Member
The Chief
5 months 10 days ago

John Henry HAD BETTER expect to pay David Price $217MM, because the only way that he will not is if David Price can get a better contract than the remaining balance of the contract ($125 MM) over 4 years. And in that event, it may be John Henry who re-ups him, in which case he will wind up paying David Price A LOT MORE THAN $217 MM.

Chill
Guest
Chill
5 months 9 days ago

SO WHAT?
You’ve just enunciated the entire downside. The team has to pay more money. So what? Teams like the Red Sox have plenty of money. What you’re missing is that maybe the Red Sox would rather pay all that money to Xander Bogaerts or Mookie Betts or Bryce Harper or Jose Fernandez or Jason Heward or Manny Machado or… You get the idea. Maximum roster and financial flexibility is an invaluable asset to any team, especially one with the financial might of the Red Sox. Paying top dollar, in this case $32million dollars/year, to 33 year old pitchers is an historically losing proposition. The examples are too numerous to list. The opt out is a very good thing for both Price, who will get some fool team to overpay him for his decline phase, and for the Red Sox who will then have the opportunity to invest their money more wisely elsewhere.

TBJESE
Guest
TBJESE
5 months 10 days ago

You’re right of course. The opt-out is a put option that benefits the player at the expense of the team – full stop.

One interesting consideration though is that the opt-outs give the player a strong incentive to perform. It’s possible that incentive may be worth something to teams. It almost certainly wouldn’t make the opt-out a team asset, but it might mitigate the loss.

janson
Guest
janson
5 months 10 days ago

It is often argued that the most valuable free agents set market prices for all talent levels. Because these opt-outs reduce contract sizes and AAV, isn’t there an argument to be made that they are, in aggregate, player unfriendly? And unfriendly to less wealthy teams because they are compensation that is not used in luxury tax calculations?

TC
Guest
TC
5 months 10 days ago

It’s kind of funny how once a certain team offered an opt out this off season, there came this groundswell of support for the concept as being good for the team. Opt outs have been a thing for quite a while now, and you never heard of this sentiment until a few weeks ago. Now, I understand that over time, we can gain knowledge on a certain subject and change perception, however, I see no sort of analysis on the matter presenting any new information that would actually promote support for this idea.

soaktherich
Guest
soaktherich
5 months 10 days ago

I’ll tell you this, TC: as a Red Sox fan I like Price at 3/$90 a helluva lot more than at 7/$217. You wouldn’t want Price on your team for 3/$90?

TC
Guest
TC
5 months 10 days ago

I’d take Price on my team anyway I can get him, that’s not really the point here though. If something goes wrong in those first 3 years, you’re still stuck with him for the rest of the contract anyway while he’s not any good. If the first 3 years go great, you’re losing a valuable asset with only a draft pick as compensation, then you have to find a way to replace his production.

soaktherich
Guest
soaktherich
5 months 10 days ago

I’m thinkin’ you use the 4/$127 that you aren’t paying Price to find someone else (or a combination of someones) that will be equivalent to the 33-36 year-old Price. In the particular example of the Red Sox, they have three young LHP who are decent candidates for the rotation in the next few years and they also have a 17-year-old who is one of the top pitching prospects in the game — so maybe you use that 4/$127 on a bat…

Also, I disagree with your premise that “if something goes wrong in those first 3 years, you’re stuck with him for the rest of the contract while he’s not any good.” He could have TJ surgery in years 2-3, not opt out, and still be fine for years 4-7. That’s more likely than a career-ending injury or that he forgets how to pitch.

Still, the most likely scenario seems to be him pitching well for three years then moving on, with the Red Sox offering an insurance policy against something going wrong. Again, I’ll take it.

Option Theory
Guest
Option Theory
5 months 10 days ago

But he’s not on “your” team for 3/$90. He’s on your team for 3/$90 if he’s good and you want to keep him longer, and he’s on your team for 7/$127 if he sucks and you would like to get rid of him. You lose either way.

Option Theory
Guest
Option Theory
5 months 10 days ago

Sorry, 7/$217 of course.

soaktherich
Guest
soaktherich
5 months 10 days ago

By that logic, OT, it would’ve been even worse to sign him with a larger AAV deal without the player option. Then, if he sucks you’re on the hook for even more.

I think the biggest mistake is to frame it as a black-and-white issue. “If he’s good you lose him, if he’s bad you keep him.” That simply ignores the kind of complexity that is the hallmark of FanGraphs. I think this is what is most disappointing about DC’s analysis.

Chill
Guest
Chill
5 months 10 days ago

This is an overlooked truth. If the Red Sox had the choice between signing Price for 3/90 instead of 7/217, they absolutely positively would have. No question. Every single time. The opt preserves that possibility and will only be exercised if Price has a good three year run. So sign Price for 3/90 and he proceeds to pitch like a $30million ace. Ok. I can live with that downside. If Price doesn’t opt out, so what? He was going to get 7 years from some team regardless. The financial flexibility coupled with the chance of punting Price’s decline phase on to another team makes the opt out a good deal for both player and franchise.

Brian
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Brian
5 months 9 days ago

Of course you’d rather have Price for 3/93 than 7/217. But that’s not what they have. They have Price for 3/93 if he’s good. And 7/217 if he’s bad or hurt.

There’s a significant difference.

All else equal player opt outs are good for the player and bad for the team. But that doesn’t mean teams shouldn’t give them out. They just need to price them into the contracts appropriately.

