Why Don’t More Teams Sign Tatisian Deals?

By now, you’ve presumably had some time to think about the enormity of the extension that Fernando Tatis Jr. signed last week. Fourteen years! Three hundred and forty million dollars! An excuse for me to use exclamation points! It’s such a huge deal, it would almost be unthinkable not to have spent a silly amount of time thinking about it.

As for me, I’ve thought a lot about it in a theoretical sense. You can math out the contract and say that our best estimates show the Padres getting meaningful value from it, which I did using Dan Szymborski’s projections. You can think about Tatis’ place in the pantheon of great young hitters, as Jay Jaffe did. You can think about the team-building implications of locking up a young star for so long. I decided to answer a different question, though: Why haven’t more players and teams agreed to these massive extensions so early in the arbitration process or even before it starts?

If you think that the Padres overpaid, this isn’t the article for you. I’m ignoring that outcome, because if that’s the case, we have an answer. Teams don’t try these deals because they’re negative value in expectation. That’s an unsatisfying answer, though. If you think that, imagine Tatis were good enough to merit the deal — give him Mike Trout’s numbers, let’s say — and indulge me in this one.

With that established, let’s hit on the biggest reason first. Quite simply, plenty of team owners wouldn’t offer a deal this long, for this much, that buys out this many arbitration years, to anyone at all. Baseball teams have increasingly separated winning from profit — through long-term TV deals, through revenue sharing, and through the increasing value of league-wide revenue streams that accrue to all teams equally. Imagine the Rays signing a contract like this. You can’t. Imagine the Mariners signing a contract like this when they’re simultaneously nickel-and-diming their best prospects. You can’t.

It’s mathematically convenient to think about contracts in terms of surplus value, but that doesn’t always reflect reality. If your goal is to run a profitable business at any cost, with winning a title a secondary concern, the incentives look different than what I’m about to lay out. And of course, front offices don’t work independently from team ownership. They rely on their input all the time, and particularly for deals like these. It’s possible that some GMs want to offer this type of contract but are rebuffed by their ownership group. Tatis might not have gotten this contract if Peter Seidler hadn’t assumed controlling interest in the team this past November and advocated for more spending in the name of being competitive.

On a related note, owners might hire GMs who simply aren’t predisposed to want offer these types of contracts. If, during an interview, a GM candidate mentions that they’re a big fan of extremely long-term commitments for lots of money, they aren’t likely to get a job with a team that doesn’t agree with that view. The front office works for ownership at the end of the day, after all. If owners are focused on financial flexibility and dry powder, that view will naturally carry over to their employees. I grant these reasons as strong disincentives to these types of deals. But again, if that’s your answer, there’s no need to continue discussing it. Let’s say, for the sake of argument, that at least some owners are theoretically willing to sign this type of contract and some GMs are willing to propose them.

Another reason that deals like these almost never happen is that there aren’t many players like Tatis. Still, “not many” isn’t the same as none. Trout qualifies, as do Ronald Acuña Jr. and Juan Soto. Bryce Harper was right on the border. Francisco Lindor, Alex Bregman, and Cody Bellinger are young and great. Any of those three could have signed a 10-plus-year extension after a couple years in the majors, though maybe not at the megawatt level Tatis reached.

Acuña did sign one of these deals — 10 years and $124 million counting club options, a shockingly light sum. Trout signed a six-year, $144.5 million deal after three years in the majors. Bregman signed a five-year deal worth $100 million. None of those approach the length and size of Tatis’ extension, though, and if you polled the 30 clubs, 30 out of 30 would tell you in private that Acuña’s deal was comically low at the time he signed it. It’s unlikely that a deal like that will happen again for quite some time. That means that Tatis’ deal is essentially sui generis.

So why don’t teams take such leaps? It certainly doesn’t come down to dollars per win. Teams believe in the general principle behind the Tatis deal — extend a player certainty in exchange for discounted production. They use it all the time. Prospects, non-prospects who made good, players approaching free agency; teams will jump at the chance to sell them insurance, as it were — to guarantee cashflows in the pursuit of efficiency.

