Johnny Cueto’s Two-Year Six-Year Contract
The idea of giving a six-year contract to a pitcher scares the dickens out of an awful lot of people. As for the idea of giving a six-year contract to Johnny Cueto? It seems all the more terrifying, given Cueto’s somewhat checkered history. But here we are, with the Giants following up on the Jeff Samardzija acquisition by signing Cueto for six years and $130 million. Before the Diamondbacks signed Zack Greinke, they were said to have offered Cueto six years and $120 million; he looks smart now for turning that down.
Absolutely, this is a six-year guarantee. For Cueto, he’s now looking at a floor of $130 million over six seasons, so it makes sense that’s how this is being reported. Yet as has become the trend, this is a deal with a player opt-out clause, two years in. The industry is seeing more and more of these, and the rest of us are still trying to figure out how to wrap our heads around them. The best I’ve seen it put: this kind of contract is a two-year deal with a four-year player option. And while, in the event of something going horribly wrong, the Giants will be stuck with a monster mistake, it looks to me like Cueto’s in line to leave after 2017. It seems like both parties want it that way.
It is interesting to see the Giants put themselves in position to have Cueto for six years after they were reluctant to go that long for Greinke. Though Greinke is older, he’s also better, and he feels like the superior bet to remain healthy and effective long-term. I can’t walk you through exactly why the Giants do everything they’ve done, but an important point is that Cueto has that two-year opt-out. Greinke’s contract with Arizona contains no opt-out clause. If the Giants figure Cueto’s good early on, they assume little long-term risk, as Cueto disappears for more money.
I don’t think there’s any question Cueto’s stock was down. Going into free agency, he did have a strong start in the World Series, but he also had an extremely up-and-down final three months with the Royals. Every team in baseball believes in Cueto’s talent, but they haven’t all believed in his body, or in his psychology. So Cueto wasn’t going to be looked at as a sure-fire No. 1. Not with all of those question marks.
As a free agent, then, Cueto wanted to find some nine-figure security, but he also wanted an opportunity to potentially get back to the market with fewer lingering doubts. This is an excellent compromise: Cueto will never have to worry about money again, but if he bounces back in San Francisco, he can hit free agency once more as a 32-year-old front-line starter, which is what Greinke is today. With success, there’s a bigger payday.
In terms of contract structure, the Giants have slightly front-loaded Cueto’s deal, the first two years being worth $46 million. That leaves $84 million for the remaining four years, and there’s also a club option for the seventh year. This kind of structure increases the chances that Cueto opts out, relative to something even or back-loaded, without a club option. If that confuses you, think of it this way: the more there is left on the deal after the opt-out, the less there is for Cueto to gain by testing the market. Having less money left lowers the bar. And just as a player opt-out is, in isolation, player-friendly, a club option is, in isolation, team-friendly. So the deal is front-loaded, with a small team benefit at the end.
Now let’s think about the timing of the opt-out. David Price can opt out after year three. Zack Greinke opted out after year three. Clayton Kershaw can opt out after year five. Johnny Cueto can opt out after year two. That puts him in line to hit the 2017-2018 free-agent market. It’s not a terrible market. It could feature Masahiro Tanaka. It could feature Clay Buchholz. It could feature Alex Cobb and Jake Arrieta and Tyson Ross. But the year after stands to be insane: Kershaw might opt out, and Price might opt out. Other free-agent pitchers could include Jose Fernandez, Matt Harvey, Jose Quintana, Dallas Keuchel, Patrick Corbin, Shelby Miller, Garrett Richards, Yu Darvish, and more. If Cueto were given a third-year opt-out, there was a chance of him drowning in a market full of options. This way, he could hit the market early, and there’s some chance he could be the best starting pitcher available. Tanaka and Cobb have bigger health questions. Arrieta and Ross just might. It would be a good chance for Cueto to score.