Chill
Guest
Chill
5 months 9 days ago

If the opt out comes in to play, the worst case scenario is Price for 3/90 and he pitches well enough to command a raise. At age 33. DD and the RS front office are clearly very comfortable with that.

If Price opts out, 3/90 is exactly the deal the RS signed, and if he pitches well enough to opt out it will have been a great three years. Years 4-7 are gravy that the Sox ultimately don’t want at 32mill/year or more.

Put it in this context. The AZ front office which has been widely panned as incompetent and out of step in their thinking just signed a 30+ year old pitcher to a contract without an opt out. The Dodgers, a front office that made its bones competing without overpaying for aging free agents while in Tampa, just passed on resigning Greinke despite having the financial wherewithal to do so. The Giants and Red Sox, with 6 championships between them in the last 11 years, both just signed contracts with player opt outs. These facts run counter to the narrative that opt outs are terrible for the team and a front office must be stupid or at least short sighted to include them in FA contracts. If the Yankees had been as clever as the Dodgers they would have walked away from CC and Arod when they attempted to leverage their opt outs for more money and more guaranteed years. Old players are simlpy never worth big contracts. Perhaps Greinke or Price or Cueto will buck that trend but I wouldn’t bet on it. Neither will the Dodgers, Giants or Red Sox. The Diamondbacks however…. Hmmmm…

Marco
Guest
Marco
5 months 10 days ago

This “debate” is silly.

If opt-outs benefited the teams, every contract would have one.

They benefit the players, and I think it’s safe to assume that they paying for them in the form of a smaller contract, just like teams have to pay extra for option years.

Phineas J Whoopie
Guest
Phineas J Whoopie
5 months 10 days ago

The King Felix argument is specious. Trading the face of the franchise is not as easy as just picking up the fone and calling Andrew Friedman. How would that go down with the fan base, especially as one of the first acts of a DiPoto administration? And with his performance showing signs of decline in the wake of being worked like a rented mule his entire career, how much could they expect back for him? He’s certainly worth less than a cheap, controllable young pitcher like Gray or Sale because he’s not cheap and he also has to be persuaded, as you mention, to surrender his no-trade clause. And if he simply doesn’t want to leave you can’t make him, so you’re staring down the barrel of paying a guy 4/$104m to possibly fall apart. And you think he could get 6/$180m from someone else? His arm has more than 2200 IP on it and he’ll turn 30 in April.

If the Mariners had built a player option into Felix’s contract, with the attendant reduction in AAV, I think they would be pretty happy right now. They would have traded Felix last July for a pretty decent trove (similar to the Price & Cueto hauls) and would be able to start a much better rebuild than the one they’re locked into now as Felix enters his 30s showing signs of overuse.

Tennessee Tuxedo
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Tennessee Tuxedo
5 months 10 days ago

You’re the greatest!

Chumley
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Chumley
5 months 9 days ago

Tennessee!

janson
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janson
5 months 10 days ago

As I and several others have commented in the past, there is a detailed financial model for valuing options. Whether you use Black-Scholes or a variant, opportunity cost (or risk free rate of return) is one of the major inputs. This means, I believe, that we can learn player projected $/war inflation from discounts players are giving for the opt-outs. So, in addition to the benefits to players, opt-outs are definitely friendly to financial sabermetrics…

ReuschelCakes
Guest
ReuschelCakes
5 months 10 days ago

Ha. Well, feel free to make assumptions on the current underlying asset value, the strike price and the asset volatility… I mean, you could hazard a guess at the first two and swag the third but…. garbage in, garbage out….

Matthew Murphy
Member
5 months 10 days ago

From the team perspective, the player opt-out is a hedge. If the contract is good, the upside is capped because the player can opt out. If the contract is neutral or bad, then the down-side is mitigated because the team saved some money on the contract by including the opt out.

The money saved is good for the team. The ability to opt out is good for the player.

Here is why the opt out is so confusing — when it is bad for the team, it means that the team probably came out ahead on the early part of the contract. So an opt-out is never really “bad” for the team, only “less good than it could have been”. People struggle with this, because an opt out will almost only be used if the team got a good return on the first part of the player’s contract, so how can it be “bad”?

Let’s make an example for a different type of investment. Let’s say there’s a stock that is trading at $20 per share. Someone gives you the option to purchase this stock at a discount of $18 per share, but there’s a catch — one year from today, this person has the option to buy the stock back from you at $24 per share.
If you enter this agreement, and the stock dips below $18, it was a bad investment, but at least you saved $2 per share. If it’s between $18 and $24, it looks like you made a smart decision as well.
What if the stock does extraordinarily well and jumps up to $40? You still got a good return on your investment — but you would have been much better off if you had paid the full $20 up front. You got a 33% return on your investment, when you could have gotten 100%.

If a player does use an opt out, it means two things for the team:
1) They probably got a good return on the first part of their contract
2) They are losing a valuable asset that they had signed for below market value

So are the Dodgers happy with the contract they gave to Greinke? He provided about $100M in value for $76M, so yes.
If the Dodgers could go back and increase the guaranteed contract value by ~$15M to remove the opt-out clause, would they? This would leave 3/86 on the contract, and he just signed for 6/206, so this is also definitely a yes.
So, the contract provided positive value for the Dodgers AND the opt out was “bad” for the team, because they lost a positive-value asset (3 years of Greinke below market value). And in this particular case, this loss of value is almost certainly more than the money the Dodgers saved by including an opt-out.

