Nationals Wisely Extend Ryan Zimmerman

When the Washington Nationals and Ryan Zimmerman began negotiating his $100 million extension, Zimmerman was already bound to the team for 2012 and 2013 seasons. Even still, the Nats decided to give him a $100 million guarantee this weekend in exchange for his services from 2014 until 2019. Zimmerman’s performance through his 34th birthday is now the property of the Nationals. Washington had two years to decide whether to make such an investment in Zimmerman’s health and extended performance — but they decided to take the risk now.

The deal’s critics already pointed out Ryan Howard’s questionable extension in April 2010 — also two years before he became free-agent eligible — but there are a number of recent contracts that may be better comparisons for Zimmerman’s. While Howard’s deal appears that it will be a major overpay, it turns out these contracts generall work out quite well for teams. Instead of being unnecessary risks, they are usually hedges against spending even more money in the future.

Utilizing all contracts of players with at least six years service time from 2007 to 2011, I searched for deals that were signed at least two years before the player was eligible for free agency and that bought out at least three free agency years. I included deals that bought out arbitration years as well — though these  obviously are different than Zimmerman’s new contract — and found 11 contracts that met these criteria. To quantify these contracts’ values, I looked only at performance and pay from 2007 to 2011. This excluded six years of these deals that started before 2007, and 14 years of these contracts that ended after 2011.

Overall, the cost per WAR for these deals — after making my standard adjustments for draft-pick compensation — was just $3.63 million each. All other contracts during this time cost $5.53 million per WAR. On average, that amounts to a 34% discount for teams willing to sign a player a couple years in advance. Even if we look only at extensions that were signed later — since re-signed players usually outperform free agents from other teams — they cost $5.25 million per WAR, which turns these big extensions into 31% discounts.

If these teams had paid full price later, they could have cost $668 million — instead of $443 million. For reference, the $225 million gap is approximately the amount of money remaining on the seven incomplete deals. That means that if these players gave no production during the next 14 seasons, the teams collectively would have already broken even.

Contracts like this provide incredible savings. While nine of these 11 deals covered years outside the 2007 to 2011 range, I analyze them each individually.

Completed deals:

1. Albert Pujols signed a seven-year, $100 million deal in February 2004, despite being three years from free agency. This also included an option for 2011 that was picked up, making it effectively five years (2007 to 2011) bought for about $77 million above the league minimum. He produced 39.1 WAR. JUDGMENT: great deal.

2. Roy Halladay signed a three-year, $40 million deal in March 2006 to cover the 2008 through 2010 seasons — this, despite Doc being under contract through 2007. He produced 21.5 WAR during that time. JUDGMENT: great deal.

Deals starting before 2007:

1. Bobby Abreu signed a five-year, $64 million deal with the Phillies in February 2002, despite not being eligible for free agency until after 2003. The Phillies traded Abreu to the Yankees in July 2006, who picked up his 2008 option. Since I’m only looking at production during 2007 through 2011 seasons, I count only Abreu’s 4.9 WAR from 2007 to 2008 and his $26.6 million above league minimum as the cost. The deal gets penalized a little — he was a Type A player after 2003 — so he would have given Philadelphia a pair of draft picks if they let him go, but the Yankees didn’t offer arbitration after he left in 2008. JUDGMENT: good deal.

2. Todd Helton and the Rockies agreed to a nine-year, $141.5 million contract in March 2001 that covered his  2003 through 2011 seasons. Helton wasn’t even eligible for free agency until after the 2003 season. While the first part of the free-agent portion of the deal went relatively well (14.2 WAR from 2004 to 2006), the next five seasons were particularly ugly. Helton was paid about $79.8 million above league minimum but produced just 11.1 WAR. He also forced the Rockies to forego a couple of draft picks after 2003. In the end, the Rockies’ expense was too high for a non-elite performance at the beginning, coupled with marginal production at the end. JUDGMENT: not a good deal.

