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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