Joe
Guest
Joe
5 months 10 days ago

This is probably the best assessment I have seen so far. It essentially states that the opt out caps the potential positive return for the team, while lowering the hit taken in the worst case scenarios.

How one views opt outs is directly tied to their risk aversion. I personally am happy to have Price for 3 years and $90 mil. If he performs for those 3 years and opts out, I would be fully willing to let someone else take on the risk at that point. Sure his market value at 33 (and coming off a hypothetical strong 3 seasons) may be greater than the 4 years and $127 mil remaining on his contract, but that does not mean Price will actually be worth whatever his next contract is.

Now if he performs well from ages 33-36 then the Red Sox lost the additional positive return they could have had if there was not an opt out involved, but they also would have had to pay him more initially.

There is a lot more to be said than what is in this post but the biggest question mark in valuing an opt out differs from person to person based on how one views risk.

Larry Bernandez
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Larry Bernandez
5 months 9 days ago

Not only is this a brilliant comment, but I think that just gave me a great business idea for the stock market. Thank you.

Peter
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Peter
5 months 10 days ago

This is one of the best comments on FG, ever, imo.

N8*k
Guest
N8*k
5 months 10 days ago

Very well put, MM.

I think Rob was also wrong in that these opt-outs work better for big market teams.

Don’t you think someone with less money would be more likely to take the $18 dollar option than someone with more money?

Matthew Murphy
Member
5 months 9 days ago

This is probably true, but at least today, it’s only the big free agents who are commanding opt-outs, and for the most part the small market teams can’t afford to go after these players.

It would be interesting if smaller market teams try to start offering opt-outs to non-elite players to limit the downside of a bad contract. Maybe a small market team who doesn’t want to commit $80M to Ian Desmond tries to get his price down by including an opt out after two years. Or maybe a pitcher like Mike Leake, who is just 29, but if he signs a 4+ year contract won’t be on the market again until he’s 33.

Brian Mangan
Guest
5 months 10 days ago

Please post this somewhere so that I can link it every time this topic comes up.

L. Ron Hoyambembe
Guest
L. Ron Hoyambembe
5 months 10 days ago

Good analogy. I would add that you would have to consider the odds that the stock doubles in value in evaluating what this “option” is worth to you.

Matthew Murphy
Member
5 months 10 days ago

Exactly — the younger a player is, and the more likely they are to exceed expectations in the early part of the contract, the more valuable the opt-out is to them, and the more of a discount they should be willing to take to secure this option. (Jason Heyward appears to be the best example of this; while we’re not exactly sure what the other offers on the table were, it does seem that he left a good chunk of guaranteed money on the table to get two opt-outs.)

Only Glove, No Love
Guest
Only Glove, No Love
5 months 9 days ago

Hayward will get 3 for 78 if he opts out. The signing bonus activates on the opt out.

Only Glove, No Love
Guest
Only Glove, No Love
5 months 9 days ago

You did not address the fact that post opt out the team has the remainder of the money back and most importantly for a wealthy team, the roster spot which can be filled with a younger and better pitcher: Fernandez etc…

Teams have to take on the risk of implosion (post opt out years) to sign the FA in the first place…

And see Heywards contract for a simple way to make the opt out even more attractive…

And 100% Theo wants to replace Heyward with a member of the 2018 FA class.

Matthew Murphy
Member
5 months 9 days ago

Let’s say Heyward has a great three seasons with the Cubs, has 5/$106M left on his contract as a 29 year old, and opts out so that he can sign for 7/$175M. Yes, maybe he starts to decline, and the Cubs look good for getting out from the last five years of the contract. BUT, if someone else was willing to pay substantially more on the free agent market, that means that Heyward signed to 5/106 was an asset with significant trade value, and the Cubs could have gotten something significant back in return for Heyward instead of watching him walk away.

Only Glove, No Love
Guest
Only Glove, No Love
5 months 9 days ago

Yes. That is what it comes down to… I say cash in hand is worth more than the player because it is more fungible.

jdbolick
Member
Member
5 months 9 days ago

if someone else was willing to pay substantially more on the free agent market, that means that Heyward signed to 5/106 was an asset with significant trade value, and the Cubs could have gotten something significant back in return for Heyward instead of watching him walk away.

That depends on what you mean by “significant.” In that hypothetical they presumably could have received something, yet it doesn’t necessarily guarantee an impressive prospect package because teams have different approaches to trades and free agency. A small market team would presumably prefer to trade for the hypothetical Heyward contract whereas a large market team would presumably prefer to keep their own players and prospects, then use their monetary resources to sign a free agent without depleting their farm system.

Regardless, you’re arguing against something no one is saying. The people who say that the opt-out has value to the team are not denying that the opt-out might end up costing the team something. I explained this quite well a half hour before your comment where I illustrated that the worst case and best case are both less extreme with an opt-out than with an opt-out. So Greinke opting out very well could be bad for the Dodgers, yet that does not mean that the opt-out had no value to the team, as it did save them money and it might end up sparing them if Greinke struggles or gets injured. As I explained above, the opt-out is about risk management. You’re sacrificing some potential reward in exchange for reducing some risk.