Deals not quite completed:

1. Chris Carpenter agreed to a five-year, $63.5 million contract with the Cardinals in December 2006, nominally covering the 2007 through 2011 seasons. Since Carpenter was actually under contract through 2007 — and had a team-friendly option for 2008 — this was really a three-year deal for $44.5 million that covered his 2009 through 2011 seasons. Regardless, Carpenter delivered in a big way: He produced 15.4 WAR during those three years. On top of that, the Cardinals picked up his 2012 option — a decision that could make this deal look even better. The draft picks that were given up after 2008 were minimal, since Carpenter’s likely to yield draft pick compensation after 2012, anyway. The Cardinals also can recoup the picks. JUDGMENT: good deal.

2. Alex Rios netted a seven-year, $69.83 million deal from the Blue Jays in April 2008, despite not being eligible for free agency until after 2010. The Blue Jays were unbelievably fortunate that the White Sox picked him up off waivers in 2009. He was below replacement level at -0.7 WAR last year, and he still has three more years of eight-figure salaries from the White Sox. JUDGMENT: terrible deal, even though not for the team that originally signed him.

3. Chase Utley and the Phillies shook hands on a contract worth $85 million for seven years back in January 2007. The agreement bought out Utley’s three remaining arbitration years and tacked on a four-year, $60 million deal that covered the 2010 through 2013 seasons three years in advance. In 2010, Utley produced 5.4 WAR; in 2011, he produced 3.9 WAR in just 103 games. With $30 million total due for 2012 and 2013, this could work out exceptionally well for the Phillies if Utley can stay on the field most of the time. Even if Utey falls to more injuries, the Phillies have a cushion before this deal would even become a questionable one. JUDGMENT: good deal.

4. Jake Peavy signed a three-year, $52 million deal in December 2007, that covered his 2010 through 2012 seasons. Afterward, he suffered a series of devastating injuries that put a dent into what seemed like a fantastic deal. Still, Peavy has produced 4.7 WAR during the past two years — in just 218.2 innings — so this deal hasn’t been a total loss. It just wasn’t a good bargain. JUDGMENT: not a good deal.

5. Justin Morneau inked a six-year, $80 million deal in January 2008 that bought out three arbitration years — as well as his 2011 through 2013 seasons — for about $45 million. Sometimes, concussions happen. Morneau’s story is terrible and hopefully he can get back on the field; but even though you can’t predict a concussion, you have to account for injuries. Teams needs to consider all kinds of risks when securing a play in advance; Morneau’s contract was plagued by one such risk. Morneau was below replacement level in 2011 and his career could be in jeopardy. As a result, the Twins landed on the wrong side of the ledger on this one. JUDGMENT: terrible deal.

6. In March of 2007, Michael Young and the Rangers negotiated a $80 million deal that covered his 2009 through 2013 seasons. The Rangers also exercised Young’s $5 million option for 2008 as part of the agreement. So far, the first three years of the deal have given 9.7 WAR to the Rangers at a cost of $46.8 million above league minimum. That part is fine — but Young’s unlikely to be as prolific in  2012 and 2013 as he was from 2009 to 2011. JUDGMENT: not a good deal.

7. Miguel Cabrera signed an eight-year, $152.3 million deal in December 2007, despite the fact that he wouldn’t be free-agent eligible until after 2009. Effectively, this was a six-year, $126 million deal that covered Cabrera’s 2010 to 2015 seasons. He has already produced 13.6 WAR in the first two seasons of this contract, and he’s likely to produce enough from 2012 to 2015 to make this deal easily pay off. JUDGMENT: good deal.

Of these 11 deals, it looks like we have two great contracts (Pujols and Halladay), four good ones (Abreu, Carpenter, Utley and Cabrera), three that were not so good (Helton, Peavy and Young), and two terrible ones (Rios and Morneau). While tallying categories like this masks the aggregate effect, the good deals have been a lot more useful than the bad ones have been destructive. The contracts have provided WAR at a cost of only $3.63 million each, or about a 34% market discount.

Ryan Zimmerman could hurt himself — or his skills could deteriorate too rapidly — and those concerns obviously make this $100 million investment far from a guaranteed success for the Nationals. Given the value that comparable agreements have provided to teams even in this low-inflation era, Washington has history on its side. If Zimmerman maintains his production, if he tails off gracefully or if the market price spikes in the wake of an economic recovery, this contract might be a $100 million steal for the Nationals. Baseball players are worth a lot of money and are compensated accordingly. Zimmerman may have exchanged even more future compensation for some extra security right now.