Clayton Kershaw’s Next Contract

The 2018 season is a big one for Clayton Kershaw. The three-time Cy Young winner isn’t just chasing the World Series ring that still eludes him, he’s trying to remain healthy wire-to-wire for the first time since 2015. At the end of the year, he’ll have the chance to reclaim his spot as the game’s highest-paid pitcher if he chooses to exercise an opt-out clause in the seven-year, $215 million deal he signed in January 2014.

Via the Los Angeles Times‘ Andy McCullough, neither Kershaw nor the Dodgers are tipping their hands as to what might happen beyond publicly agreeing that they’re maintaining an “open dialogue” regarding the soon-to-be 30-year-old lefty’s contract status. If he does opt out, he’ll co-headline a stacked free-agent class alongside Bryce Harper and Manny Machado, with Josh Donaldson, Dallas Keuchel, Craig Kimbrel, and Andrew Miller among the other luminaries. There’s no indication that Kershaw would rather pitch for another team besides the Dodgers, who drafted him with the seventh overall pick in 2006, but he may not get a better chance to hit free agency while so close to the top of his game.

And while general manager Farhan Zaidi referred to Kershaw as the club’s “franchise player,” the ace southpaw’s potential free agency comes at a time when the industry appears to be growing warier of long-term deals for players over 30. What’s more, since Andrew Friedman took over baseball operations in October 2014, the Dodgers haven’t signed a player for more than the $80 million they gave Kenley Jansen. Both Kershaw’s current contract and Matt Kemp’s eight-year, $160 million deal were hammered out during the Ned Colleti era, with the latter dating back to the dark days of Frank McCourt’s tenure as owner.

The above confluence of factors might be enough to send Dodgers fans out onto the ledge, but the team’s financial clout and Kershaw’s transcendent talent still suggest the two sides will find a meeting point. Where might that be?

Before getting to that, let’s review: if not for a herniated disc that cost him two-and-a-half months in 2016 and a lower back strain that sidelined him for nearly six weeks in -17, Kershaw might own five Cy Young awards, because he has continued to dominate hitters. While limited to 175 innings last year, his 2.31 ERA led the NL for the fifth time, while his 6.7 strikeout-to-walk ratio topped the circuit for the second time. The year before that, he posted a 1.69 ERA, 1.80 FIP, and 15.6 strikeout-to-walk ratio, eye-opening career bests that came with a caveat: he threw just 149 innings, 13 short of qualifying for the ERA title. When he’s available, he’s got a solid claim as the best pitcher in baseball, but with only 324 innings over the past two years, that lack of availability does stand out.

Still, he’s on an historic run, one that will likely carry him to Cooperstown. As researcher James Smyth pointed out, Kershaw’s 2.10 ERA from 2011-17 is the lowest for any pitcher over a seven-year span since 1915-21, when Pete Alexander (1.86) and Walter Johnson (2.03) carried their dominance from the end of the dead-ball era to the beginning of the live-ball one. Of course, Kershaw is pitching in a higher scoring environment: his 56 ERA- for the span edges out Alexander (61) and Johnson (66), though it’s not as good as Pedro Martinez’s 47 ERA- from 1997-2003.

Whether Kershaw and the Dodgers work out an extension before he opts out or he pulls the trigger, hits the open market, and signs a new deal, it’s reasonable to assume that his new pact will be a seven-year one. Not only did he (and agent J.D. Smart) go to that length before, but so have CC Sabathia (2009-15), Felix Hernandez, Justin Verlander (both 2013-19), Masahiro Tanaka (2014-20), Max Scherzer (2015-21), David Price (2016-22), and Stephen Strasburg (2017-23). That’s eight out of the 10 largest contracts ever handed out to pitchers, with the six-year deals of Jon Lester (2015-20) and Zack Greinke (2016-21) representing the exceptions.

While the length of his next deal seems obvious, the next question is when that seven-year term would start. If the two sides agree before Opening Day, would they rip up the current deal for a new one that runs 2018-24? Given the Dodgers’ effort to stay below the $197 million Competitive Balance Tax threshold, that seems highly unlikely, because the new pact would certainly have a higher AAV than the current one’s $30.714 million, and the new figure would be the one used by the league. Recall that, back in 2011, the Red Sox delayed the announcement of Adrian Gonzalez’s extension in 2011 so as to circumvent this.