Matthew Murphy
Member
5 months 9 days ago

@jdbolick — I think we’re on the same page in terms of the value of an opt out to a player versus the value to the team in saving money.
However, I don’t think that I’m arguing against something no one is saying, because there are people saying that a player opting out of his contract is can be good for the team, apart from the money the team saved in including the opt out in the contract. There are arguments that the post-opt out years are “bad” because the player is older, but ignore the fact that the player will only opt out if his existing contract is below market value.
As far as what “significant” is, it doesn’t need to an impressive prospect package to mean that the team lost value when the player opted out, it just needs to be more valuable than a supplemental draft pick, which is worth something like $5 Million.

Only Glove, No Love
Guest
Only Glove, No Love
5 months 9 days ago

@MM are you arguing the backends of multi year FA contracts are in general value producing? Even those whose initial years do in fact provide value?

jdbolick
Member
Member
5 months 9 days ago

there are people saying that a player opting out of his contract is can be good for the team, apart from the money the team saved in including the opt out in the contract.

It’s undeniably true that the opt-out may end up being good for the team even if the preceding seasons produced surplus value. It might and it might not, as we don’t know how that player will perform over the remainder of the contract.

Cameron
Guest
Cameron
5 months 10 days ago

While I agree that a player taking and opt-out is generally bad for the team, I think that the player not taking the opt-out should be seen as a positive for the team. Imagine a team has the choice of offering a player 2 contracts. One is for 7 years, 200 million, and the other is for 7 years, 180 million with an opt-out after 3 years (assume these have equal value to the player). The team offers the contract with the opt-out. After 3 years, if the player chooses not to opt out, is the team happy that they included the opt-out? Of course they are – they saved 20 million dollars! The real value in the opt-out comes from lowering the value of the total contract. Great article

Phantom Stranger
Guest
Phantom Stranger
5 months 10 days ago

I suspect the way these deals are being reported is affecting their perception. Every news agency was reporting Heyward’s deal for 8 years at $184 million, but that is not really the deal. It’s a two-year contract for whatever with a player option for more years. Heyward only takes that reported deal if he collapses as a player between now and the first opt-out.

Teams probably like the financial flexibility an opt-out provides. At his age, Heyward is a very strong candidate to opt out when he gets the chance. That allows the Cubs to reevaluate his worth to their team at the time.

That Guy
Guest
That Guy
5 months 10 days ago

Them’s fightin’ words from Manfred. An opt-out sure looks like only a net positive from a player’s perspective (or at least puts a choice in their hands, while I understand they might make less at first for this option to be included). With the new CBA looming, you know he’s looking out for the owners.

I just hate how this game we all love is so tarnished by the business model. I know people believe “that’s just how it is,” but when growing billionaire’s profits (or laundering mega-corporation dollars, in the case of the Dodgers) is seen as a necessary given for the sport to go on existing, and then we all scrutinize any sort of shrewd decision players make operating within that system, I really feel like we’ve lost the broader context of how this all operates. Not that I know everything, just seems so odd, and much in line with how wage percentages are flat-lining or being gouged in so very many fields of work.

CabreraDeath
Member
CabreraDeath
5 months 10 days ago

If I would’ve opted out of reading this topic’s 9th version, I surely would’ve gained value.

smoother
Guest
smoother
5 months 10 days ago

What are the chances that a team who gives David Price an opt-out after say, 4 years, is STILL in the ‘window’ to be competitive for the back half of the contract? So while you say they’d have to use resources on other players who might cost more, maybe that’s the point, the likelihood the team wants to keep spending when the window has closed is remote.

Fairbanks
Guest
Fairbanks
5 months 10 days ago

The Red Sox are high up on the list of teams that will be curious to follow for this in the future. Other similar signings and also what they do in three years if Price does opt-out. Dombrowski may have gotten into John Henry’s ear that they had to go out and pay for an ace based on what has happened in recent years but has Henry changed his stance on not wanting to sign pitchers in their 30s? I expect a lot of Sox fans are thinking Henry is a good bet to pass and go after someone younger – or spend the next three years already getting the younger replacement in place ahead of time. Will be interesting to see how this goes.

Does that mean Henry wanted an opt-out? Certainly not. But isn’t he at the top for owners that might pass after good performance and then an opt-out. We’ll see.

The Stranger
Guest
The Stranger
5 months 10 days ago

I’m going to take the position that, assuming both the players and the teams are rational actors with equal access to information, the opt-out is neither good nor bad for either side. As I see it, negotiating an opt-out is basically a zero-sum game. The opt-out in and of itself is good for the player and bad for the team. However, the player pays for the opt-out by taking a lower AAV, so that the expected value for each side is pretty much the same either way.

So why are we seeing so many opt-outs? I see two major reasons, and I believe they both play into these deals. First, the opt-out allows a player to bet on himself. If he stays healthy and performs well, he’ll get paid again. It’s a less-extreme version of the hypothetical superstar maximizing his career earnings by signing a series of one-year contracts.

Second, and this may be the biggest reason, the sides may simply discount to present value differently. The benefit to the team (lower AAV) accrues entirely in the first few years of the contract, whereas the benefit to the player accrues after the opt-out. If the team cares more about the next few years, and the player cares more about maximizing earnings over the course of a career, there’s plenty of room for both sides to feel like they came out ahead once future value is transformed into present value.

Chill
Guest
Chill
5 months 10 days ago

Fascinating discussion. One issue that I think should be considered is context.

