JDM is signed-5 years, 110 mil

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Van Everyman

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What folks don’t realize is that by flagging a long term medical issue serious enough to warrant protection in the deal, JDM is less likely to exercise the opt outs no matter how well he plays in the first three seasons because other teams will be terrified his REDACTED will explode.

Win for the Red Sox!
 

Bosox1528

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Please explain how a 12/$360 deal for a 29yo Mike Trout would be better than the same deal with an opt out after year 4. "The sky is blue" is generally a true statement. "The sky is always blue" is not a true statement. Sometimes you win, sometimes you lose, sometimes...it rains. And then the sky isn't blue. But rain isn't all that rare.

Put another way, people who deal in absolutes are always wrong.

Some questions:
Do you think it feasible JDM's performance will decline over the next 5 years? I do.
Do you think it feasible JDM will still be a very, very good hitter over the next 2-3 years? I do.
Is it unrealistic to think his wRC+ could look something like 140, 140, 130, 110, 100 over the next 5 years? I don't think so.
There is a likelihood that he will have 2 very good years, opt out, get 3/$60 or better, and not be worth whatever deal he signs afterward (or what would have remained on his Sox deal). He could make more than a straight 5/$110 contract (good for him) and the Red Sox would not be paying him for decline years (good for them). That doesn't require anyone to act foolishly, but it is better for the Red Sox than a straight 5/$110 deal. This exact scenario doesn't have to happen for it to be included in forecasting. The fact that it is (in my opinion) somewhat likely to be the case illuminates the idea that the opt outs are not unequivocally bad. I would have preferred a 2/$50 deal to 5/$110, but that wasn't going to happen and neither were team options. If his wRC+ goes more like 140, 140, (opt out) 150, 150, 150, I would still prefer the current contract to one without opt outs ex ante. Sure, we missed out, but a) no one is forecasting that and b) that $60M is going to go somewhere else.

Umm, 12/360 without an opt out is absolutely better than 12/360 with an opt out over 4 years. Reason being with the first contract you have the same amount of risk, but more reward.

People who deal in absolutes are not always wrong. The earth is always round. And opt outs are always bad for the team (in a vacuum, not if an opt out is used to bring down the total value of a contract)
 

Savin Hillbilly

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Umm, 12/360 without an opt out is absolutely better than 12/360 with an opt out over 4 years. Reason being with the first contract you have the same amount of risk, but more reward.
It's. Not. That. Simple.

The risk in the downside scenario is the same for both contracts. In the upside scenario, the first contract carries both more potential reward and more potential risk. It would require a pretty sophisticated analysis to determine whether the potential reward outweighs the potential risk or not, and the answer will be different for each player/contract. At best, your formula may be true more often than not. But it's not inherently or necessarily true.
 

Sampo Gida

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Umm, 12/360 without an opt out is absolutely better than 12/360 with an opt out over 4 years. Reason being with the first contract you have the same amount of risk, but more reward.

People who deal in absolutes are not always wrong. The earth is always round. And opt outs are always bad for the team (in a vacuum, not if an opt out is used to bring down the total value of a contract)
Usually opt outs benefit the player but sometimes its mutual.

Lets break a 12 year deal into 3 parts. First 4 years maximum value, 2nd 4 years fair value, last 4 years overpaid.

So if a player performs as expected the first 4 years the team has received its maximum value. With an optout the player walks and the team loses out on 4 years of fair value and the last 4 years , most of which they probably never wanted but had to give due to market competition. His contract comes off the books so many teams are probably happy he opts out. Most teams cant project past 4 years so are happy to offer an opt out.

Now if the player does not opt out it means at the very least he had a poor walk year or had an injury that was expected to carry over into the 5th year, or perhaps the market turned down.

None of those situations portend doom for the remaining 2/3 of the deal and the player may very well have delivered as expected for the first 3 years

So for the team, an opt out is something that could potentially be helpful, but its something they can not control so have to make sure the contract as a whole is something they can live with. Its not something they really want unless they really want a player to opt out to avoid a longer commitment and structure the deal accordingly. The Hosmer deal for example is a case where both the team and player really wanted the opt out as it was heavily front loaded.

