Anatomy of the $100 Million Contract

Thirteen years ago, Kevin Brown became the first Major League Baseball player to sign a $100 million contract. Since then, 27 other contracts have at least hit that number — and this winter will add several more.

Albert Pujols is a virtual lock to surpass the $100 million mark – and Prince Fielder, Jose Reyes and C.J. Wilson are definitely in the running, as well. We know that high-dollar, long-term contracts have rarely worked out for the teams offering them, but I want to take an up-to-date, comprehensive look at this no-longer-rarefied group. I created three visuals that tell us what we should have expected from each player; how his performance throughout the contract compared to seasons prior to the contract; and how his production should be valued at based on open-market rates. I’m only going to touch on a fraction of what these visuals say, so I encourage you to add comments of your own.

To do this, we first should figure the contracts were doomed from the start. For the sake of this post, I considered all contracts as their own entities. Extensions, option years and opt-outs were simply treated as separate contracts.

On the horizontal axis of the first plot is the average WAR in the three years leading up to each player’s mammoth contract. The player’s age in the final season of his contract is plotted on the vertical axis. The size of the bubble is determined by the contract’s average annual salary. The origin of this plot — 5 WAR and 36 years old — has no intended meaning; it only roughly shows the groups’ mid-points. Obviously, the older the player is when the contract ends, the more attrition in performance we can expect. Additionally, the fewer WAR the player produced leading up to the contract means — well, they’re just not very good players. These relative “danger zones” are marked in red. From this, we can categorize Barry Zito, Alfonso Soriano, Carlos Lee, Vernon Wells and Mike Hampton as players who had no business getting the contracts they signed. Blame for these failed contracts should be placed on the teams that doled them out.

Most of the time, teams that hand out free-agent or impending-free-agency contracts end up paying for a player’s past production and not future production. The grid below reinforces this by showing the WAR produced by each $100 million player throughout the lifetime of his contract and the three years leading up to the contract. Outside of only three cases, each player averaged fewer WAR throughout his contract than in the three years prior to it. Leaving out players still in the beginnings of their contracts, we can pick out Ken Griffey Jr., Kevin Brown, Todd Helton, Johan Santana, Jason Giambi, Manny Ramirez, Derek Jeter and the second Alex Rodriguez deal as instances where contracts paid for past production.

Interestingly enough, Soriano has produced at nearly an identical level to what he produced prior to his contract. That means Cubs fans really can’t blame him. It’s also worth noting that while both Jeter and Ramirez were victims of attrition, Jeter was able to spread out his production more evenly over the lifetime of his contract while Ramirez provided the majority of his value early in his contract. Despite being paid similar average annual salaries, this — in combination with rising salaries — is partly why Jeter ranked significantly higher on the grid that follows.

This last grid shows the amount of value in millions of dollars that each player produced beyond — or less than — the average annual salary of his contract given the free-agent-market rates for WAR. The market rates from 1999 to 2001 were extrapolated for completeness. Even though players were not necessarily paid at their average annual rate each year, this gives us a pretty good idea of what we want to know.

We can pull out Miguel Cabrera’s, Carlos Beltran’s and Alex Rodriguez’s first deals as successes for their teams. Unsurprisingly, all the players in this group are found in the lower, right-hand corner of the first plot. To a degree, Rodriguez’s deal benefited from not having reached its full term; and while the Cabrera deal still has three years left, I’m comfortable putting him in this group. CC Sabathia has been every bit the player the Yankees have paid him to be to this point — but given the length of the deal, that contract will have to remain in Purgatory for now.

It’s also too early to make any meaningful claims about several other deals. Carl Crawford and Joe Mauer really didn’t do themselves any favors with their 2011 campaigns, and Mark Teixeira and Jayson Werth aren’t heading in the right direction, either. Meanwhile Cliff Lee, Troy Tulowitzki and Matt Holliday have given themselves good starts. As far as the contracts that haven’t begun yet, Ryan Howard’s contract is going to be a disaster; the Adrian Gonzalez contract is a wait-and-see; and I’m not going to touch the Ryan Braun deal because I’m pretty sure the sun is going to burn out before that deal finally kicks in.

As of 2011, the Hampton and Griffey deals stand alone as the worst $100 million contracts so far. While health issues led to the downfall of those contracts, Hampton didn’t deserve anywhere close to that money, anyway. But with two, three and six (!) years left on the Zito, Wells and Rodriguez deals, respectively, there’s little doubt that the Hampton deal soon will be surpassed.

This brings me to the guy I’ve left out. While the Albert Pujols deal should certainly be called a success for the Cardinals, it would be careless to group him in with anyone else on this list. In fact, the difference between Pujols’ contributed value beyond his salary and the second highest ranking contract is greater than the difference between the second ranking contract and the lowest ranking contract. Over the lifetime of his seven-year, $100 million deal signed prior to the 2004 season, Albert Pujols’ production was worth roughly $132 million more than what he was paid. Pujols production was worth on average $22 million in excess of what he was paid in the four free-agent years his contract bought out. To give you some perspective, Evan Longoria has produced at a level of $26 million per year in excess of his average annual salary during the past four years. While it’s not quite an apples-to-apples comparison, it demonstrates the ridiculousness of Pujols’ contract. The Cardinals still had Pujols under team control for three more years when St. Louis gave him the deal — so like the Longoria deal, the team wasn’t expected to pay him at an open-market rate. Still, if  St. Louis decides it  can’t let Pujols get away this off-season, he’ll eventually be a lot closer to being able to call them even.

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12 years ago

Excellent research and presentation!