With regard to the Price opt out, I think the potential financial flexibility it represents to the Red Sox is invaluable. The Kimbrel contract, if the Red Sox pick up the team option for a third year, and the Price contract, if he chooses to opt out, both come off the books after the 2018 season. This timing is excellent from the Red Sox perspective. Not only is there likely to be an historic free agent class that year, headlined by Bryce Harper, Jose Fernanandez and Manny Machado among others, the Sox will also have home grown talent they will be looking to sign extensions with including but not limited to Mookie and Xander.
If Price opts out just as the Kimbrel deal expires the Sox will have $45 million to allocate elsewhere, if they so choose. If the Sox had to choose between paying Price $32 miilion/year for his 33-36 yo seasons or locking up a 26 yo Mookie and/or Xander, which do you think the Sox would choose? Obviously these aren’t mutually exclusive options but they might be. It’s not hard to imagine a scenario where dollars locked up in a contract with an aging Price tie the Red Sox hands such that they have to let some of their young talent walk. Losing a young franchise player to free agency just to squeeze more surplus value out of Price’s contract is a bad trade in any context. The presumably lower AAV and the promise of medium to long term financial flexibility for the team represents real value that’s not being considered by many in this discussion.

Another very real context is player age. Very very few players age well. The number of pitchers that have performed well into their mid to late thirties, without the benefits of PED use, is exceedingly small. Albatross contracts for SP in their thirties are beyond number. Trade markets are uncertain. Being rid of an aging pitcher without having to eat any dollars of an albatross contract is a very real reward.

If the player opt out lowers the ceiling on the total surplus value of the contract for the team, then it surely raises the floor on potential opportunity cost as well.

Dan
Guest
Dan
5 months 10 days ago

The only argument I can think of why opt-outs might be good for teams is that there are too many psychological and P.R. reasons why teams don’t trade players on the verge of decline, but who are still, market-wise, underpaid. Teams don’t want to be seen as cheapskates, they don’t want to be seen as strictly business, with no loyalty at all between players and the front office. The idea of having “franchise players” is still meaningful to a lot of fans, and teams don’t want to disenfranchise those people. In that sense, giving the power to the player is a way of making the player the villain for leaving, when really it’s something the team might also secretly wish for.

florida ron
Guest
florida ron
5 months 9 days ago

Yes, see Albert Pujols and the cardinals. Despicable how he was demonized.

Ben
Guest
Ben
5 months 9 days ago

FWIW, his wife complained to the media that the Cards’ offer to Albert was disrespectful.

Brian
Guest
Brian
5 months 10 days ago

Perhaps this is my cynical side at work, but there is another potential intangible benefit that acrrues to teams: making players look extra greedy in the public eye. As we have seen, casual baseball fans and general tangential sports fans (a huge contingent of MLB’s customers) seem to respond to these deals with populist incredulity. They were already upset about escalating player salaries, but now opt-outs make it seem like players get to make absurd money AND not have to offer loyalty in return.

In other words, we at FanGraphs talk about “discounts” given by players to receive opt-outs, but most responses I’ve seen are focused on the still-astronomically-high dollar values PLUS now the ability to bolt in the night for yet-even-more unneeded riches. So the players are looking greedier and greedier in the general public’s eye, right as a new CBA is coming up to be negotiated…

I’m not saying it’s likely that anything like this is an explicit ownership goal for starting to include opt-outs, but we shouldn’t kid ourselves that it isn’t real just because we who are closer to it know that it’s not exactly fair analysis.

isasson
Member
5 months 10 days ago

I wrote about opt-outs on Spark Sports, here’s the link: http://sprksports.com/?p=4579

follow me on twitter @isas03

Matt
Guest
Matt
5 months 10 days ago

Hey Dave – I think I finally have a situation where an opt-out benefits the team even if we assume perfect information and rational players (team and player).

If the player opting out if offered arbitration and declines then the team gets a draft pick. Normally this is a moot point as the team could have traded the player for more than what the draft pick is worth – BUT if the draft pick received is between round 1 and 2 (as is typical) and the draft pick the signing team gives up is a 2nd or later round pick (assuming they either have a protected round 1 pick or have already signed higher value free agents and lost their 1st round pick) then this new team would be giving up less value than the previous team would receive for the supplemental pick.

Now if this new team paid the player $1 more a year and gave up the 2nd round (or later) pick then it’s conceivable that neither they, or any other team, would have been willing to give up a trade package as valuable as the supplemental pick but they STILL could be receiving excess value from the signing.

I DID IT! NOW I UNDERSTAND WHAT EVERYONE WHO THINK TEAMS SHOULD BE PRO-OPT-OUT ARE THINKING! (ok….not really….but it least I think everyone can agree that the above is true)

FuriousToaster
Guest
FuriousToaster
5 months 10 days ago

If anything is clear from the comments here, people still don’t get it. Including the opt out allows the team to offer a smaller initial contract with added safety for the player. That’s it. End of analysis.

It never even has to go into wether the player actually opts out or not. Unless the player makes a bad decision that part can’t ever possibly work out for the team.

Bob
Guest
Bob
5 months 10 days ago

Opt outs are essentially team-provided insurance against injury or poor-performance. The player pays the premium in the form of lower salaries. They aren’t inherently good or bad.

Chris
Guest
Chris
5 months 9 days ago

Well said.