And finally, examine the situation Cueto is entering. When he started to struggle last year, he was playing in the American League, in front of a good defense but also in a large ballpark that doesn’t actually reduce runs. Cueto, with the Royals, was being counted on to be the guy. Now Cueto is returning to the National League, where the lineups don’t run so deep. He’s going to continue playing in front of a strong team defense, from the looks of things, and there is no more pitcher-friendly ballpark environment than AT&T Park. It’s a league that makes pitchers look better, and a defense that makes pitchers look better, and a stadium that makes pitchers look better. Cueto should have a catcher who makes pitchers look better, and the Giants have a coaching staff that has a history of making some pitchers look better. Cueto would even slot in as the No. 2, behind Madison Bumgarner, relieving some potential pressure. There might be no better place for a pitcher to go if he wants to boost his value, and that’s Cueto’s whole angle. He wants to win, I’m sure, because everyone wants to win, but Cueto wants to be a free agent again without people questioning him about everything. San Francisco can help him accomplish that. They can do more than possibly any other team.
Cueto would just need to stay healthy. And as easy as it is to call him fragile, he’s exceeded 200 innings three of the last four years. He hasn’t suffered anything catastrophic, he doesn’t get by with upper-tier velocity, and tests on his elbow last May didn’t reveal any tears. Cueto appears to be fit — the Giants will make sure of that — and if his elbow is good to go, he doesn’t seem like a massive risk to blow out. He’s had injuries, and he’ll probably have some more injuries, but he just needs teams to stop worrying about his UCL. A healthy couple seasons can do that.
With an unhealthy break, Cueto will end up $130 million richer. Not a bad downside, for him. And the Giants will accept that chance, because they believe, as Cueto believes, that he’s healthy now, and San Francisco will be a good environment. So then Cueto can pitch well for a couple of seasons, and then the two can go their separate ways, with the Giants perhaps having won again, and with Cueto perhaps at the top of the free-agent market. The Giants would generally prefer not to go to six years for a veteran starting pitcher. The circumstances help explain why this six-year deal is more like a two-year deal, with a four-year option that neither party wants.
Jeff made Lookout Landing a thing, but he does not still write there about the Mariners. He does write here, sometimes about the Mariners, but usually not.
If there’s a team that is unfazed by a making a mistake with a deal like this – it is the Giants.
Except cueto is a much better pitcher than Barry ever was.
No he isn’t. Did you miss Zito from 2001-2003? Its remarkably similar to peak Cueto.
Yep. Zito was actually slightly better than Cueto.
tbf, Zito went into FA a few years after his peak
There is absolutely no change whatsoever in how the Phillies are run.
Bill Giles put the ownership group together with people who think like him 35 years ago. Guess what? Bill Giles is still there. He took part in the hiring of MacPhail and Klentak both. He was at the press conference announcing the hiring of Klentak.
35 Years.
Jim Thome and Cliff Lee
That’s it.
35 Years.
Carlos Ruiz and Maikel Franco, the only two starting quality players signed out of Latin America. Ruiz was signed out of Panama for eight thousand dollars. Need that in numerical form? $8,000- Eight Stacks.
Maikel Franco was signed for $100,000- That’s one hundred thousand American dollars. One hundred Stacks.
The Red Sox paid $63 million to sign Yoan Moncada. The Phillies paid $108,000- to sign both Carlos Ruiz and Maikel Franco.
Two real free agents and two starting position players from Latin America signed for nothing.
The Phillies Way is unchanged. They will sit in the cellar until they collect enough free talent in the MLB Plantation Slave Auction held every June. These young slave/intern players will be exploited to the max by the Phillies bloodsucking ownership cabal. For seven years they will make these bloodsucking criminals massive profits. If a few become fan favorites and the crowds are still huge as they near free agency then they will be signed to short, team friendly deals. If any have slipped through their screening process and turn out to be normal players seeking long contracts they will be demonized and booted out the door.
The Phillies after telling lies to their fan base from 2012 onward finally admitted they were “rebuilding”. The truth of the matter is they are already planning their next rebuild as they conduct this one.
THAT is The Phillies Way.
Google: Kevin Maitan FREE_AEC
…….
I wonder if the Giants bought insurance to hedge against Cueto exercising the player option. If they did, with the front-loading of the contract, then this would in fact be an effective 2 year, 46+ million contract for the team.
I’m wondering the same with all these opt-out contracts — are we seeing (or not seeing, since it’d be going on behind the scenes) a new insurance-market for contracts that’s making teams willing to take these chances, or … are teams really just suddenly willing to take bust-risks like this more now than before?
My guess is that it would just be the same insurance that teams pay each year to hedge against any injury to an expensive player. I doubt that the market is big enough thus far to provide enough data for insurance companies to calculate proper premiums on player options. At this point, it would be throwing darts.