JDM's deal was not really structured so as to encourage him opting out and at his age I think the expectation is that the opt out is unlikely to be exercised after the 3rd year but more likely after the 2nd year. That 2nd year opt out is the most valuable for the player since the 3rd year is expected to be a valuable one for the team based on current aging curves, and apparently it is the concession for the 2nd year opt out that led to a deal being agreed to.

I suspect that what we end up seeing over this medical controversy is the 2nd year opt out being scrapped if a physical issue crops up in the first 2 years and maybe the 3rd.

Also the earth is not perfectly round , its an ellipsoid whose oblateness changes over time
 

PedroKsBambino

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A player opt-out is always in the players interest and while retrospectively it might sometimes benefit the team, it’s always the player who seeks it in an agreement. The player gets protection against ‘outperforming’ the deal...the teams gets no protection.
 

Dewey'sCannon

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A player opt-out is always in the players interest and while retrospectively it might sometimes benefit the team, it’s always the player who seeks it in an agreement. The player gets protection against ‘outperforming’ the deal...the teams gets no protection.
True. But if the opt-out results in a lower AAV, then that would benefit the team. And since the opt-out has value to the player, it's not hard to imagine that this value is reflected in a reduction in the total salary attached to the deal, and the resulting AAV. In JDM's case, it seems he was unlikely to agree to 5/110 without an opt out. Since the deal was for 25/yr for the two years prior to the opt out, it's also not hard to imagine that he would have wanted 125 for a straight 5 year deal with no opt out. There's absolutely some trade-off involved, as with all meaningful contract terms in negotiations.
 

tonyarmasjr

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Umm, 12/360 without an opt out is absolutely better than 12/360 with an opt out over 4 years. Reason being with the first contract you have the same amount of risk, but more reward.

People who deal in absolutes are not always wrong. The earth is always round. And opt outs are always bad for the team (in a vacuum, not if an opt out is used to bring down the total value of a contract)
So, the fact that there is a greater than zero chance that you wouldn't have to pay $30M/yr for ages 33-40 doesn't change the amount of risk and reward in the contract? That's just not true. There's a reason teams don't want to offer long-term contracts in FA, and it's because the later years of a player's contract/career hold the most risk. There's pretty much no reward in the final years of a long-term deal. They get included, because, in a competitive market, they have to be in order to reap the rewards of the early years.
Well, he did prove absolutely that his theory of absolutes always being wrong did work in his own particular case.
My comment about dealing in absolutes was added (I thought) rather obviously tongue in cheek. Not every absolute statement is incorrect. However, the replies to it supported the idea by offering absolute statements that were not absolutely true or that had to be qualified. That's the whole freaking point. Every deal and situation is different. There is no one-size-fits-all truth to these opt outs. A couple other posters have made comments deriding the arguments, but no one is arguing they are unequivocally a good deal for the team. My argument is that they are not unequivocally bad, since they can offer some value to the team. As you point out, if they lower the total money or AAV, then they have done that.

In the case of JDM, I hope he does opt out after year 2 or 3, because I don't want to pay him $20M+ for the last couple years of this contract. I'd rather that money be reallocated somewhere else at that point, since I expect him to decline. So, the >0 chance that he does opt out makes this a slightly better deal to me than being locked in to all 5 years. I think the risk that he opts out and outperforms years 3-5 is less than that of if he underperforms in those years. Having the opt-out reduces that risk, even if only slightly and at the player's discretion.
 

Reverend

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I think I’ve read this whole thread and have yet to see someone layout anything like how economic net present value is calculated in discussing how to evaluate different contracts under conditions of risk.

We should bring back The Sandbox just so we have a forum to move this thread into.
 

