Stephen Strasburg’s Extension Is a Win-Win

Last night, in the middle of his start against the Detroit Tigers, news leaked out that Stephen Strasburg had agreed to a seven year, $175 million extension with the Washington Nationals. As Jeff Sullivan noted last night, this is seen as surprising news, as Scott Boras clients usually end up testing free agency, and Strasburg was four months away from being not just the best free agent on the market this winter, but the only high-end pitching option available.

And it’s not like the Nationals broke the bank to keep Strasburg away from free agency. The 7 year, $175 million total essentially matches the contract figures that Justin Verlander and Felix Hernandez received in their long-term extensions three years ago, except Strasburg’s actual contract is valued significantly less than those two, because it also includes $70 million in interest-free deferrals. Once you account for the payment structure of Strasburg’s deal, the net present value is $135 million, which is the NPV a player would get if he signed a 7 year, $158 million contract without backloading or deferrals.

That total puts Strasburg south of not only Hernandez and Verlander (not even accounting for the inflation that has happened in MLB salaries since those deals were signed) but even less annually than Jon Lester, who got $155 million from the Cubs for six years. Lester was selling his age 31-36 seasons when he signed with Chicago, while Strasburg would have been selling his age 28-34 seasons had he entered the market this winter; combined with his superior stuff and the dearth of alternatives on the market, I would have guessed that Strasburg would have been able to do significantly better than this as a free agent.

But Strasburg comes with one big variable that Hernandez, Verlander, and Lester did not have: a Tommy John surgery in his history. While the UCL replacement surgery has become a somewhat routine procedure in baseball with a pretty strong success rate for recovery, the expected longevity of the new ligament remains something of a question mark.

What we don’t know is how long the new elbows will last. “Doctors told us that once a young pitcher gets TJ, he likely will require it again within seven years,” says one NL GM. “So if he gets the surgery at 20, just as he is entering his prime at 27 or 28 he may be entering another danger zone.”

That quote came from Peter Gammons story on Tommy John surgeries from two days ago, written in the aftermath of Garrett Richards blowing out his elbow and requiring the ligament replacement surgery. Jeff Zimmerman’s research has suggested that the expiration date on a new UCL might be closer to four years, or 650 innings pitched.

Stephen Strasburg is now almost six years and a little over 700 innings removed from his Tommy John procedure. In other words, there’s some reason to believe that he’s headed into another high-risk point of his career, and while Verlander, Hernandez, and Lester came with their own risks, there’s a bit more concrete data suggesting that betting on Strasburg long-term is likely paying for the right to fund another rehab. No one knows enough to say that Strasburg’s elbow is definitely going to go at some point during his next contract, but the probability of that happening seems high enough that we don’t really know what the market would have given Strasburg this winter.

Jordan Zimmermann got $110 million over five years from the Tigers this past winter, setting the record for most guaranteed money for a pitcher with a Tommy John surgery in his file. Strasburg would have cleared that mark easily, and perhaps he would have broken $200 million, getting up near Max Scherzer’s total — which was also less than it sounds due to the Nationals deferral structures — had he made it through the summer and reached free agency as best player on the market.

But we can’t ignore the risk that Strasburg would have taken in trying to get there. Because of the uncertainty surrounding the longevity of the ligament replacement, we can’t even safely assume that Strasburg’s elbow will hold together through the rest of the summer. It probably will, but based on his distance from the procedure, it won’t be any kind of shock if Strasburg ends up walking off the mound in pain in July or August. And if that happened, Strasburg would have given up the right for a huge financial windfall in exchange for the hope that he’d land an extra $30 or $40 million.

In his shoes, taking the safe road seems to be a justifiable decision. Strasburg isn’t Bryce Harper, a preternatural slugger who can mostly know that his skills will remain in place barring some kind of unpredictable occurrence. A pitcher who has already had his UCL replaced is essentially living on borrowed time, and there would seem to be a lot of value in turning the unknown future into a certain secure paycheck for most of the remainder of his career.

Strasburg didn’t break the bank, and relative to what he could have gotten in free agency, he probably left some money on the table. But he wasn’t at free agency yet, and there’s enough risk that he might not have made it there that this seems to be a perfectly reasonable decision, especially considering the marginal difference in a few extra tens of millions of dollars to a guy who will have earned more than $200 million during his career by the time this contract ends. While I’d imagine Scott Boras would have loved the opportunity to produce a book of plaudits about Strasburg’s arm, it seems like Strasburg made a perfectly reasonable decision to take the guaranteed money now rather than further testing the limits of his surgically-repaired elbow.

But despite spending the last few paragraphs suggesting the risks surrounding Strasburg are quite high, I think this was also a price the Nationals couldn’t pass up. Spending the equivalent of $160 million on Strasburg, keeping him around for the remainder of Harper’s time in Washington, is a worthwhile bet for the team even if Strasburg ends up missing a couple of years due to another rehab. Strasburg’s effective price is roughly $22.5 million per year; that’s the same AAV that Zimmerman got from the Tigers. Baseball is now a place where the Mike Leakes of the world can command $16 million per year on a long-term deal, so it’s not like the Nationals could have easily redistributed Strasburg’s money into a comparable talent.

They’re taking a significant risk with his future health, for sure, but at this price, Strasburg doesn’t need to stay healthy to justify the investment. If he can give them three or four high quality years out of the seven contracted years, the Nationals will do just as well as if they signed a lesser player without the health risks. Without the TJ history, Strasburg probably is looking at something like David Price money; the Nationals got him for something like $80 million less than what Price got. That’s the TJ discount.

To me, this looks like a win-win. Strasburg sells a lot of risk and gets a life-changing contract that should keep him on a contender for the foreseeable future, while the Nationals get to keep one of the best pitchers in baseball around while they have a window to take advantage of his excellence. The Nationals are in a position to take some risks, and at this price, betting on Strasburg to stay healthy while they still have Bryce Harper is a risk worth taking.