That’s a good point. Now that I think of it, the premium a team pays to protect against player injury should depend on the amount of financial loss incurred due to injury. Now does this amount of financial loss incurred due to injury depend on how much the player is paid? If it is, then the cost of proper premium on player options is already factored into existing insurance. And the team is already hedging against the player exercising his option.
My understanding is that some teams insure large contracts against serious injury, but not all do so (or they are in the middle and insure for only part of the value).
Also not that this insurance is against injury – and these policies undoubtedly have a well-defined process for medical corroboration that the player is physically incapable of playing – and not just against the player being a bust who isn’t worth the contract value.
Player opt outs are not ALWAYS great for the player..
Nice writing, Jeff.
Agreed.
Not only are we, the baseball fan community, finally wrapping our heads around it, but the authors here are getting more adept/practiced at wrapping words around it.
It helps that this particular deal makes even better sense for both the player and team than some of the previous ones, given the circumstances Jeff so thoughtfully identified.
Great analysis, Jeff. Didn’t realize there was so much strategy involved, for both parties.
It really seems like MLB clubs will do anything to avoid giving higher and higher yearly salaries. Is it just a weird way to keep under the luxury cap that they are now apparently giving guys 2 extra years that they will probably stink in and player options that seem insane that early on in the contract. Even the team options were for a year or two at the end of a deal. Not 3-5 extra years.
That’s actually a good point I haven’t seen anyone mention before – avoiding the luxury tax by converting contract value to option value.
This is not win-win. If cueto pitches very well the Giants would love to keep him on at just 21mill a year.
Didn’t Cameron just explain last week how options are never win-win?
As a Giants fan, if Cueto pitches well, I’ll be thrilled to have someone else take the risk on ages 32-36.
if he pitches well enough to opt out you’re not going to be happy to see him leave to pitch for someone else.
To frame it another way, if Giants fans could choose, they’d rather have Cueto end up opting out.
Sure I will. The probability of injury and decline won’t disappear just because he pitches well for another two years.
I’d look at it similar to how I saw Michael Morse after 2014. He was a nice surprise, I liked watching him play, but I was happy to see someone else pay him for his later years.
Yes, he will. Why do people keep thinking that early success in any way guarantees later success?
and you have to consider the cost to replace him if he does leave after two years. The cost to replace a pitcher like Cueto could be higher in two years.
Perhaps, or it could be lower. They could also continue to sign guys for their prime years who then opt-out themselves.
Exactly! That way they have more money to give to players like a 30 year old Samardzija
Morse was never going to be a central player on the Giants. Cueto could be. As a Giants fan, I can easily imagine a situation in two years where I wish we had him locked in for longer.
CC Sabthia pitched well, opt-ed out, re-signed and turned into a disaster. Teams have learned their lesson.
“Why do people keep thinking that early success in any way guarantees later success?”
I don’t know about guarantees, but it’s the most reliable indicator.
Didn’t Cameron just explain last week how options are never win-win?
No.
Yes, he did but he was wrong and he came around to that fact in a subsequent post. The player opting out is only bad if you think he has the same risk of injury in his mid-30s as in his early 30s. Bet the Steinbrenner twins wish they could get do-overs on A-Rod and Sabathia after they both opted out…
He explained that player options always disproportionately favor the player. That is not an explanation that they are never win-win.
Put Pete in the HOF.
No. He knew the rules and flagrantly violated them, then lied about it. I will never understand why anyone defends Pete Rose.
They let guys who use drugs, rape women, lie, cheat and steal in to the hall of fame, but NOT Pete Rose? What a bunch of A holes that run baseball. Glad I’m NO longer a fan of it.
Who is a rapist in the Hall?
I defend Pete Rose because he’s one of the 10-15 best players of all time, and I have the capacity for forgiveness.
Rose’s career wRC+ is 121, good for 414th all-time.
Rose’s career fWAR is 80.2, good for 36th all-time.
One of the best 10-15 best players of all-time? Go home Bobby Ayala. You’re drunk.
Pete Rose has never honestly owned up to all that he did to the game nor has he honestly showed any contrition or humility whatsoever.
It’s not forgiveness he seeks. It’s glory. That’s just 1 reason I don’t defend Rose.
Although this is not the forum for this discussion, he is the all-time leader in hits, and he played before the era of advanced metrics which deflate the value of the hit. Sure he gambled and lied about it. So what? He played great baseball during his time.