PedroKsBambino

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True. But if the opt-out results in a lower AAV, then that would benefit the team. And since the opt-out has value to the player, it's not hard to imagine that this value is reflected in a reduction in the total salary attached to the deal, and the resulting AAV. In JDM's case, it seems he was unlikely to agree to 5/110 without an opt out. Since the deal was for 25/yr for the two years prior to the opt out, it's also not hard to imagine that he would have wanted 125 for a straight 5 year deal with no opt out. There's absolutely some trade-off involved, as with all meaningful contract terms in negotiations.
All you are saying is that the opt-out is of value to the player, though, when you say he accepted less in aav to get it. Of course both sides need to agree to the overall deal which is a combination of elements (years, salary per year, structure of the salaries, bonuses,options etc)... but who gets value out of each individual element of the agreement does not need to be joint.
 

tonyarmasjr

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I think I’ve read this whole thread and have yet to see someone layout anything like how economic net present value is calculated in discussing how to evaluate different contracts under conditions of risk.

We should bring back The Sandbox just so we have a forum to move this thread into.
Unless NPV is always <0, it doesn't really matter, imo.
 

Average Reds

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I think I’ve read this whole thread and have yet to see someone layout anything like how economic net present value is calculated in discussing how to evaluate different contracts under conditions of risk.

We should bring back The Sandbox just so we have a forum to move this thread into.
Bless you.
 

timduhda1

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You will know when it’s final as there will be multiple negative posts immediately following the announcement.
 

Wayapman

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I think I’ve read this whole thread and have yet to see someone layout anything like how economic net present value is calculated in discussing how to evaluate different contracts under conditions of risk.

We should bring back The Sandbox just so we have a forum to move this thread into.
Are you referring to the old forum named the sandbox or are you using sandbox as a euphemism for something more vulgar? Because I'm sure many of us can think of another place where a large portion of this thread belongs
 

Al Zarilla

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You will know when it’s final as there will be multiple negative posts immediately following the announcement.
Negative posts? At this point, we’ve gone ahead and made the down payment on a house, said we’re not interested in all other potential ones, and we’re making sure the bones in this one are good. If they’re not, we screwed. Negative posts will should follow only a no sign by JDM.
 

timduhda1

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Maybe negative is the wrong word. I guess I’m just frustrated with some of the posters either trying to one up the other with their “knowledge” of the situation or outright shitting on some of the lesser posters. You are correct Al that some of the good posters are making sure the “bones are good”, but some of the others are frustrating as hell.
 

nvalvo

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Negative posts? At this point, we’ve gone ahead and made the down payment on a house, said we’re not interested in all other potential ones, and we’re making sure the bones in this one are good. If they’re not, we screwed. Negative posts will should follow only a no sign by JDM.
Is there any indication at all that the deal might not happen? Nothing I've read suggests that that is even on the table.

They're hashing out language to protect the team in the event something happens to JDM's foot or shoulder or whatever the doctors flagged during the physical.
 

Al Zarilla

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Is there any indication at all that the deal might not happen? Nothing I've read suggests that that is even on the table.

They're hashing out language to protect the team in the event something happens to JDM's foot or shoulder or whatever the doctors flagged during the physical.
I don't know about the bolded but it seems some posters here are holding their breath as if the whole thing could fall apart. You say no to that, huh?
 

EricFeczko

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I think I’ve read this whole thread and have yet to see someone layout anything like how economic net present value is calculated in discussing how to evaluate different contracts under conditions of risk.

We should bring back The Sandbox just so we have a forum to move this thread into.
You're absolutely right, and this is the first thing (as a community) that we should have done. Below is a back of the envelope NPV analysis of the contract. Numbers below reflect millions not thousands.

For starters, I'm assuming that the market price is $10/WAR, mostly because I don't have the time to estimate the approximate change from 2017. I suspect the market contracted this offseason, so I expect the FA to be around 10 anyways. However, given that the FA next year contains some high-value players, it is possible that the FA market may be closer to $11/WAR.