Bob
Guest
Bob
5 months 9 days ago

Here’s why opt outs might be beneficial to the team: They have people doing the analytics to determine the range of outcomes for the contract. They can use those to weight and value the expected value the player should provide. If the expected deficit after the opt out is smaller than the expected surplus before the opt out, they come out ahead. If they’re equal, and the player prefers the opt out over no opt out, they have an advantage in the market.

In a way, the teams are leveraging the same economics they are when they buy out a player’s arb and free agent years.

Joe
Guest
Joe
5 months 10 days ago

Obviously if it benefits the club and the player wants, they can opt out at ANY TIME in any contract.

If Felix wanted out, the club could trade him, and thus benefit.

If both parties are willing, which would be the case if a player wanted to leave in such a way that helped the team, then contracts can be broken

BenRevereDoesSteroids
Guest
BenRevereDoesSteroids
5 months 10 days ago

Or could it be that a teams offer the opt outs because if they don’t, they won’t get the free agents. If the Diamondbacks, for example, are a roughly 81 win team at the moment, and the only real option they have to upgrade is to spend in free agency, and the only way they can land a player that can add 5+ wins to the roster is to offer the opt out, then do they have a choice? Isn’t this better than just being an average team sitting on a pile of money trying to make marginal upgrades with undervalued BORPs and platoon players?

Hank
Guest
Hank
5 months 10 days ago

There are some minor points being ignored.

1) The player is presumably taking a lower AAV because of the value of the opt out. So as an example, saying “the Dodgers could have had Greinke for 3x24mil” is a lit bit skewed as that contract would likely not have been 24mil AAV, unless you think the club gave the opt out away for free. There is a small window where a player’s valyu may be between the AAV with the opt out and the higher AAV in a no optout deal (admittedly this is a tiny window)

2) There’s the value of the QO pick to factor in. I think it’s fair to assume if a player is opting out he’s almost certainly worthy of a QO (though who knows what this will look like in the next CBA).

3) The place on the win curve for a club. If you have a specific window in mind when doing this deal, you probably place more up front value on the wins. And may place less value if you start moving outsider the window of contention in the opt out years. In theory you should be able to get this back in a trade from a club that is in contention, but who knows if the market/prospects/needs lines up.

4) Mentioned above – some players may have reservations going to a place or signing an extension (like say Stanton?). It may not simply be a matter of just upping the AAV to eliminate the opt out clause. Tanaka reportedly had 2-3 initial offers with an optout and his agent then went around to all teams and said “this is a deal breaker”

These deals still generally do much more harm than good to a club, but saying there is no scenario where it could help the team, is I think overly simplistic.

Ted F
Guest
Ted F
5 months 10 days ago

Opts outs obviously don’t have value to the team.

On the other hand, the COST to the team may be muted. Teams are typically most interested in the first few years of the deal, when the player is still in his prime and the team need is clearly identifiable. Losing the back years of the contract may be a mild disappointment in some cases (as you point out in the article), but it isn’t likely to impact the original signing thesis much.

BDF
Guest
BDF
5 months 9 days ago

“And I will continue to maintain that it’s basically wrong; if David Price or Jason Heyward play really well over the next three or four years, the Red Sox and Cubs will not be happy that the players opted out of their deals, because the players will only opt-out if they have below-market contracts — meaning that the team either has to give them a raise in order to keep them around or will have to pay other players current market rates in order to replace Heyward or Price on their roster — and are positive-value assets for the club at that point. They will be happy with their initial decision to sign the player several years ago, since using the opt-out means that the first part of the contract worked out well for the team, but they would have been even happier with that decision if they had not included an opt-out and got to retain a quality player at a below-market price.”

The fallacy is that the market values all players correctly. A player can get more on the open market than he is currently getting–it does not follow that the club side of that market transaction is making a good decision, and in fact there is a lot of evidence that these are exactly the kind of bad decisions that club actors are prone to making. Combined with the behavioral fact that clubs are very unwilling to engage in the kind of action (i.e., waivers) that would replicate the option from their perspective, and the opt out–forced waivers, if you will–becomes an arguable good for the clubs in addition to the player. Their win-win nature is the real explanation for their inclusion in these deals.

Chris
Guest
Chris
5 months 9 days ago

Dave, you’re great, but as many have said, I don’t understand the argument here. Yes, there are some arguing that player opt-outs benefit teams, but that’s obviously nonsense. Player opt-outs are good for players, club options are good for teams. Maybe the Cubs got Heyward BECAUSE they offered him a player-friendly opt-out after three years. If I were Heyward, I would’ve taken a little less guaranteed money too if it meant I got an opt-out. If he crushes it, that opt-out probably nets him an addition $50 million+ over the life of his career given the trajectory of spending.

ML
Guest
ML
5 months 9 days ago

sabathia, arod, teixeira, ellsbury

opt outs would look pretty nice on any of those

florida ron
Guest
florida ron
5 months 9 days ago

You are basing your theory on perceived future value. As we have seen time and again that value can erode quickly for a 30 year plus player.
The Cubs are betting on Heyward being quite good on the short term and are willing to let some other club take on the riskier portion of his curve. You can bet there is some injury insurance involved to mitigate getting stuck with a bad long term scenario.
Don’t forget about the opportunity value of having 107 million coming off the books in 2018. Not by coincidence it is potentially the greatest free agent class in history and the best player in the game is best friends with the teams third baseman.
Theo always has a plan and it usually involves drinking your milkshake.