An industry expert on the luxury tax confirmed with me that the league wouldn’t allow such an obvious ploy. However, an extension announced just after Opening Day that began the following year (2019 in this case) would be kosher. So the window in question becomes 2019-25, Kershaw’s age-31 to-37 seasons. Assuming that Kershaw’s new deal will top Greinke’s $34.417 million AAV, the Dodgers are looking at something in the neighborhood of at least $35-36 million a year ($245-252 million total), a contract that would rank among the five largest in history.

It’s easy enough to do that math, but it’s also worth looking at some contract estimation models. I’ll start with the FanGraphs’ in-house tool, which was introduced to me when I came onboard, and set it with the following parameters:

• A value of $9 million per WAR and a 5% rate of inflation, assumptions that might be worth questioning after this weird winter but not out of line with longer-term trends;
• a cap on inflation beyond five years, based on a competing discount rate;
• an aging curve based on the research of Jeff Zimmerman and Tom Tango, with 0.5 WAR per year of decline during the seasons in question; and
• Steamer’s estimate for 5.8 WAR for Kershaw’s 2018 performance, which incidentally is the same figure at which I arrive by scaling the 192 innings in our depth charts’ projection for our hero down to 180 innings based upon his recent history

Here are the results of those assumptions:

Even lopping off his 2018 season (valued at $52.2 million of performance), Kershaw is projected to produce $276.0 million of value over the period between 2019 and -25. Switching to a more aggressive rate of decline built into this model, 0.75 WAR per year, still puts him above the $200 million mark:

In my time at Sports Illustrated, I did a “What’s He Really Worth?” series that owed plenty to FanGraphs’ model and the underlying research of Tango, Zimmerman et al which I think is worth revisiting here for illustrative purposes. Instead of Steamer-based projections, my WHRW model used a WAR-based version of Tango’s Marcel the Monkey forecasting system*, building in regression and an aging curve into what Tango called WARcel.

The WARcel methodology starts with a 6/3/1 weighting of a player’s three most recent WARs (six times the player’s 2017 WAR plus three times his 2016 WAR plus his 2015 WAR, divided by 10), then throws in a significant hit of regression (20% in the first year, or 0.8 times that weighted WAR). For pitchers older than 26, the aging curve is simply a baseline loss of 0.4 WAR per year, with no age-based acceleration, as that model uses in the case of position players. In my version of the model, I used a higher rate of inflation based on Matt Swartz’ research, but I’ll stick with 5% here in accordance with local custom. However, I will not cap the inflation as the FanGraphs in-house model does.

* “The most basic forecasting system you can have, that uses as little intelligence as possible.”

Again, we have to jump ahead a year, so throwing Kershaw’s 5.8 WAR projection into WARcel along with his actual 2016 (6.5) and ’17 (4.6) yields a weighted WAR of 5.5 and, with the 20% regression, a baseline WAR of 4.4 for 2019:

That’s a more conservative estimate than our first one, but still very much in the ballpark of my initial back-of-the-envelope calculation, which I think does a good job of reflecting the industry tendency towards incremental improvement at the top end of the salary scale. In his forthcoming (and excellent) book, The Shift, Baseball Prospectus’s Russell Carleton calls that “the Guinness Effect,” after the world-record-book publisher’s request, which asks for cultural courtesy among its entrants — namely, by not placing new standards out of reach. Give the next guy or gal a chance, too.

In this case, we should not only anticipate that Kershaw will surpass Greinke but also expect the Dodgers to pay a premium in exchange for Kershaw’s decision to forgo free agency by adding bells and whistles that don’t significantly alter the dollar amount: one or more opt-outs, vesting options, or club options; deferred money; a pony; and a Pacific Island or two to be named later (Kershlandia? Claytona Beach?).

Between his recent injury history, his representation (he’s not a Scott Boras client), and the fact that he’s agreed to a pre-free-agency extension before, I think Kershaw and the Dodgers will hammer out a deal before he hits the open market. Then again, it’s worth remembering that this might be the pitcher’s once-in-a-lifetime opportunity, and one can’t begrudge him the chance to look around if that’s his desire.