The Rays Have Seen Enough

On Saturday, April 12th, the Rays promoted highly touted prospect Evan Longoria to the major leagues and handed him their third base job after placing Willy Aybar on the disabled list. Six days later, the Rays have announced that they’ve signed Longoria to a six year, $17.5 million contract with team options that could make the deal worth as much as 9 years and $44.5 million. Longoria now has more guaranteed years of pay than hits in the big leagues.

Following on the heels of extensions for Troy Tulowitzki and Chris Young, more and more teams are showing willingness to offer their young talent long term security in exchange for significant cost savings in the future. It used to be that organizations wanted to see players establish themselves as proven major league talent before they rewarded them with long term contracts, but as these clubs become more confidant in their ability to project future performance before a player even reaches the major leagues, they’re parlaying that information into a competitive cost savings.

That isn’t to say there is no risk involved in signing a player like Longoria while we still have incomplete information about his abilities. The Rays used a similar tactic in 2006 when they locked up Rocco Baldelli, and that hasn’t worked out as well as they would have liked. However, decisions to extend a young player aren’t made on a micro level, but instead, organizations tend to focus on securing a group of players to hedge their risk. By signing both Baldelli and Crawford to long term deals, they were able to secure a highly valuable outfielder at a below market rate without having to know in advance which of the two was the one that was going to develop as hoped. Likewise, by signing Carlos Pena, James Shields, and now Longoria to multi-year contracts at the same time, the team is securing a minimum level of future performance while hedging against inflation.

In several years, these deals are going to reap big rewards for the franchises willing to take on some risk today. The current market values of these long term contracts for pre-arbitration players is skewed heavily in favor of the franchises, and as more teams understand the economic payoff that comes with making these kinds of deals, this strategy will continue to rise in popularity.

It will be interesting to see how happy these players are in four to five years, however, when they’re drastically underpaid relative to the salaries of the times. MLB generally hasn’t had to deal with contract holdouts due to their guaranteed contracts, but with a wave of potential all-stars signing away the primes of their careers at below market rates, these teams could have an interesting dilemma in the future.




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Dave is a co-founder of USSMariner.com and contributes to the Wall Street Journal.


7 Responses to “The Rays Have Seen Enough”

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  1. Kevin Orris says:

    It’s funny that he makes more money than Prince Fielder.

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  2. Scott says:

    I wonder whether these guys will actually be underpaid by that much. As more teams adopt this strategy, teams may actually be deflating future salaries. However, the opposite could happen as well. Since teams will theoretically have more money to spend, they might ridiculously overpay in free agent market, even more so than they do now.

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  3. paul says:

    Silly me, I went to USSMariner to see if Dave had said something about this yet :)

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  4. Sentinel says:

    That’s funny, paul.

    I hope this leads to smaller salaries. I feel that professional athletes, as a whole, are overpaid.

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  5. HamNasty says:

    Good piece Dave, I wrote me econ paper today on the same topic essentially. About how signing these contracts they are a step toward fixing the market bias toward veterans.

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  6. Chris says:

    Sentinel – where do you think that the money that they save is going to go? Certainly not to the service workers or back to the fans, it will simply go to the veteran players and billionaire owners. I don’t see how this improves any inequities that you perceive.

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  7. Sky says:

    The ramifications of these long-term deals will certainly be a hot topic in future labor negotiations. I’m hoping players and owners figure out a way to pay young players more fairly while not losing the baseball tradition of keeping them with their original team for a many seasons.

    ***

    Also, it astounds me how many people don’t understand the motivation and (lack of) risk for the Rays in this type of deal. It’s a no-brainer.

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