Bunch of damn haters. This was a great move and gives the G-Men the best staff in the MLB. They are going to destroy the Dodgers and the D-Backs by a bunch. If Billy Beane made this signing you all would be calling it the greatest move in history.
Best staff in MLB, you say?
Make your case.
yeah, the SFG rotation doesn’t compare to the Mets rotation. Does the Samardzija and Cueto signings make up 8 games in the standings?
“They are going to destroy the Dodgers and the D-Backs by a bunch.”
Ray, Samardzija & Cueto clearly make up “a bunch” in the standings. I’m assuming this is way more than 8 games.
Teams are going to regret including these player options, and fans continue to illustrate their lack of understanding on them.
Consider this: the price of pitching in FA is likely to continue sky rocketing given the current inflation trends, record revenues, and the new CBA approaching. There is upside to some FA deals, they are not all long term albatrosses, and these teams have punted their ability to lock up an ace to what will be a below market rate. They are essentially borrowing from the upside of these deals in including the opt outs without doing anything to avoid the downside. How much AAV are they saving from including the player opt outs, do we know?
The option just screws stuff up for the team. The Dodgers lost an ace this winter. The Yankees were handcuffed into a situation where they had to tack on a bunch of dead years to CC’s contract. It’s nice and easy to say now that “oh we’ll let him walk and let someone else pay for his decline” but if these pitchers do exercise the opt out, that means you have to replace 200+ innings of ace starting pitching and if you’re a contender, it isn’t easy to just let that walk out the door.
Red Sox and Giants fans now acting like the opt out is somehow a blessing in disguise are so mistaken and shows that they don’t fully grasp the situation.
Or it demonstrates that they have a different opinion than you.
Or attendance and television viewership starts to decline, which depresses revenue. Baseball is less susceptible to the TV deal bubble than the other major sports, but it would still be negatively affected. And you tacitly admitted that these deals are usually “long term albatrosses.” The worst case scenario for a team in an opt-out is that the player drastically underperforms expectations and therefore chooses not to opt-out, only that’s still less expensive than it would have been to sign the player without an opt-out.
I actually made the opposite point, that these deals are not always long term albatrosses. The original CC Sabathia contract, had he played it out without exercising the opt out, would have been one of the best FA signings of all time.
In hindsight it is easy to say they should have let him walk, but NYY was still a strong WS contender at the time and he was simply irreplaceable. With all the leverage in the player’s hands, they were forced into extending him.
So these teams are handing over all this leverage for what, savings of a couple million in AAV? That doesn’t even cover the cost of a bench player.
Maybe it isn’t possible to sign these guys without the opt outs now, and that’s the cost of signing these premium guys. But fans shouldn’t delude themselves into thinking this is a great contract structure for the ball club.
I actually made the opposite point, that these deals are not always long term albatrosses.
Which very clearly implies the already understood fact that they *usually* are.
The second Sabathia contract was for only one extra guaranteed year and roughly the same money as the pre-opt-out deal. Predictably, it ended poorly. So not only is that a bad example of what you’re trying to say, it is actually a good example of why opt-outs can play in the teams favor.
In hindsight, it is easy to say that. I don’t follow the Yankees closely, but if I recall they had almost no pitching depth at the time and were not happy with the potential free agent class. You say they were “handcuffed,” but it’s important to note that the Yankees put the handcuffs on themselves by offering him the contract in the first place. It’s tough to project out three years, but I’d hope that when offering a contract like this, a team has an idea of what the free agent class will be and at least a rough idea of what their potential needs will be.
So, the Yankees could have been Exhibit A for why these deals can be beneficial to the team, but instead — whether due to bad luck, bad timing or poor planning — they panicked and added a year. Does that mean opt-outs are always bad or does it mean that the Yankees weren’t in a good position to be offering an opt-out in the first place? Or that the Yankees should be less panicky and recognize, like the Cardinals in 2011, that retaining elite players is not always the smartest move?
That these contracts can go bad in a number of ways is a point well taken, but I don’t think anyone is suggesting that they’re always great for the team. Rather, in certain circumstances, it can benefit the team in addition to the player. The Cueto deal is not the Greinke deal or the Sabathia deal and should be judged in its own context, which is what Jeff was attempting to do here.