Second, for the purpose of this evaluation, I'm using "Depth charts" from fangraphs to assume an optimistic projection of 3.4 fWAR and "steamer" for a pessimistic projection of 2.4 WAR. Yeah, yeah fWAR sucks, but its one of the few ways to do an analysis while making few assumptions about the context of the team. This selection has the advantage of an adjusted number, but is limited in its ability to evaluate defense and the context of whether we even need defense from JDM. In other words, the red sox likely price the components that drive fWAR very differently than this analysis does; however, this analysis will likely underrate JDM's contributions because it weighs defense more than the red sox likely do. On the other hand, I'm not a prophet, and using WAR benefits from the fact that I'm not assuming anything about what happens to the outfield over the next 5 years.

Third, I'm assuming growth charts from this recent analysis of aging curves on wOBA, which suggests that JDM will lose approximately 3 points of wOBA/year over the next 5 years. As above, JDM is not being counted on for defense, and will likely play a majority of his games at the DH position. Therefore, his WAR fluctuation will be driven by his offense. Since his value is tied to the bat, wOBA decline will give a good estimation as to the decline in WAR. As an aside, I have an interesting approach for characterizing heterogeneity in player trajectories and development, if anyone's interested; I just don't have the time to prepare MLB data to test it on. I'll be honest, this is the weakest part of the analysis below. I'd be happy to revisit it when I have any time.

To summarize, I am assuming that JDM will produce 3.4 or 2.4 WAR in 2018, on a wOBA of 384 or 377 in 145 or 128 games. These WAR will be worth $10/WAR per season; though one might want to adjust to 11 in 2020. With a three point drop per year, you're looking at a slow decline in WAR. A change in 46 wOBA points from 2016 to 2017 was worth about 15 batting runs to JDM -- so you're looking at a loss of about 1 run a year (or 0.1 WAR per year). To be fair, I'll assume a tradiional 0.5 WAR drop per year as well, though I think that's pessimistic for DH's (hitter declines tend to be much slower) and JDM in particular (who has improved over the last 4 years, which is the opposite of the expected trend). As a result, below are the expectations for the positive (not net) value JDM will produce under these differing assumptions:

2018: 34/34/24/24
2019: 33/29/23/19
2020: 32/24/22/14
2021: 31/19/21/9
2022: 30/14/20/4
TOTAL: 160/120/110/70

Based on these assumptions, JDM should produce somewhere between 70 and 160 million dollars over the course of this contract. Now, we can assume the cost and see what the expected net value will be for each year. The cost per year is as follows: 25/25/20/20/20. I'll tackle the player options after:

2018: 9/9/-1/-1
2019: 8/4/-2/-4
2020: 12/4/2/-6
2021: 11/-1/1/-11
2022: 10/-6/0/-16

Already we can see something interesting. My quick and dirty DH aging analysis suggests that JDM may never produce negative value throughout the contract, regardless of whether the initial projection is optimistic or pessimistic. In fact, the sum value of the third approach equals the salary projected from his contract. In three of the four projections, the last three years of the contract have little negative value (-3 million), even in the most pessimistic projection, the cost is minimal (-33 million -- which is tiny compared to cherington's many expensive mistakes).

Now the net present value is usually the sum of the cumulative net value derived from the analysis. In other words, we just sum the net value over the years. However, we must also keep in mind the possibility that net value depends on whether the player chooses to remain with the team. Naturally, the player's projections will also differ at those points, since we will have more information as to how the player will perform in 2020+. To keep things simple, I'll point out the project sums for three timepoints, the total (NPV), the total after year 2 (NPV-2), and the total after year 3 (NPV-3), which are three of the most possible outcomes from this contract.

NPV: 50/10/0/-40
NPV-3: 29/17/-1/-11
NPV-2: 17/13/-3/-5

I hope the analysis shows how a simple set of assumptions can produce a wide range of valuations. One can always adjust the starting numbers or aging curves to estimate value differently. Other limitations to this analysis abound. I haven't taken into account factors that could affect future projects (such as any injury risk to JDM), I haven't utilized projections specific to the DH spot (which may age differently than non-DH), nor for players similar to JDM, since he surged offensively in his later years. I'm not sure how these options are valued from the player perspective. We can see that the Martinez went from 7/200 to 5/110 with the two opt-outs, suggesting that the opt-outs are worth no more than 90 million in net value to the player. Finally, I did these calculations in my head, so there could easily be a stupid mistake somewhere.

