Gerrit Cole’s Monster Contract, Historically Speaking

Gerrit Cole just signed a nine-year, $324 million contract with the Yankees that ranks as one of the biggest in the game’s history. To compare contracts, however, some context is required. In the strictest sense, Cole’s deal is the second-largest in free agent history, behind only Bryce Harper’s $330 million last season. It’s the fourth-largest contract in baseball history, with Mike Trout’s contract extension earlier this year and Giancarlo Stanton’s $325 million deal back in 2015 joining Harper’s ahead of it. In dollars, it is ahead of Alex Rodriguez’s $252 million contract in 2001, as well as his $275 million deal from 2008. But the game’s finances have changed a lot since 2001, when the average major league payroll was just $67 million. Payrolls have increased by two-and-a-half times that amount, with league revenues growing even more than payrolls. So how does Cole’s deal really stack up? We can use payroll information to put Cole’s contract alongside Alex Rodriguez’s, and more evenly compare them.

About a year ago, I attempted to put Alex Rodriguez’s contracts in present-day payroll terms by adjusting them to 2019 dollars based on the average team’s payroll each season. Since that post, Bryce Harper, Manny Machado, and Nolan Arenado have all signed large deals; I added them to the list in this post. After Mike Trout signed his extension, I updated the post again. In light of Gerrit Cole’s signing, another update is necessary.

To arrive at this list, I took the player’s total guaranteed deal at the time of the first year of his contract and put it into 2020 payroll dollars. While we don’t yet know where payroll will end up next season, I’ve estimated a 3% increase over last season, after little to no increase the last three offseasons. When we put these contract in those terms, here’s what they look like:

In terms of sheer size, Cole’s contract comes in 10th-highest in history, and in first place for a pitcher. The list doesn’t include opt-outs, which would serve to increase the value of some these contracts, including Cole’s. Ben Clemens put the value of Cole’s opt-out around $20 million, though it might be slightly less than that given that the Yankees can add another year to the contract (at $36 million) to prevent Cole from opting out, per Ken Rosenthal. It’s a really big contract.

The exercise above is slightly limited, as contracts span shorter or longer terms and some deals have opt-outs, deferrals, or are backloaded, which can affect the true value of the deal. While applying all those factors to the above contracts would be interesting, it isn’t terribly feasible. What I will do is compare the other big contracts this offseason to the big deals from last offseason.

In the table above, Bryce Harper is above Gerrit Cole, as the former’s contract total was larger and the deals were signed just a year apart. However, if given the option, would you take Cole’s deal, which pays out over nine years, or Harper’s deal, which stretches over 13 years? At the end of nine years, Cole will have received the full $324 million, while Harper will have collected only $238 million. Despite Harper getting an early start on his deal, Cole will overtake him in current contract payments after 2024 when Cole will still have four years left on his deal and Harper is still under contract for another seven years. Harper’s deal pays out more money in total, but Cole’s deal is preferable because the payments come earlier.

Given what we know about the contracts, and assuming a straight $36 million payout per year for Cole, I calculated the net present value at the time of the contract for Cole, Stephen Strasburg, Anthony Rendon, Mike Trout (extension and total deal), Nolan Arenado, Manny Machado, and Harper. I used an 8% discount rate per year to come up with the net present value of the yearly salaries. There are a lot of way to think about net present value, but if you were already rich and someone offered you $10 million now or $20 million in 10 years, that reflects an 8% discount rate. The lower the amount you would take in 10 years — as opposed to having the money now — the lower the discount rate should be. Here’s the present value of the more recent mega-deals:

Presenting the contracts this way, we can easily see how Cole’s deal is superior to Harper’s. Cole’s contract is behind Trout’s, but two of the seasons in that deal were already guaranteed under the center fielder’s previous deal. We can also see how deferrals affect the value of the Stephen Strasburg contract compared to the similar Anthony Rendon deal despite the years and total value staying the same. To provide a little more context, we can look at each of these deals and convert them all to 10-year contracts that pay the same amount every season. We will again use an 8% discount rate per season:

In terms of new money, Cole’s contract tops the above list, and of contracts in the last half-dozen years, bests those of Robinson Canó and Giancarlo Stanton, even after accounting for payroll inflation. As we see in the first table, Canó’s deal comes out to $313 million, as it is paid out evenly over 10 years, while Stanton’s backloaded contract comes out to $325 million if paid out evenly over 10 years in 2020 adjusted dollars. Even with inflation, the last contract better than Cole’s (without factoring in the opt-out) was Albert Pujols’ $240 million deal, and while backloaded still has a value of $345 million over 10 seasons adjusted for 2020. Cole’s deal does come out ahead of Prince Fielder’s by just a couple million dollars. It’s arguably the second-best contract for a player since 2001, with Alex Rodriguez’s 2008 deal the only superior contract.

We already knew Gerrit Cole’s contract was big by its sheer dollar amount. While it doesn’t quite measure up to Alex Rodriguez’s in terms of value when payroll inflation is considered, the only contract in the last decade to be bigger belongs to Albert Pujols. Not bad.