I don’t really think it’s that bad for the team to have an opt-out. Sure, they would be better without one, but if I’m a GM, and I can get 3 prime years of an ace pitcher without having to top the cost of comparable signings of the recent past, I’ll take it over not having the pitcher at all.
Let’s think about this for a sec. Why would anybody put an opt-out in a contract? Very interesting. Guy puts a fancy opt-out on a contract cause he wants you to feel all warm and toasty on the inside. Why shouldn’t it? You figure you leave it under your pillow, and maybe the opt-out fairy leaves a quarter under your pillow.
But how do you know the fairy isn’t a crazy glue sniffer? “Model airplanes” says the fairy. Well we’re not buying it. He sneaks into your house once, that’s all it takes. Next thing you know, there’s money missing from your drawer and your daughter’s knocked up (I’ve seen it a hundred times).
Why do they put an opt-out on a contract, you ask? Because all he sold you was an escapable piece of shit. Hey, you want me to take a dump in a box and put an opt-out on it, I will (I got spare time), but for your fans’ sake, for your daughter’s sake, you might want to consider signing with a quality team.
Okay, I’ll sign with you.
Ok—— What?
Nice.
The Dodgers bought 3 years of an ace FA pitcher at his peak for just over $5m per WAR and you’re using them as an example of how deals like this are bad for the team? Seems to me that at the rate pitchers break or fall of a cliff, the odds favor the Dodgers coming out of this looking quite smart. Especially when they are probably still the best team in the division anyway.
As for the Yankees and Sabathia, just because a team with a virtually unlimited budget overpays to resign an ace who exercises his option doesn’t mean that all other teams are doomed to make the same mistake. As the Greinke situation shows, even if they’re inclined to there are more teams with new TV money out there to conspire with the player’s own greed and save them from themselves.
You know what’s even better than having 3 years of an ace FA pitcher at his peak for just over $5m per WAR? Having that plus also having the next three years of that same pitcher at a price you like.
$/WAR is not a good measure when comparing contracts of different lengths.
Care to quantify how the Dodgers are somehow the best team in the division?
The starting rotation is one ace plus a bunch of guys and their triage nurses (Iwakuma deal STILL hasn’t been officially announced).
Second base is an aging, should-be utility guy coming off a terrible year.
OF is an aging, hugely regressing LF; an unproven CF who got figured out by the league in a hurry; and a complete basketcase in RF who already burned up his 15 minutes.
There’s reason for general optimism with some of the young guys (Seager, Urias, etc.) going forward, but 2016 is not looking good.
Third best in the division, and that’s only because the Rockies and Padres are so comically helpless.
The Dodgers won the division by 8 games last year and will have a full season of Corey Seager to replace the remains of Jimmy Rollins in addition to one of the best farms in baseball and the ability to shoot money out of a fire hose to shore up any remaining holes they do have.
And it’s not like the other contenders in the West don’t have questions too. Aren’t the Giants still planning to let Angel Pagan be an out machine in the leadoff spot and watch catchable balls sail over his head for as long as his creaky knees let him take the field? Aren’t they still going to be handing the ball to Matt Cain every fifth day? You see you can play that game with any team.
Nobody said the other contenders don’t have weaknesses. The point is that the Dodgers are nowhere near a clear favorite, and many believe they’re third in line now. They lost an ace and will not be able to replace that production and have more question marks than solid answers.
The Giants had one of the best offenses in baseball even with the circus of injuries they endured last season. Getting close to a full season of Panik, Pence, and Belt more than makes up for Pagan’s regression (which is a bit overblown at this point since he was playing hurt most of the time he did play last season). Cain is for sure a question mark, but I’d gladly take that over the mess that is the Dodgers 2-5 spots right now.
The Diamondbacks also have some issues. Tomas is not looking like a winning deal at this point, and losing Enciarte in the outfield is tough. They arguably have the best overall rotation at this point, but that’s counting on solid work from De La Rosa and Ray/Anderson which is no given.
