Giancarlo Stanton’s Opt-Out Caps His Trade Value

The better Stanton performs over the next few years, the more likely he is to opt out. (Photo: Corn Farmer)

With the Marlins looking to cut payroll, Giancarlo Stanton seems likely to be traded at some point this winter. Stanton not only takes up a lot of that payroll, but his talents are desirable to other teams. The grounds for a trade are obvious. At the same time, the 10 years and $295 million remaining on his contract present a roadblock to acquiring him. So does his no-trade clause, which he could use to block a trade to one of the clubs willing to take on his salary.

Another concern is Stanton’s opt-out clause. While less of an obstacle to the eventual completion of a deal, it’s a factor. By the terms of the opt-out, Stanton will have the choice, in three years, either to become a free agent, or exercise a player option for seven years and $218 million. In late June, when Stanton had a 131 wRC+ and looked to be on pace for “only” a four-win season, the opt-out didn’t seem to matter too much; the probability that he’d exercise it seemed pretty low. A monster second half and MVP Award later, though, and that opt-out is back in play, and it negatively affects Stanton’s value.

Without revisiting whether player opt-outs benefit a team (Dave Cameron wrote about it over the course of multiple posts two years ago with the last one here), let’s just dig into the numbers a bit and see what they say. Last week, Eno Sarris advocated for trading for Stanton, noting that if Stanton ages normally, there’s a big surplus on the contract. Sarris also noted that, even if Stanton ages poorly, the contract would remain pretty close to the current market rate.

Here’s an estimate of Stanton’s value were he to age normally, starting with $9 million a win. I’ve used Steamer’s win projection (5.3 WAR) for Stanton’s 2018 season.

Giancarlo Stanton’s Contract — 10 yr / $295.0 M
Year Age WAR $/WAR Est. Contract Actual Contract
2018 28 5.3 $9.0 M $47.7 M $25.0 M
2019 29 5.3 $9.5 M $50.1 M $26.0 M
2020 30 5.3 $9.9 M $52.6 M $26.0 M
2021 31 4.8 $10.4 M $50.0 M $29.0 M
2022 32 4.3 $10.9 M $47.0 M $29.0 M
2023 33 3.8 $10.9 M $41.6 M $32.0 M
2024 34 3.3 $10.9 M $36.1 M $32.0 M
2025 35 2.8 $10.9 M $30.6 M $32.0 M
2026 36 2.3 $10.9 M $25.2 M $29.0 M
2027 37 1.8 $10.9 M $19.7 M $35.0 M
Totals 39.0 $400.6 M $295.0 M

Assumptions

Value: $9M/WAR with 5.0% inflation (for first 5 years)
Aging Curve: +0.25 WAR/yr (18-24), 0 WAR/yr (25-30),-0.5 WAR/yr (31-37),-0.75 WAR/yr (> 37)

As structured, the deal looks pretty good for the team, with a surplus of over $100 million. Except for one thing, though: this version of reality isn’t ever likely to occur. In three years, Stanton will be just one year older than J.D. Martinez is right now. If he puts up three five-win seasons in a row — better than what Martinez just did in one season — his value on the free-agent market is going to exceed the $218 million he is owed. In that case, Stanton would almost certainly opt out, cutting the surplus by 30%.

The above case represents just one scenario, though. To play this out, let’s consider a bunch more and see where it leads. For the purposes of this exercise, let’s assume the 5.3 WAR figure is a good estimate of Stanton’s present talent. Note that the higher estimate you put on his talents, the more likely Stanton is to opt out. If you put a six-win talent estimate on Stanton and give him 18 WAR over the next three seasons, that place among the greats. The only primary right fielders to do better than that from 28 to 30 since 1947 are Hank Aaron, Stan Musial, and Frank Robinson. Even in that scenario, the surplus is under $100 million. There’s a limit on how much high-end value Stanton can provide because of that opt-out.

