Max Scherzer and the Incentives to Self Insure
Over the winter, Max Scherzer turned down an offer from the Tigers that would have paid him $144 million over six years, and instead, decided to play out his final season in Detroit and then see kind of offers he will get as a free agent. Given pitcher attrition rates, Scherzer was certainly taking on a significant risk to pass up that kind of contract. Jeff Zimmerman’s research pegged Scherzer as having a 31% chance of landing on the disabled list at some point in 2014, and a significant injury likely would have forced Scherzer to forego pursuing any kind of long-term deal this winter. By turning down the offer, Scherzer appeared to have made a big bet on himself and his future health.
However, as Scherzer noted to Tom Verducci over the weekend, he actually hasn’t taken on nearly as much risk as we might have thought. Instead, he sold the risk to an insurance company for what was presumably a better rate than the one the Tigers offered. And I fully expect this to become a trend, with third-party insurance agencies stepping in to correct a market imbalance in Major League Baseball.