Compare Tatis’ deal to the contract that Yoán Moncada signed before 2020. Moncada will receive $70 million dollars over five years, with a team option for a seventh year at $20 million. Jay and Dan valued that contract and worked out that Moncada projects to provide the White Sox $110 million of value for their $90 million. Surplus to the team, certainty to the player. It’s the same deal in miniature.

The unique part of Tatis’ deal is its combination of length and size. Teams just don’t operate on that scale… or at least they haven’t until now. To understand why there’s a line somewhere, let’s get abstract.

Think of an extension not as some calculation of dollars paid per WAR, but instead in terms of its effect on the team. If a healthy Moncada signed at $14 million dollars per year (let’s just ignore the option) delivers more value than he costs, that increases his team’s odds of winning the World Series.

He might also, of course, deliver as much value as he costs. In that case, the White Sox’s odds of winning the World Series would be unchanged. Finally, he might break his foot, throw out his back during rehab, and generally provide less on-field value than Chicago is paying him. Heck, he could just be bad, even. Here’s an outcome grid that I made up out of thin air:

It doesn’t work exactly this way, because you don’t get to see the entire arc of a player’s career the moment you sign them to a contract. Every year gives some incremental information. That last column, total odds change, is just an approximation, what the outcome would be if you rolled that outcome every year.

Moncada was a positive contributor in 2020 despite a tough bout with COVID-19, so that’s a data point in his favor. Now the White Sox have banked 1% of World Series odds. Even if the per-year odds remain the same, the total deal now looks like this:

That’s probably still wrong, though. Moncada was good despite dealing with a serious medical condition, which removes uncertainty from his future projections. The odds of him suddenly being bad are lower now that we’ve seen more performance. Maybe it’s now like this:

If he had instead been bad in year one, costing the team 1% of World Series odds, it might instead now look like this:

In this way, the early returns on the contract inform the likely future returns on the contract. This makes good intuitive sense, but I just wanted to highlight it, because it’s sometimes hard to think about that serial correlation. One year’s difference between Moncada being awesome and terrible, if you assume my completely arbitrary World Series odds changes, might be worth 3.5% of a championship, a larger gap than the total expected value of the contract (to the White Sox) as he signed it.

Let’s apply this same process to Tatis’ contract. It’s for 14 years, so the cumulative numbers will be bigger. Additionally, it’s for more money per year, so the fail case is worse. Additionally additionally, Tatis is better; in a good outcome, he’ll likely provide more surplus value than Moncada. Let’s model his like so:

One major difference: the first year of Moncada’s contract is a meaningful portion of its length. If he’s good for two years, the White Sox can basically hang up the Mission Accomplished banner and pour themselves a celebratory cocktail. That will happen a good portion of the time! If you’re the front office that signed that deal, you can count on it being a feather in your cap in short order the vast majority of the time. If he’s bad, sure, you look bad, but you also have a capped downside.

Compare that to Tatis’ deal. If he’s good in 2021 — say, a 6 WAR season that essentially matches his ZiPS projections but over 650 plate appearances, he’s delivered you some spot value. He’s also made it less likely that he falls on his face in 2022. On the other hand, it’s pretty hard to budge his longer-term projections. They’re already quite high, and they’re also incredibly distant. Let’s do something like this:

Next, consider a worst-case first year scenario. Let’s say Tatis sprains his ankle in the early going, suffers a knee injury while attempting to return, and misses most of the season. That hurts in 2021, but it’s more worrisome for Tatis’ future. It also lowers his odds of being excellent far out in the future, though perhaps only slightly. Let’s abstract that as something like this:

So far, I’ve just showed you a ton of grids of outcomes. They’ve all been positive for the teams. That’s not to say that there are no bad outcomes — there are bad outcomes in each table, for example — but for our purposes, there’s no way for it to be a bad deal after year one. Why wouldn’t a team make this signing?

