It’s Time to Pay the Aces

If you go up to the toolbar at the top of the screen and click on leaders, then switch over to the pitching tab, you will see three names at the top of the list:

1. Justin Verlander
2. Felix Hernandez
3. Clayton Kershaw

Those three are, without a doubt, three of the best pitchers in baseball. You could probably make a pretty good case that they are the three best pitchers in baseball. And, last year, they rated #1, #2, and #3 in pitcher WAR, which is why they’re the first three names on the list of the default leaderboard. But, they also have something else in common; they’re all due to become free agents in two years.

Verlander and Hernandez both signed five year contract extensions at around this time in 2010, buying out their final two arbitration seasons and giving up three years of free agency to sign deals worth $80 million. Actually, Hernandez got $78 million over five years, but close enough. With similar levels of service time and performance, both signed essentially the same contract, giving them a big payday but also retaining their ability to reach free agency early enough to land another big payday in the future, if they stayed healthy and continued to pitch at elite levels.

Kershaw, on the other hand, hasn’t had that big payday yet. He signed a two year deal that covered his first two seasons of arbitration, but he’ll still have one more trip through arbitration next year before he becomes a free agent. Unless, of course, the Dodgers buy out his free agent years with a long term extension, as the Tigers and Mariners did with Verlander and Hernandez in the same situation three years ago. The question for all of three of these pitchers is just how much the market for ace-level pitchers has increased since Hernandez and Verlander signed their deals three years ago.

Because so much of baseball’s salary negotiations have to do with finding comparable players and established salary baselines from previous deals, Hernandez and Verlander are the natural comparisons not only for Kershaw, but also for themselves. Since those two deals were signed, most of the long term extensions for pitchers have been completed with free agency as a more looming specter, driving up the price as teams sought to keep their best pitchers off the market.

Most recently, Cole Hamels signed a six year, $144 million contract to remain with the Phillies, but he did so with just half a season left before he hit free agency. Matt Cain signed a five year, $113 million contract at the start of last year, so he was one year away from hitting the open market. CC Sabathia signed a five year, $122 million extension, but did so in lieu of opting out of his contract to become a free agent after the 2011 season, so that extension almost needs to be looked at as a free agent contract, given the leverage he had to test the market and see what other teams would bid for his services.

More applicable to these situations is the contract Jered Weaver signed with the Angels in August of 2011, as he took $85 million over five years to stay in Anaheim. Weaver still had a year and change left before he was free agent eligible, and signed for a similar price as to what Hernandez and Verlander had received in their extensions. However, much was made at the time of how Weaver took a “home town discount”, a rarity for a player advised by Scott Boras, and Weaver admitted that Boras pushed him to not sign the deal. While this deal can be used in conjunction with the Hernandez/Verlander extensions to set something of an established market price for pitchers who aren’t in their walk year, I’d imagine the agents for all three will argue that the prices paid then don’t reflect the current economic reality of Major League Baseball.

Perhaps the most persuasive argument for that case comes from Joey Votto’s extension last year. Like the Big Three, he was under team control for two more years, but the Reds wanted to lock him up long term. The final cost of that long term deal? $225 million over 10 years, in addition to the $26 million he was already due under his old contract. The final tally for the entire commitment was $241 million over 12 years, beating the old extension record for a player two years from free agency by nearly $90 million. Votto’s deal was unprecedented, in that he was paid like a free agent years before he actually reached free agency.

Hitters and pitchers come with different risks, and there’s no way a team will come anywhere near Votto’s deal for any pitcher, no matter how good he is. Pitchers get hurt more often, and their performance is subject to more variance, so they get shorter contracts. That’s just a fact of life in baseball. Even Kershaw, heading into his age 25 season, isn’t going to get a 10 year deal. He’s probably looking at six or seven years, and that likely includes the two years of team control he’s already obligated to serve out. As good as these three are, they’re still pitchers, and there’s not much precedent to teams committing significant money to a pitcher eight or nine years into the future.

So, let’s just assume for sake of argument that each of them is going to end up with a deal totaling seven years, including the two they still have to give. For Verlander, that would cover his age 30-36 seasons, Hernandez would be selling his age 28-34 seasons, and Kershaw would be signing away ages 25-31. Given their respective ages, Kershaw might be expected to get the largest contract of the three, especially given how the Dodgers have been spending money since new ownership took over. However, he’s also the one who hasn’t yet landed a huge payday, so perhaps he’ll be more incentivized to take what’s offered, rather than risking future injury without having secured one monster contract in his career.