Tom
Guest
Tom
5 months 9 days ago

I haven’t read through all the comments so excuse me if my point has already been raised.

One of the reasons MLB teams give out larger contracts than crowd-sourced contracts, as Dave pointed out, is that all it takes is one team to blow the market out of the water. Similarly, when a player opts out and signs for a larger contract, it doesn’t mean: a) he is worth it; and b) that that is actually his value on the trade market.

I agree that Player Options are generally player-friendly. But as many failed, large contracts in the past have demonstrated, just because a few teams over-value a player in free agency, doesn’t mean it is more beneficial for the original team to keep the player in hopes of trading him at the right time to the right team for the right return.

florida ron
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florida ron
5 months 9 days ago

Exactly. Just because a player can get more does not mean he is actually worth that value and it does not mean he would likely bring that value in trade. Quite frankly the writer gives teams way to much credit. They make some absurd decisions in spending payroll
And the writer assumes that is the best use of a teams funds if a player opts out. For a 30 year old and up player it likely is not.

Brian
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Brian
5 months 9 days ago

“and it does not mean he would likely bring that value in trade.”

I mean the team that would have signed him to the larger deal still exists yes? So we know there is at least 1 team out there that values him more than the deal he’d still be on yes? So in theory they’d be willing to trade something of value to acquire him for less than that. Yes?

Yes.

L. Ron Hoyambembe
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L. Ron Hoyambembe
5 months 9 days ago

Not if they don’t match up in a trade. They could not have enough prospects to get a deal done or decide that the prospects they do have are worth more than the cash it would take to just sign as a free agent.

Brian
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Brian
5 months 9 days ago

If they don’t have enough prospects to get it done this basically implies he’s worth quite a bit more than his contract.
If he’s barely worth his contract toss a couple low minors arms to the other team and bam, done deal.

So what’s the problem?

ReuschelCakes
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ReuschelCakes
5 months 9 days ago

a) worth is a squishy term, but presumably you mean that it doesn’t he “will be worth it?” in that case, yes — the FA market is not a perfect predictor of the future.

b) this is patently false. it EXACTLY means that is his value in the market. literally every possible market functions on the basis that a willing buyer and willing seller trade at a fair price, that these buyers and sellers represent the highest respective bid and lowest respective offer and the resulting price of the asset traded is DEFINITELY then referred to as its value.

going back to your point (a), does this mean that the player will then be “worth” this value? who knows. but its the value that that market placed on the player.

florida ron
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florida ron
5 months 9 days ago

Where you and Dave go wrong is in confusing valuation and value. Anybody in the securities markets can tell you they can be quite different.
To assume a current valuation is the actual current value of a player is assuming a perfectly efficient marketplace. Baseball has shown us it is a wildly inefficient marketplace. The whole sabermetrics theory is based on using market inefficiencies to recognize hidden value. Guys like Theo Epstein and Billy Beane made careers doing it.
Most general managers would tell you if you want to play in the free agent market, expect to overpay. And expect to assume more risk. What a guy like Epstein is trying to do with Heyward is overpay at the start of the contract where most of the actual value is historically derived, and pass the risk curve along to someone else in 3 years. It certainly can be a benefit potentially.

ReuschelCakes
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ReuschelCakes
5 months 9 days ago

well, a few things:

“confusing valuation and value”

I assure you I am (we are) not.

“to assume a current valuation is the actual current value of a player is assuming a perfectly efficient marketplace”

this is not remotely what the theory of efficient markets suggests. it addresses information advantage and the rapid discounting of this information by all parties at all times.

“The whole sabermetrics theory is based on using market inefficiencies to recognize hidden value”

agreed, though you’ve strayed widely from the original topic.

“Most general managers would tell you if you want to play in the free agent market, expect to overpay”

you’ve spoken to them, I presume? are you describing winners’ curse? this isn’t unique to baseball — it exists in all auction formats, including corporate m&a.

“What a guy like Epstein is trying to do with Heyward is overpay at the start of the contract where most of the actual value is historically derived”

yep — I have no idea why you feel the need to write this in response to my post, but I surely agree

“and pass the risk curve along to someone else in 3 years”

nope. unless you you can find a quote with Theo suggesting this, you’ve made it up. further, his “risk” after 3yrs is definitely not passed on. I challenge you to find 3 examples of players opting out of contracts where the FA market valued them LESS than their remaining contract at the time of the opt out (i.e., ex-ante)

you’re missing the entire point of an opt out. and it cannot be win-win.

DrBGiantsfan
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5 months 9 days ago

Johnny Cueto was negotiating with the Dodgers. The Giants had a double incentive to sign him: 1. They get the best FA pitcher left on the market. 2. The Dodgers don’t. They had two ways to make that happen: 1. Offer significantly more money. 2. Offer the same amount of money with the opt out.

Look, if he pulls a Zito, they will owe him the money anyway, except with the opt out, they would owe him even more! The Giants have made it quite obvious they want him to opt out. In fact, they have front loaded the contract so much they are practically begging him to opt out!

DrBGiantsfan
Guest
5 months 9 days ago

…er that should read “WITHOUT the opt out, they would owe him even more!”

dom
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dom
5 months 9 days ago

thank you for beating the horse again, it’s amazing how many people continue to use hindsight and hypotheticals to create scenarios in which the opt out is “good” for the team. what’s amazing is that these scenarios involve a player actually using the opt out, when the only benefit I see is the lower AAV and less dead money when the player DOESNT opt out, as you said.

but that’s clearly the market right now, and as these opt outs become standard for long FA contracts it would be very tough for a team to take a stand and not include them, or risk missing out on signing elite FAs.

