The Trend Toward Team Options

In the last week, we’ve seen three young American League starters sign long term contracts with their teams despite minimal Major League experience. Clay Buchholz has thrown 374 innings, Trevor Cahill has thrown 388 innings, and Wade Davis has thrown just 217 innings in the big leagues, and yet all three now have long term financial security. In order to get the cash so early in their careers, however, they each had to give their organizations multiple club options on their free agent years. These three are continuing a trend that is gaining momentum, and could have some interesting ramifications for the future of salary inflation on the free agent market.

Contract extensions used to be mainly aimed toward retaining players who weren’t too far off from free agency, and it was extremely rare to see a player rewarded with a long term deal until he had established himself as a premier player. That has shifted significantly over the last few years, as teams have used the carrot of quicker paths to significant money in order to get their best young talents to sign away free agent years at an early age.

The Evan Longoria contract is the most talked about version of this kind of deal, but he’s far from the only guy who signed a team friendly extension early in his career. Ryan Braun, Troy Tulowitzki, Dustin Pedroia, Justin Upton, and Ryan ZImmerman also signed 5+ year deals before they were arbitration eligible, taking guaranteed money in exchange for some potentially lower payouts in their prime. Besides all being position players, however, these guys (minus Longoria) have something else in common – for the most part, they didn’t surrender many potential free agent years without getting a guaranteed paycheck in return.

The Red Sox got one team option at the end of Pedroia’s deal, and the Rockies got one on Tulowitzki as well, but Braun, Upton, and Zimmerman just signed straight contracts that guaranteed them a certain amount of money for a set number of years, and then both sides were free to walk away when the deals ended.

Now, though, we’re seeing teams move more aggressively toward the Longoria model, as they are seeking as many team options at the end of these contracts as they can get. And understandably so – a team option is the best of both worlds for an organization, giving them potentially huge cost savings with minimal risk. Especially with pitchers, there’s a pretty good chance that their arms are going to fall off at some point, and teams are wise to limit their long term exposure with such high attrition rates.

Limiting that risk used to mean not signing pitchers to long term deals until you had to. Now, it means signing them very early and getting their first few free agent years as team options. In many ways, it appears to be a win-win for both the team and the player. But I have to wonder what the long term ramifications of these types of deals will be.

Look at the list of the best young starting pitchers in baseball – along with Buchholz, Cahill, and Davis (who probably doesn’t qualify for that distinction, but we’ll include him here anyway, as he does have some potential), you’ve got Ubaldo Jimenez, Brett Anderson, Jon Lester, Yovani Gallardo, Ricky Romero, Chad Billingsley, and Johnny Cueto all under long term contracts that include at least one team option at the end of the deal, and in many cases, two or more option years. These guys would have made up the core of high dollar arbitration settlements, and eventually, they’d have been the premium free agents hitting the market.

Now, however, the ones that survive the injury nexus are not going to cash in with huge paydays – they’ll simply watch their organizations pick up their options and earn a salary that seemed fair when it was negotiated four or five years prior. Essentially these young arms have entered into an agreement to split the pot, to borrow a phrase from poker. Rather than letting the winner’s reap all the spoils, they’re all splitting up the pool of money before they have a chance to get hurt and lose out one big payday.

If this trend continues (and I see no sign of it slowing down), we’re going to enter into an era where the best players in the game are also going to be significantly underpaid during their primes. Teams are making these deals because they realize that, on average, they’re going to come out ahead by overpaying an injured bust $10 million but underpaying the guy who does develop by $50 million or more in some cases.

With less money going to the top end talent that sign early, we may be in for some pretty serious inflation for those who do end up making it to free agency as quality players – whether they just decided to go year to year or developed later, they’re not going to face nearly the same level of competition when they become free agents, and teams are going to have more money in their pockets from the cost savings they’ve achieved by locking up their stars at a young age.

For guys like Jered Weaver, David Price, and Clayton Kershaw, they may be looking at some monstrous contracts if they decide to keep going year to year. They’re going to find themselves free agents in a market where there are few other possible avenues to acquire top line talent, and teams will have more money to spend than they have previously.

Of course, teams may see this coming as well, which will make them even more aggressive in trying to lock up their young players before they can hit the market and demand a massive paycheck. In some ways, this looks to be a self-perpetuating cycle that will only result in larger paychecks for players signing away their free agent years in the future.

These organizations that are getting team options on all their young players now are almost certainly making good business decisions, and I can’t fault the players for taking these deals at this stage of their career either. I suspect, however, that the pendulum is currently too far to the organization’s side of things, and is setting up for a swing back toward the player’s side. With all these players signing away premium years without guaranteed paychecks, we’re going to see teams with a lot of money to spend and not a lot of places to spend it.

Assuming the world economy continues to recover, we could see some pretty insane free agent contracts in a few years. It’s going to be a good time for those who passed up the early payday and made it through to free agency after six years of service time.