We’re seeing something very different this off-season with the length of mega deals, and I wanted a space where everybody could actually wrap their minds around what’s going on. There’s a number of folks who have already explained it in some of the MLB forum threads and X deal, but I’m also seeing people still guffawing at the length of his contract. So, let’s discuss in one place so that those comments don’t get ignored and the new math can sink in.
The Yankees, Phillies and Padres have now committed to paying a player through their age 40(!) season or longer. Some are shocked at the length - there is no way Trea Turner will be worth $27 million at that age. The response is that teams are basically giving him more like an 8 year deal at $37 million / year, and writing off the final three years as a lost cause. This benefits the team in two ways - first, it lowers the annual value for luxury tax calculations; second, it reduces the total cost of the contract because of inflation. There have been a few articles written over the years on net present value, discount rates, etc., that people should check out (e.g. this one). This is essentially deferring payments while reducing the luxury tax implications. Call this the Albert Belle strategy. At some point, MLB is going to have to step in, but are there rules governing this? Why don’t teams start signing people to 50 year contracts? Where’s the line?
On the flip side, we’re also seeing more players take much shorter, higher value deals - call it the Greinke so we don’t have to bring in the blacklisted Dodger.
Just as people took a while to grapple with the reality of team, player, and mutual options that started up about 10 years ago, these two novel approaches are worth understanding. Why is this happening now? Is it because players are reaching free agency later and both sides are agreeing to just tack on some years to the end when everybody knows the player will be useless? Why are players willing to give up one last pay day and just concede they’re signing their last contract? Or, alternately, why do some players seem to be switching to a year-to-year mode? And to bring it closer to home, let’s make Devers a Red Sox for life - if you’re willing to go 10/300, what would a 15 year contract look like?
The Yankees, Phillies and Padres have now committed to paying a player through their age 40(!) season or longer. Some are shocked at the length - there is no way Trea Turner will be worth $27 million at that age. The response is that teams are basically giving him more like an 8 year deal at $37 million / year, and writing off the final three years as a lost cause. This benefits the team in two ways - first, it lowers the annual value for luxury tax calculations; second, it reduces the total cost of the contract because of inflation. There have been a few articles written over the years on net present value, discount rates, etc., that people should check out (e.g. this one). This is essentially deferring payments while reducing the luxury tax implications. Call this the Albert Belle strategy. At some point, MLB is going to have to step in, but are there rules governing this? Why don’t teams start signing people to 50 year contracts? Where’s the line?
On the flip side, we’re also seeing more players take much shorter, higher value deals - call it the Greinke so we don’t have to bring in the blacklisted Dodger.
Just as people took a while to grapple with the reality of team, player, and mutual options that started up about 10 years ago, these two novel approaches are worth understanding. Why is this happening now? Is it because players are reaching free agency later and both sides are agreeing to just tack on some years to the end when everybody knows the player will be useless? Why are players willing to give up one last pay day and just concede they’re signing their last contract? Or, alternately, why do some players seem to be switching to a year-to-year mode? And to bring it closer to home, let’s make Devers a Red Sox for life - if you’re willing to go 10/300, what would a 15 year contract look like?