Out of the 12 possibilities (3 contract outcomes by 4 projections), 6 provide positive value while 5 provide negative value. Of the five that provide negative value, only two have a negative value over 10 million. On the other hand, all 6 of the positive value projections are worth over 10 million. I think this is what Average Reds meant by structuring the contract to mitigate risk. Even if one of the negative outcomes occurs, the cost of the negative outcome is likely to be mitigated.
 

BoSoxLady

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Media has reported numerous times that the contract language will not impact JDM’s ability to play.
 

Pozo the Clown

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No need to panic (except, if you're so inclined, about the opt outs). Per the link below:

"There are no concerns about Martinez's ability to play at full strength in 2018. The physical did reveal a potential medical issue that could crop up down the road, and the Red Sox and Martinez are simply trying to protect themselves in case that occurs.

"The expectation is that the deal will still be completed and Martinez will join the Red Sox, but no timetable has been provided for how long it will take to finalize the added language to the contract."

https://www.mlb.com/news/jd-martinez-deal-held-up-by-contract-tweaks/c-267190182
 

nvalvo

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Also, in the flurry of press conference scheduling tweets I read Cafardo noting that the concern was about Martinez' foot. I think we suspected as much, but I hadn't seen it specified.

edit: via, amfox1, there it is.
 

DeadlySplitter

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yeah Cafardo of all people is the first one to specify what the concern is (although it had to be only one of two things pretty much)
 

BigPapiMPD34

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Word is the press conference could be as early as 9am tomorrow (for those who want to plan ahead to make sure they can watch it). I guess it makes sense since they will want Cora to be there and the Sox have a game at 1pm.
 

Reverend

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The Craig/Lisfranc injury has to scare anyone. Glad they are getting some protection.
DRS seemed unconcerned when asked about it.

It will be interesting to see if we learn any specifics.
 

Devizier

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If we're going to be talking opt-outs, can't we just stick with the insurance analogy?

Player pays an unknown premium (we will never know, unless the details of the negotiations leaked).
Team offers insurance for x years beyond the scale of their nominal contract.

Now, insurance works for the insurance company, usually. But of course this isn't straightforward liability insurance. The team is absorbing risk on the back end in exchange for less money up front. There are other snags since this is 1) a tiny market 2) teams are "insuring" their own players.

Obviously the same contract is worth more if it has player options in it. But that doesn't tell the whole story. Given that we don't know the premium we can never really determine what else was on the table. That said, I do favor a "both sides win" explanation, as it accounts for a lot of unique elements involved in baseball contracts. I wouldn't be surprised if we see a lot more of this in the future.
 

Reverend

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If we're going to be talking opt-outs, can't we just stick with the insurance analogy?

Player pays an unknown premium (we will never know, unless the details of the negotiations leaked).
Team offers insurance for x years beyond the scale of their nominal contract.

Now, insurance works for the insurance company, usually. But of course this isn't straightforward liability insurance. The team is absorbing risk on the back end in exchange for less money up front. There are other snags since this is 1) a tiny market 2) teams are "insuring" their own players.

Obviously the same contract is worth more if it has player options in it. But that doesn't tell the whole story. Given that we don't know the premium we can never really determine what else was on the table. That said, I do favor a "both sides win" explanation, as it accounts for a lot of unique elements involved in baseball contracts. I wouldn't be surprised if we see a lot more of this in the future.
I personally ascribe to the theory of Intelligent Regression.
 

Buzzkill Pauley

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Jared Carrabis‏ @Jared_Carrabis 5m5 minutes ago
Nothing official yet, but I'm hearing that the Red Sox are at least prepared for the JD Martinez press conference to be tomorrow.
I hope that means they were able to find a white “RED SOX” jersey and hat for him to don at his press conference.
Great.

So now what do you guys want to do?
I heard somewhere that player opt-outs in a contract actually benefit the team, as well as players.

Maybe we could discuss that?
 
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