Bottom line: other contenders have improved, and the Dodgers have gotten worse. There’s no arguing that point. And I think given the course of events this offseason even Dodger fans should be able to admit that the money pit isn’t going to be tapped with reckless abandon by Friedman. They’ve lost out on every big target thus far. If it were strictly a money thing, and they were willing to pull all the stops, Grienke would be in blue again next season. That’s clearly not the case…
“Especially when they are probably still the best team in the division anyway”
Seems like most Giants fans dislike statements like this. I happily concede it as gospel. Not only that…the Dodgers had better teams than the Giants during their last 2 World Series championship years. Doesn’t matter. In fact, it’s a slap in the face. I’m old enough to remember the Mays-McCovey-Marichal-Perry-Cepeda years. We probably had the best team for many of those years. We won 1 pennant, and 1 division. No series wins. Finished 2nd (during the pre-division days) something like 6 years in a row during the mid to late 60’s. So now I should bristle when someone says the Dodgers have a better team? Who cares? We got the rings.
The point is that having the better team *tends* to lead to winning more games.
Good thing winning more games isn’t actually the end goal… The ring is all that counts.
I think that the problem is that fans are unable to consider these things probabilistically (which is pretty common). Let’s put some estimated odds on these things.
Based on the standard assumptions ($8.0 M/WAR, 5% inflation, -0.5 WAR/year decline due to age, Steamer projection for 2016 WAR = 3.2), this contract is a loser. Cueto will have negative value in the amount of $-27.76 million over the six years. In fact, even if they only have him for 2 years, this deal works out to a positive value of ONLY $+2.28 million, which is not much, considering the back end risk.
So let’s ignore Steamer, just for the sake of argument. Let’s suppose that Cueto isn’t a 3.2 WAR pitcher, but will repeat his 4.6 WAR that he earned in 2014. Based on that starting point, the contract is a winner overall in the amount of $+48.43 M. Way to go, Johnny, and good for the Giants. So let’s take that as our mean outcome, and consider the error bars around that outcome.
If Cueto is worth $48.43 M, it means that he’s had WARs of the following over the course of the six years:
4.6
4.1
3.6
3.1
2.6
2.1
If Cueto has earned 8.7 WAR in the first two seasons of this deal, however, he will almost certainly seek free agency. In that case, the club will only get $+25.24M in value for him, although this works out to $12.62 M in suplus value per year, which is higher than the $8.07 M in surplus value per year he would cost for sticking out the whole contract. And of course, this would leave the Giants scrambling to find a new pitcher to replace the 150-200 innings he would be likely to throw as a 33 year old.
What if he isn’t that good? What if he’s not a 4.6 WAR pitcher, but is more like the 3.2 WAR pitcher Steamer projects him to be? Well in that case, as mentioned above, he likely doesn’t opt out, and sticks with the Giants through the decline years, being a negative surplus value of $27.76 M, or $-4.63 M per season, on average to the club.
And what if he is really good, and has his best career season next year and only declines slightly in 2017, before opting out? Let’s say 6 and 5.5 WAR in those two years. His surplus value there is $48.2 M or $24.1 M per year. But again, he’s gone after two years.
So the upside is good, and the downside is bad. And that’s before we mention that the downside is where he’s basically just as good as his projections estimate him to be. If he’s really bad, or injured, then he’s a total black hole. If he starts at 2 WAR and declines from there, he’s replacement level by 2020 and costs the club $15.51 Million per year for six years in negative surplus value.
So after all those words, what does this all mean? Consider the good, bad, and ugly scenarios here when thinking about the opt out. The Giants are limiting their exposure to the best-case scenario benefits while leaving themselves exposed to all of the worst-case scenario risks. How you evaluate what the market will do can vary, how you think Cueto will age will vary, and what you think is the mean, best-case, and worst-case scenarios will vary. But ultimately you have to recognize that the existence of the player option is one the improves things for the player and makes things worse for the team.
One other factor though – maybe the Giants have a short window and don’t really want to be on the hook 4 years from now when they’re rebuilding. Then the opt out gives them a chance to sign him short term without jacking up the AAV, though obviously with greater risk of a long term black hole.
We’ll these opt outs do mitigate some risk on the side of the teams.
There is a still the probability of an injury or significant decline after two positive seasons.
“fans continue to illustrate their lack of understanding on them.”
Thank you for educating us o wise one
The easy answer is to say that a player option only has value to the player, so it is always a cost to the team. But reality is more complicated here.
First, are players and their agents rational? It may be the case that players might opt out even if they are unlikely to make the same amount on the open market as they are to sticking with the contract. We’ve already seen and talked about how it is that players almost refuse qualifying offers, even to their detriment. On the other hand, are players and their agents becoming more rational, as demonstrated by the fact that players have accepted qualifying offers this year.