To examine the consequences of the opt-out, we need to consider a wide range of outcomes. Here, I’ll consider scenarios in which Stanton (a) ages well, (b) ages normally, or (c) Stanton ages poorly. I’ll also consider the varying outcomes regarding Stanton’s current talent level, setting 5.3 WAR as the average outcome.

For the first exercise, we will consider Stanton’s value if he ages normally. Here are some possibilities of his current talent level and a rough estimate of the likelihood of those outcomes.

Giancarlo Stanton Potential Outcomes in 2017
Percentile Outcome WAR Percent Chance of Outcome
90% 8.8 4%
80% 7.6 8%
70% 6.6 12%
60% 5.8 16%
50% 5.3 20%
40% 4.8 16%
30% 4.1 12%
20% 3.1 8%
10% 1.9 4%

We will use this same distribution throughout. As you can see, there’s a 52% chance that Stanton’s talent level is somewhere between 4.8 and 5.8 WAR, with the higher and lower estimates occurring less frequently. What we will now do is put all of those scenarios through the calculator, determine if Stanton would opt out, and find a surplus value that we will weight by the percentage chance of that outcome.

The first step looks like this.

Giancarlo Stanton Potential Outcomes in 2017
Percentile Outcome WAR Percent Chance of Outcome Value Before Opt Out ($/M) Salary Before Opt Out ($/M) Salary After Opt Out ($/M) Value After Opt Out ($/M) Opt Out
90% 8.8 4% 249.7 77 218 516.4 Y
80% 7.6 8% 215.6 77 218 425.2 Y
70% 6.6 12% 187.3 77 218 349 Y
60% 5.8 16% 164.6 77 218 288.2 Y
50% 5.3 20% 150.4 77 218 250.2 Y
40% 4.8 16% 136.2 77 218 212.2 N
30% 4.1 12% 116.3 77 218 159.0 N
20% 3.1 8% 88.0 77 218 87.7 N
10% 1.9 4% 53.9 77 218 30.8 N

If Stanton’s value after the opt-out is greater than his salary, then he opts out. In the above scenario, Stanton would opt out around 60% of the time.

Now let’s look at the surplus value that Stanton provides in these scenarios, beginning with a normal aging curve.

Giancarlo Stanton Surplus Aging Normally
Percentile Outcome WAR Percent Chance of Outcome Surplus with Opt-Out Clause Value of Surplus Value of Surplus with no Opt-Out Clause
90% 8.8 4% 172.7 6.908 18.844
80% 7.6 8% 138.6 13.816 27.664
70% 6.6 12% 110.3 13.236 28.956
60% 5.8 16% 87.6 14.016 25.248
50% 5.3 20% 73.4 14.68 21.12
40% 4.8 16% 53.4 8.544 8.544
30% 4.1 12% -19.7 -2.364 -2.364
20% 3.1 8% -119.3 -9.544 -9.544
10% 1.9 4% -210.3 -8.412 -8.412
TOTAL $50.9 M $110.1 M

In the best scenarios for Stanton, he opts out of the contract after three years, giving a team surplus value only for the first three years. That cuts the surplus from the $100-plus million like we saw in the first chart down to $50 million.

Now let’s repeat the process above — except, this time, we’ll assume that Stanton ages well. The opt-out situation does not change at all here, as he is presumed to hold steady from ages 28 to 30 before the opt-out anyway.

Giancarlo Stanton Surplus Aging Well
Percentile Outcome WAR Percent Chance of Outcome Surplus with Opt-Out Clause Value of Surplus Value of Surplus with no Opt-Out Clause
90% 8.8 4% 172.7 6.908 21.9
80% 7.6 8% 138.6 13.816 33.776
70% 6.6 12% 110.3 13.236 38.136
60% 5.8 16% 87.6 14.016 37.472
50% 5.3 20% 73.4 14.68 36.4
40% 4.8 16% 129.8 20.768 20.768
30% 4.1 12% 56.7 6.804 6.804
20% 3.1 8% -47.7 -3.816 -3.816
10% 1.9 4% -173 -6.92 -6.92
TOTAL $79.5 M $184.5 M

If Stanton ages well, the surplus goes up to $80 million, but the opt-out costs the team more than $100 million because of the lost value.