My argument is this: the incentives of the people offering the contracts don’t perfectly match those of the team. If you’re A.J. Preller, you don’t get to bank the wins and move on with life, confident that your job security is based on a cumulative probabilistic win bank. That’s a great way to think about things, but I’m skeptical that real-life decisions happen that way.

The downside cases, unlikely as they are, are disastrous. Can you imagine costing your team a quarter of a World Series trophy, the number the Tatis contract could cost the Padres in my hypothetical worst-case scenario? You probably wouldn’t keep your job. Even if you could credibly say that it was a good ex ante bet, you’re not living in that probabilistic space. You’re living in the world where you signed a hugely detrimental contract. Whoops.

If you hit the neutral or positive outcomes, of course, you’re golden. If you break even on the Tatis contract, that’s fine, because you can succeed in other places. If he’s a Hall of Famer, awesome, you’ve secured your job for life.

But uh, general manager jobs are already pretty secure. There’s been some turnover lately — Billy Eppler, Matt Klentak, Michael Hill, and Brodie Van Wagenen all lost their jobs in the past year. Short of being bad for years on end or having the team sold, however, the path of least resistance is to keep your job. Most moves that GM’s have look good over time because of the way baseball is structured.

Find a team who hasn’t developed an interesting prospect or gotten excess value out of pre-arb and arb-eligible players in the last five years. You can’t! Any GM can point to their wins, because the structure of baseball just works that way. The failures are harder to see, and all on a relative basis — figuring out you didn’t develop enough prospects takes watching over time and comparing to other teams, for example.

Let’s put it a slightly more concrete way: if you’re lucky enough to happen into a Tatis-level talent, it’s incredibly hard to get fired for quite some time. The correct decision, if your goal is to continue in your role as the lead decision-maker for the team, is to play everything as safe as possible. Buy out a few arbitration years, tack on some team options, and it’s difficult to imagine a situation where the total body of your work is poor enough to cost you your job.

In essence, signing Tatis creates risk of ruin for general managers. Risk of ruin is a gambling (and finance) concept; it describes the chance of losing all your capital and thus losing the ability to play the game you had been engaging in.

If you think that your decision-making yields positive expected value, risk of ruin is your worst nightmare. The worst thing that can happen is that you don’t get to play the game anymore, because every round of the game (acquiring and developing baseball players in our case, but poker hands or investing in other contexts) is in your favor. Survival is key when you have an edge.

I’ve never talked to anyone who runs a major league baseball team, but I guarantee you they all think they have an edge. You don’t get to that job without a string of successes at some point along the way. You don’t get there by thinking you don’t belong. Contingent on being a GM (or president of baseball operations or whatever your team calls it), you’ve been playing well and running hot in your decision-making for some time.

Why, then, don’t teams sign these contracts? It’s a lot of things, but it’s at least partially because of misaligned incentives. How many World Series the Padres win over the next 20 years isn’t the same thing as how many World Series the Padres win over the next 20 years with AJ Preller at the helm. I don’t mean to implicate Preller specifically, either. He literally did the thing I’m saying GMs avoid doing. He’s increasing his own chance of being fired (in my opinion) at the same time he makes the Padres better.

It’s true, of course, that a contract this big would always involve a huge amount of ownership input. You don’t show up to work one day and tell your boss you’ve just added $340 million in commitments. Ownership buy-in still only goes so far. If you’re wondering whether your job will be at risk if a huge deal you made goes catastrophically wrong, the fact that your boss was okay with it at the time might not save you. It’s a fine line to walk, and I wouldn’t be comfortable with that as my job security if things went truly sour.

So why aren’t teams locking up young megastars to cosmically long deals, given that they’re willing to lock up other players in similar fashion? It’s risk of ruin in a nutshell. The Moncada and Tatis contracts both provide expected surplus value, but in only one case will the worst-case scenario cost a GM their job. That’s my theory, at least. Personal incentives are hard to shake, hard as you might try, and no one wants to make it more likely that they’ll get tossed to the curb. Bet small, avoid making waves, make smart moves, and win over time. Most GM’s probably tell themselves that, and you can’t think that and also give $340 million to a 22-year-old.