Second, the value of paying more/getting paid more might vary in different years of the contract to the team and to the player. For example, let’s take the case of Cueto doing very well in his first two years, and can sign a bigger contract by exercising the option to op-out. In this case, Cueto might be happy that the option is there for him to exercise because he can make over time. But the Giants might also be happy to have Cueto exercise his contract if they are rebuilding 2 years from now, and it’s not worth it for them to pay Cueto a lot of money to be an ace, even if the existing contract is deemed a “good deal” from the perspective of how much money is spent per win over replacement for team in free agency who is willing to offer a larger deal to sign Cueto. (Or we can just put this in terms of the idea that the value of a single win does not go up linearly.) In this case, it truly would be a win-win situation.
Now I do think that there is a case here to be made for the player option to always be valuable to the player*. But I am just saying that the existence of the option can also have value to the team in situational contexts. So yes, it can be win-win. Is it often enough to matter? I don’t know – that’s the golden question.
*Didn’t I just say that players might not be rational? If players were irrational, could options be bad for them? Well, I think players might not be “rational” in the sense that they may have considerations other than financial ones. If that’s all I mean by players not being rational, then the idea that player options are always valuable to the player remains unscathed.
I’ve been thinking the same thing, actually. I think this is a modern cross between Braess’s paradox and the 2 envelope paradox where choosing the other option always seems more attractive.
I know he’s two years younger than Greinke and they’re guaranteeing Cueto 76.5M less than the Dbacks guaranteed Greinke but I still think the Greinke deal is less risky and has more upside than Cueto. I really feel like Cespedes and Cueto are the two most likely FAs that are getting nine figure deals to really blow up. I know the Giants biggest need was to upgrade their rotation and it is better today but almost 1/4 of a billion dollars committed to Shark and Cueto would make me nervous as hell.
Brian Sabean watched a number of players he wanted to sign walk to another team, and so he doubled-down on the last chance he had available. It’s not the first time this kind of thing happened with the Giants.
I’ll probably end worse than either of those that you mentioned…
Cueto will certainly opt-out…making this a stellar deal for the Giants. My only question is why Cueto didn’t set the opt-out point at 3 years. The 2017-18 FA market is going to be loaded with top-tier SPs, Cueto now among them. He’d have been better off delaying the opt-out until 2018-19 when he’d have a much better chance of being the #1 option available.
Mistyped — meant 4 years on the opt-out, not 3. The 2019 FA market would find Cueto at 33 years old with a clear path toward being the #1 SP available.
A 29 year old Johnny Cueto wasn’t the #1 free agent SP on the market. A 33 year old Johnny Cueto won’t be the #1 SP free agent.
Did you read the article?
Do we think Cueto or the Giants were pushing for the timing of the opt-out year?
If Cueto opts out, that’s a lot of money suddenly available right before a glut of potential SP talent is available to buy.
I have a feeling the clubs view these options as a way to keep motivating players after they’ve made a huge amount of money. It’s pretty clear that most players with opt-outs are treating them like free agency walk years by showing up to Spring Training in the “best shape” of their life when they have the chance to opt out.
I have the feeling we’ll see opt-outs included with pitchers far more than position players going forward.
Yeah if a player gets fat and happy with that opt out in there then they either 1) are incredibly lazy or 2) don’t care about the money as much as other players. One is admirable. One is not. It should definitely keep most players motivated. Solid point.
These guys are professionals that want to win. Why people keep thinking that they aren’t out there giving it their all regardless of contract status really boggles my mind.
That’s true for many but not all. For a lot of guys major league baseball is simply a way to make a very nice living.
Should we make a list of guys in MLB who are fat (past and present) and clearly not motivated to stay in peak physical form?
We agree
Prince Fielder has been on the DL once in 11 years and outside of that has been probably the most durable player in baseball. He belongs on a list of paycheck-collecting slackers about as much as Hunter Pence and Dustin Pedroia do.
Pablo Sandoval.
I somewhat like opt-outs for the teams perspective. If you get a pitcher in his prime but getting older, chances are his best years (both in health and performance) will be at the first years of the contract. Opt-outs can work as a way for the team to commit only for the good years.
There’s always the risk of an arm blowout or something, but then again, the risk is probably higher at the middle and last years of the contract than at the beggining.