John Elway
Member
5 months 9 days ago

NEIGHHHHHHHHHHH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Dan
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Dan
5 months 9 days ago

Opt outs are valueless to teams where teams behave rationally. I feel like those who believe that an opt out is valuable to their team are not willing to assume that their team will act rationally.
While a team perhaps could trade felix now for 4/104 they likely wouldn’t even if they should… And then when it’s 2/50 and felix has turned into a pumpkin…

Dl80
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Dl80
5 months 9 days ago

Yes, that’s the whole point. Dave mentioned saving teams from themselves, and that’s exactly what I would want my team to do. Teams have shown over and over that they are not rational about their own players and overvalue them.

Brian
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Brian
5 months 9 days ago

All else equal player opt outs are good for the player and bad for the team. There’s really no debating that however hard you try. Well there is debating it, but there isn’t an intelligent debate about it.

But that doesn’t mean teams shouldn’t include them in contracts. All else is never equal. FO’s are pricing these things in. You just need to price opt outs appropriately and they can work just fine.

Cubs would rather have Heyward at 8/184 with no opt outs than 8/184 with his two opt outs. Of course Heyward wouldn’t have signed that deal. He’d have wanted 8/200+ and maybe the Cubs would rather give him the option to opt out and reduce their exposure to him being terrible or hurt by 16M+ and still have him on the team instead of elsewhere for the next 3 years at minimum.

Clownbomb
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Clownbomb
5 months 9 days ago

Exactly. Teams are not “giving” opt outs. They are exchanging them for less guaranteed money.

Except maybe for the Red Sox, who somehow got hoodwinked into giving David Price an opt out even though they were blowing past the 2nd best offer.

Jared
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Jared
5 months 9 days ago

Doesn’t Cole Hamels have the right to demand a trade, and if the Rangers don’t trade him, then he becomes a free agent? If so, shouldn’t he be using this as leverage for an extension or raise, the same way he would with an opt out?

Chill
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Chill
5 months 9 days ago

Put it in this context. The AZ front office which has been widely panned as incompetent and out of step in their thinking just signed a 30+ year old pitcher to a contract without an opt out. The Dodgers, a front office that made its bones competing without overpaying for aging free agents while in Tampa, just passed on resigning Greinke despite having the financial wherewithal to do so. The Giants and Red Sox, with 6 championships between them in the last 11 years, both just signed contracts with player opt outs. These facts run counter to the narrative that opt outs are terrible for the team and a front office must be stupid or at least short sighted to include them in FA contracts. If the Yankees had been as clever as the Dodgers they would have walked away from CC and Arod when they attempted to leverage their opt outs for more money and more guaranteed years. Old players are simlpy never worth big contracts. Perhaps Greinke or Price or Cueto will buck that trend but I wouldn’t bet on it. Neither will the Dodgers, Giants or Red Sox. The Diamondbacks however…. Hmmmm…

David
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David
5 months 9 days ago

You’ve mentioned before that AAV hasn’t increased as much as total contract value. Once teams seemed to reach their level of tolerance for AAV they started adding years to contracts. Now teams are perhaps reaching their level of tolerance for contract length and are including opt-outs as a way to add value instead of to the AAV or more years.

SoxOfNorth
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SoxOfNorth
5 months 9 days ago

There are two things come to mind when I read this article …

1. Having opt-out definitely has it’s value, but we should not compare contract with opt-out with the same guaranteed contract without opt-out. For example, the comparison should be if the Cubs was better off signing Heyward for 8-184 with opt-outs or 8-200 guaranteed ?

2. A factor did not get talked about enough is the motivation factor, I don’t know how much an extra 20-30m is worth for these superstar athletes, but I do believe the motivation of “playing well for another 3 years will earn me an extra 50m” might be significant for some guys, comparing to “whatever happens, I will get my guarantee money”. The clubs include the opt-out might just want to get more production for the first part of the deal.

Clownbomb
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Clownbomb
5 months 9 days ago

Agree with both points. The second one never gets mentioned because people tend to work under the assumption that everybody is trying as hard as they can, but some guys are just more motivated by money. The opt out could potentially help align incentives. But this is theoretical and unprovable.

florida ron
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florida ron
5 months 9 days ago

My opinion is this certainly was a factor in how well Grienke pitched before his opt out.

Pumpsie Green
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Pumpsie Green
5 months 9 days ago

Genuinely trying to grasp why so many people are saying a Player Option is good for the team. How about we flip it around: can a Team Option be good for the player? Plenty of Team Options are declined every year, and I can only think of ones that were bad or neutral for the player. Has any player ever said ‘Thankfully, they declined their option and now I can sign for more money elsewhere’?

Only Glove, No Love
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Only Glove, No Love
5 months 9 days ago

Interesting point that I thinks pojnts out some confusion here… the relationship is not symmetrical between the two parties. Players re the team desire maximum financial return over a given period. Teams re the player value short term commitments and youth. Players contract with one team. Teams contract with many players.

Only Glove, No Love
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Only Glove, No Love
5 months 9 days ago

In another sense, you point out something with your example: players dislike team opt outs because later years of baseball contracts are better deals for them than teams…

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