What kind of contracts are we looking at for each? Hernandez and Verlander are both due $40 million over the next two years, so they’ll probably be looking for a raise from the $20 million per year they’re earning now. That said, no pitcher has even reached $25 million per year as a free agent, so the upper ceiling on how high they can go while two years from free agency is a bit limited. They’re better pitchers than Hamels or Cain, but they’re also further away from the open market, so the variables offset to some degree.

Let’s just split the AAV difference between what they’re earning now and what the top free agent pitchers are getting, which puts them at $22 million per year. With a five year extension, that would push the total commitment to both pitchers at $150 million over seven years, pushing them past Hamels as the largest contract extensions ever given to a pitcher, and putting them behind only CC Sabathia’s original contract with the Yankees as the largest deals ever given to a guy who makes a living throwing a baseball.

Kershaw’s overall deal will probably reflect a slightly lower total, simply because he’s under contract for $11 million this year and is still bound by arbitration next year, and the Dodgers are under no compulsion to raise those salaries to something closer to the $20 million that Hernandez and Verlander are earning. So, even if he gets a higher AAV due to his youth and Dodgerness, we’re still probably looking at a $25 million AAV — at most — for the years getting bought out, or $125 million from 2015 through 2019. If we assume his arbitration payout for 2014 would be in the $18 million range and the team just guarantees that as part of the deal, that would push his total value to $144 million over seven years.

We’ve never seen pitchers two years away from free agency get salaries anywhere close to this, but we’d never seen a position player get anything close to what Votto got last year either. When Hernandez, Verlander, and Weaver signed their deals, the world’s economy was still quite poor, and Major League Baseball wasn’t doing nearly as well as it is now. With revenues on the rise, don’t be surprised if these three aces all find themselves signing large, lucrative extensions with their current teams in the next month or two.

Dave is the Managing Editor of FanGraphs.

Newest Most Voted
Inline Feedbacks
View all comments
11 years ago

I hate linking to the angry old blogger, but Murray Chass had an interesting column today.

Boras, who doesn’t let any baseball financial aspect escape him, has made a study of payrolls and has found, he said, that most teams have lower payrolls five weeks before spring training than their highest opening-day payrolls since the 2000 season.

“Only about five teams have higher payrolls,” the agent said. “Everybody else is below even though revenue is up by 200 percent and the value of franchises is up 300, 400 percent. What we’re seeing is not many teams are spending on payrolls despite the fact that their profits are extraordinary.

When the qualifying offer is set at $13M, it seems strange that the very best pitchers in the league can’t get more than $25M. I sense that the factors that have led to that $25M ceiling are about to disappear and it will be shattered. First, substantial increases in revenue sharing from the TV deal are going to start flowing to every club in the next few years. Second, that’s quite a troika of young talented pitchers, it takes the best being available as free agents to set the highest contract values, and the best pitchers have rarely made it to free agency. I’l bet one of the three will make it, and that they’ll blast through that $25M a year barrier with ease.

It seems ludicrous that Boras told Weaver to pass on a guaranteed $85M, but Boras knows the market and he knows what the sports are and will be. Most of all, he knows that most of those revenues will flow to MLB clients over time, and that owners can try to control themselves, but will eventually fail. There are too many factors that subvert self control, the business case to improve the product, sell more tickets, gain higher TV ratings, and get playoff revenues, but also the risk of suffering disdain and ridicule for fielding that loser whenever you go out to dinner and the ego that wants to win a championship and also revel in the corresponding adulation you now receive on any night out among the fans.

11 years ago
Reply to  ValueArb

If one of them has to be made to free agency, I think I know which one it would be.

Travis L
11 years ago
Reply to  ValueArb

Boras’ incentives are also different than his clients. He has multiple income sources, so if he fails to make a great deal he’s fine.

A player (especially a pitcher) could get hurt and having a less large payday would benefit them most.

Nathaniel Dawson
11 years ago
Reply to  ValueArb

So with about a month left before Spring Training, with deals yet to be made, 17% of the teams in baseball have their highest payrolls ever?