Arguing that opt out clauses are good for a team is nonsensical. The Giants have to pay a premium for Cueto this year because they front load the contract. Cueto’s agent did this to get him the most money upfront and make the opt out even more appealing to cash in on another FA contract. If Cueto pitches well the Giants might re-sign him simialr to what the Yankees did with Sabathia. The team gains nothing from letting him essentially re-negotiate his salary vs the open market in two years. If he pitches well they will want to retain his services and they will have to do so at a higher rate. If you know whats going on at the negotiation table you know that the Giants are not asking for this PLAYER option to opt-out.
If he pitches well they will want to retain his services
Your entire argument turns on this unsound assumption.
the entire argument doesn’t hinge on that assumption. It is something that can potentially happen. The argument that this is “team friendly” hinges on the assumption they will not re-sign him. They still have $130 million in risk as a floor if he does not pitch well. They pay him a premium upfront and then the market determines his rate. If he opts out (meaning his market rate is > than his current contract) you are saying you do not want a pitcher to pitch for you at a below market rate. Essentially saying that the market is flawed.
“Essentially saying that the market is flawed.”
Yes, you can go against the market. There was this thing called moneyball some years ago…
Yes, but if the Giants spotted a spot in the market that is flawed, they wouldn’t guarantee a big contract that risks going INTO THAT VERY SAME SPOT in the market in the first place.
Ask yourself this: is there ever a scenario where a team would rather have a player on a three-year deal than a seven-year deal, the money being equal annualy? Is it possible that in that scenario, the player would have no reason to accept a three-year deal because he has longer deals on the table? If you will acquiesce that this scenario exists, you have found one where the opt-out can be a positive for the team.
Granted, the Cueto situation is a little different because of the structure of his payouts, but the point stands.
To head off a repeat of the Price argument, yes I am aware that the team could trade the player in question, but generally the trade market is not equivalent to the free agent market so I would rather not make any more assumptions there.
The team doesn’t have the player for 3 years, they have the player for 7. The team commits for 7 years even with an opt-out. The risk of the player being bad for 7 years is still there. If the player produces more than their salary early on they opt out for more. If a player isn’t as good they keep their contract and the team is stuck. Opt-outs are always bad for the team. If the player is producing at a rate higher than the salary I’m sure they team would love the player to complete the deal instead of opting-out.
The player makes his opt-out decision based on how much he projects to earn on the free agent market, not how well he projects to perform. Those are obviously correlated, but not dependent.
Long-term deals are often “backloaded” with respect to actual value, so even if a player outperforms the first half, there is no guarantee that will continue over the second half.
The opt-out gives the team a shot at a shorter deal that they might prefer.
If Cueto pitches for the Giants for more than 2 years, something went terribly wrong for the Giants. Only reason Cueto stays after the 2 year opt out is if he sucks and can’t make more as a FA.
Go away
“The best I’ve seen it put: this kind of contract is a two-year deal with a four-year player option.”
Is this really the first time you’ve realized that “opt-out” is just a new term for “player option?” I’m pretty sure it was the NY media that coined the term when A-Rod had his player option come up and then they cemented it in the lexicon when Sabathia’s came up a few years later. Still waiting for a catchier term for the team option.
What leads you to believe that this is the first time he realized this?
Glad to be remembered as part of the Charlie Morton class of pitchers.
Has anyone ever not used their opt-out?
Vernon Wells.
I think Josh Hamilton has one next season.
Elvis Andrus has opt outs after 2018 and 2019 that he looks unlikely to exercise
Is there someone at Fangraphs (or another site) who is writing up valuations of these contracts using an option pricing model (e.g., Black-Scholes)?
Because Cueto’s contract – as of signing – is a 2 year $46 million contract plus the value of a put option that he can choose to exercise in 2 years (i.e., a European style put option). There is a well-defined financial framework for how to value a put option.
It’s beyond my knowledge on how to translate from “baseball” into the inputs for Black-Scholes pricing of an option on a security. (What’s a reasonable range for volatility – bascially annual standard deviation – for a baseball player? What’s the analog to plug in for risk-free rate?)
That’s the analysis – or at least an analysis – that should be done to value any contract with an opt out, and especially ones like the Cueto, Price, and Heyward deals where the opt out is relatively early in the contract.