Now let’s take a look at what happens if Stanton ages poorly. If that were to occur, he’d start to show his age a little bit at age 30 and the opt-out situation changes. He only opts out below at the 70th percentile outcome or higher, which happens 24% of the time.

Giancarlo Stanton Surplus Aging Poorly
Percentile Outcome WAR Percent Chance of Outcome Surplus with Opt-Out Clause Value of Surplus Value of Surplus with no Opt-Out Clause
90% 8.8 4% 165.4 6.616 13.972
80% 7.6 8% 131.3 13.232 17.92
70% 6.6 12% 102.9 12.348 14.34
60% 5.8 16% 36 5.76 5.76
50% 5.3 20% -10.8 -2.16 -2.16
40% 4.8 16% -54.9 -8.784 -8.784
30% 4.1 12% -110.5 -13.26 -13.26
20% 3.1 8% -177.2 -14.176 -14.176
10% 1.9 4% -238.6 -9.544 -9.544
TOTAL -$10.0 M $4.1 M

We see that, if Stanton ages poorly, teams no longer get the value of the contract due to the opt-out. Without the opt-out clause, the contract still has surplus value, but the opt-out drops the value by around $15 million.

Now, we can’t just average the three scenarios to arrive at an estimated “cost” of the opt-out, because the likelihood of each scenario isn’t the same. We could come up with a number of different scenarios to find a value for the opt-out, but how about we assume that Stanton’s current contract is roughly market value and come up with a scenario to see how front offices might be viewing Stanton’s potential as he ages.

For these purposes, we will say Stanton ages well 5% of the time, ages normally 15% of the time, and ages poorly 80% of the time. To find your own valuation of Stanton, you can choose different figures. If you think Stanton is more likely to age normally, you are going to rate Stanton as a much more valuable player.

The scenario here is a rough approximation of his valuation if his current contract is market value.

Giancarlo Stanton Value of Opt-Out Clause
Contract Status Surplus
With an Opt-Out Clause $3.6 M
Without an Opt-out Clause $29.1 M
Difference $25.5 M
Assumptions: Ages Well 5%, Ages Normally 15%, Ages Poorly 80%

If Giancarlo Stanton is a 5.3 WAR player right now and his contract is market value, that opt-out is worth around $25 million. Continuing with these assumptions, Stanton opts out 31% of the time, which seems a bit more reasonable than the 60% under the “ages well” and “ages normally” scenarios. If Stanton doesn’t opt-out, just 31% of the time does the team get value on the contract. As we might expect on a contract that has an expected value in line with the terms, it is pretty close to a 50/50 split on whether it works out for the team.

Most of the time, Stanton does not opt out, and in the vast majority of those circumstances, the team doesn’t get full value from Stanton. When Stanton does opt out, the team misses out on a good chunk of value. The better you believe Stanton is now and will be in the future, the more a team misses out with that opt-out clause. We often assume that the team with the highest valuation of a player will make the best offer, but in this case, a high valuation is going to put a cap on the value a team believes it will receive due to the opt-out clause. That clause limits the ceiling a team will receive from Stanton while retaining the risk that comes with a $295 million contract.

We hoped you liked reading Giancarlo Stanton’s Opt-Out Caps His Trade Value by Craig Edwards!

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Craig Edwards can be found on twitter @craigjedwards.

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Yirmiyahu
Member
Yirmiyahu

The likelihood distribution on your current WAR projections seems pretty reasonable, but what’s the explanation for the aging assumptions? Why is there an 80% chance he ages poorly, and only a 5% chance he ages well?