The Unchanging Prices of Breakout Stars

Over the weekend, Cleveland made a point of locking up another one of their young core players, signing Jose Ramirez to a five-year, $26 million contract that gives him significant guaranteed income in exchange for control over his first three free-agent years. Ramirez joins Corey Kluber, Jason Kipnis, Michael Brantley, Yan Gomes, Carlos Carrasco, and Carlos Santana as members of the team’s core who have signed long-term deals with the club before reaching free agency, and Cleveland’s ability to get these guys signed before they get expensive is one of the reasons they were able to sign Edwin Encarnacion to be a $20 million DH this winter.

Cleveland isn’t a traditional big spender in free agency, but with so many players signed to early-career contracts, they had the flexibility to be a buyer this winter, and they took advantage of it. While they’ve done a lot of things right, this is one of the primary reasons Cleveland has built a contender out of a modest payroll and a farm system that hasn’t generally been ranked among the game’s best. The thing they’ve done very well is develop good players from guys who weren’t considered great prospects, and then get them signed long-term as soon as possible.

For Ramirez, the calculation was probably pretty easy. He had signed for $50,000 as a 17 year old in 2009, and he made just a bit more than the league minimum during the last two years, so this is his first crack at life-changing money. As a fringe prospect — and yes, Cistulli was talking him up as an underrated guy a few years ago — who never received much hype on his way to the majors, and doesn’t have the kind of skillset that pays that well in arbitration, $26 million in guaranteed money was just too good to pass up. He’s probably not going to have many more +5 WAR seasons, and if his power disappeared again, he might not get another crack at a long-term deal, so Ramirez took the guaranteed money over betting on strong enough play to make a bit more down the line.

It’s a perfectly reasonable decision for Ramirez. He’s set financially now, and now he knows he’s staying on a winning team, playing next to a guy with whom he ascended through the minors . That’s a pretty good outcome for a guy with his background. But the fact that Cleveland could get the arbitration years and three free-agent seasons of a 23-year-old coming off a +5 WAR season is a reminder of just how little inflation we’ve seen in the prices of early-career extensions for these kinds of breakout stars.

While early career extensions for franchise players have been a thing for a long time, we can track the popularity of these kinds of deals for guys not usually seen as high-end talents to the Ben Zobrist contract in 2010. Zobrist was also a fringe prospect who hadn’t really gotten a big payday before, and then after he broke out with an +8.6 WAR season at age 28, the Rays quickly signed him to a deal that bought his arbitration years for $18 million in exchange for team options on his first two free-agent years. Zobrist, of course, went on to sustain a very high level of performance, and the Rays benefited significantly from getting him locked up before his value rose dramatically.

The next few years, these mid-sized extensions for players with two years of service mostly went to pitchers. Jaime Garcia ($28M, two FA years) and Derek Holland ($29M, three FA years) both signed for a bit more than Zobrist, but both were younger and had been considered top-100 prospects despite modest draft status. Their deals were very similar to the extensions signed by guys like Trevor Cahill ($31M, three FA years) and Clay Buchholz ($30M, two FA years), as the market started to solidify around a standard price for young arms four years away from free agency.

That $25-$30 million guarantee got pretty well cemented after that. Besides Alcides Escobar’s weird decision to take just $10 million guaranteed from the Royals while giving them two free-agent years in the process, most of the guys with two-plus years of service time with some real risk in their profile signed for deals similar to what that group of young pitchers got.

Cameron Maybin took $25 million in guaranteed money from the Padres following his +4 WAR season in 2011. Jon Niese got $25.5 million from the Mets by agreeing to give up his first three free-agent years. Allen Craig got $31 million for two FA years. Adam Eaton got $24 million for three FA years. And then, last year, Kolten Wong took $26 million from the Cardinals in exchange for two free-agent years.

Not all these guys fit the exact same profile. Maybin was a high first-round pick who took some security after his first successful season, given that he’d struggled up to that point. Craig was a bad-bodied late-bloomer who might have realized he wasn’t going to age well. Wong didn’t exactly have a big breakout year before signing his deal. These guys all had different situations and different decisions to make, which is why there’s some variance in the prices and the number of free-agent years traded for an up-front guarantee. In general, though, this is roughly where the market settled for players four years from free agency who had some upside but also came with a good degree of risk.

And Ramirez’s deal just continues the trend of 2017 extensions for these kinds of players falling right in line with the established prices from prior years. Odubel Herrera got $30 million in exchange for three free-agent years after being a Rule 5 selection a couple of years ago. Ender Inciarte got $31 million for surrendering two free-agent years. And now Ramirez got $26 million in exchange for giving up three free-agent years.

As Maybin, Craig, and Niese show, these deals aren’t always huge wins for the teams. These guys are getting discounted prices on their long-term deals relative to the star-player extension prices for a reason: they all come with significantly more risk. Teams are rightfully more confident in handing a long-term deal to a guy whose had a track record of elite performance through his amateur and minor-league days, and where the tools and the results line up pretty well. A lot of these $20-$30 million extension guys have real question marks, and as good as Ramirez was last year, we’re not entirely sure what he is yet, either.

But with MLB’s revenues increasing quickly, we’ve seen some pretty big shifts in market prices for other types of players over the last five years. Even with a pullback on spending this winter, free-agent prices are up a lot since 2011, and the league minimum is 30% higher now than it was six years ago. But if you look through the history of extensions for these short-track-record-maybe-breakout-star types, the deals are effectively the same now as they were back then.

Ramirez just signed effectively the Adam Eaton deal, which is now two years old. Eaton had signed something very close to the Cameron Maybin deal, which was three years old when Eaton got his contract. Inciarte and Herrera signed similar deals to what Allen Craig got four years ago, which was similar to the deal that Trevor Cahill got two years before that.

There’s all kinds of reasons for these kinds of guys to sign long-term deals when they are offered, and plenty of examples of these guys losing value after they signed the extension, which is what they are hedging against in the first place. Especially for low-power guys who are going to rate better by metrics that account for defense and baserunning, not betting on big arbitration paydays is a logical conclusion, and without those big arbitration payouts, the timeline for a big contract is far enough away that taking the money after two years often makes sense.

But at some point, the players and their representatives are going to have to ask for more significant price increases in order to get these deals done. Everything else in baseball costs more than it did five years ago, and the economics of the sport have changed enough that the older deals by which these newer deals are being framed represented larger portions of the pie than these deals do now. While these kinds all have plenty of risk, and trading it for current security is alluring, MLB teams continue to get a pretty big discount when these deals work out and don’t really lose all that much when they don’t.

Craig, certainly, has become a deadweight contract, a guy whose salary is well above his present market value. But the other busts show that the floor here for teams is still pretty high. Jon Niese didn’t pan out as hoped, but the Mets were still able to trade him for a quality player in the last guaranteed year of his contract, as the two option years gave the Pirates hope that they were acquiring enough upside to make parting with Neil Walker worth it. Cameron Maybin hasn’t been good since he signed his deal, but the Angels were still willing to trade for him and exercise the option year on his contract, showing that he still wasn’t significantly overpaid despite the fact that he regressed right after signing his contract.

When these guys do turn out to be sustainable stars, the teams get huge cost savings on what would otherwise be prime years at free-agent prices. When these guys don’t turn out so well, maybe they overpay by a few million at the end of the deal. That’s not a balance of risk and reward for the team and the player. Guys like Ramirez should absolutely be free to pursue long-term deals early in their careers, but when the trade-off is two or three free-agent years in exchange for the same $25 million that these types of players have been getting offered for the last half-decade, maybe it’s time for a market correction.