The Ker Extension is Baffling

[UCLAngel]

I get it, he's the best pitcher in the game. Young, mature, All-American, etc.  I have no problem with the signing itself.  He's the kind of guy you give a long-term contract to.

 

However, the contract is baffling to me. Not because of the AAV, but for two other reasons.  1. Timing.  2. Opt out.

 

1. Timing

 

The Dodgers don't want to risk him hitting the open market where his value might be driven up further, so they locked him up.  But locking up a player before he's actually a free agent is all about risk allocation.  When the Dodgers sign a guy to a long-term guaranteed extension, they take on the risk that he's going to be hurt or underperform in the year(s) before he hits free agency. For Kershaw, I simply don't see how this risk was priced into the contract.  Kershaw received the highest AAV contract.  Perhaps you could argue he was set to make $32M/year, I don't know what the market would support.

 

2. Opt out

 

Opt outs are great for the player.  It, again, puts all the risk on the team.  It the market would pay Kershaw more, he'll just opt out or renegotiate a new contract with the Dodgers.  If it won't, he's sitting pretty at $30m/year.  You'd think that the contract would reflect this allocation of risk, but again I'm not sure it does.  Kershaw is getting paid the most largest contract ever for a pitcher despite the fact that he wasn't a free agent, he received an opt out clause and he negotiated for significant trade restrictions. 

 

Now, one or the other of these two principles may support the AAV of Kershaw's contract, but take them both together and Kershaw wins this deal going away.  Colletti was pantsed.  Then he was forced to watch as Casey Close bongo'ed a catchy little beat on his cheeks.  Sure, the Dodgers don't care about money now, but what happens when the labor deal is renegotiated to place astronomical penalties on luxury tax offenders?  The Dodgers may not regret the Kershaw signing, or the impending Hanley signing either, but the mega-contract after that (or 2, 3, 4 down the road) will come back to bite them.  When you value money differently than every other team in a collective league, the league forces you to adjust.  For the time being, the Dodgers will thrive.  They have a great team.  But they're setting a dangerous precedent for themselves which, I believe, will come back to hurt them.  

[Stradling]

I think it is a great deal for not only Kershaw but for the Dodgers. Who here thought there was a really good chance he would get an 8 or 10 year deal, given his age? I thought it had a very good chance of being reality.

[wopphil]

I think it is a great deal for not only Kershaw but for the Dodgers. Who here thought there was a really good chance he would get an 8 or 10 year deal, given his age? I thought it had a very good chance of being reality.

UCLAngel makes good points, but I think Stradling hits the nail on the head.  What the Dodgers gave up in AAV and risk, they got back in terms of guaranteeing only 7 years, to a guy who probably would have received 9 or 10 on the open market.

 

Good deal for everyone, really. 

[ettin]

A few thoughts:

 

1) First of all from a team perspective I'm not entirely enamored with giving a player an opt-out clause, but if it is a requirement from a player as good as Kershaw is I'd probably make the exception like the Dodgers did too.

 

2) From Kershaw's perspective he is counting on the fact that he will stay healthy and productive the next 5 years at which point he will opt out and get a bigger paycheck in all likelihood. However if he gets injured, particularly in year 4 or year 5 of the deal, then he will likely not opt-out and collect the extra two years of money and time to re-establish his value again after year 7.

 

3) So the Dodgers may have done studies on the durability of pitchers and could believe that over the next 5 years Kershaw has a certain probability of getting injured (I'm not sure what the exact odds are but I'm sure there is historic data that has been compiled and is available). Although clearly the Dodgers don't want Kershaw to be hurt, they do have to build in injury risk into their contract models and perhaps there is data showing that any pitcher entering their age 29/age 30 years may have a higher chance of experiencing injury so they may have built this contract to opt-out at 5 years on the off-chance Kershaw becomes one of those injury statistics. This is speculation on my part but as players age, particularly pitchers, their chance of injury does increase.

 

4) Finally Cameron wrote a piece the other day on FanGraphs and he indicated that Kershaw actually took a slightly lower AAV in exchange for the chance to opt-out.

Edited January 16, 2014 by ettin

[Chimi]

It's possible Kershaw would have asked for 5 or 6 years on the open market as well. He's young enough to set himself up for another mega contract in his early 30s. Not so sure teams would pay him $30MM+ when he's 34, 35, 36 once that 8-10 year deal runs out.

[Stradling]

Maybe Chimi, but bird in a hand two in a bush and all that stuff. I would probably max out value now, while I have a ton of it, as long as I am happy where I am. I am sure he will learn to get buy on a measly $200 million if he suffers an injury.

[IEAngelsfan]

Colletti was pantsed.  Then he was forced to watch as Casey Close bongo'ed a catchy little beat on his cheeks. 

Thanks for the visual.  I will be cursing you as I attempt to block this out of my mind.

[gotbeer]

I think the Dogs did a good job with the deal.  You don't want a contract to a mega star to linger in his last year before FA'cy.  It's a distraction, because all everyone will be talking about and asking said player is, will you re-sign.  Or FA'cy.  Players say it won't be a distraction.  But every reporter will be asking the FA question.  

 

for the Dodgers, it is good that it limits their liability to only 7 years.  A lot can happen in 7 years.  Look how quickly Halladay broke down.  And just because they give him a 5+2, doesn't mean they can exclusively negotiate an extension later on.  They can keep adding years if they both agree and see fit.  

 

This is what I think most people lose in the Trout talks.  They think it's a finite 10 or more years so that you can lock him up.  Where a lower deal like a 6-7 does the same thing, and reduces the risk.  Because nothing says that after 3 years you can't negotiate another 3 years.  

[Brent Maguire]

I thought it was a perfectly fine deal.

 

It's a good deal for the Dodgers because they have him locked up for the good years of his career and don't have to worry about the later part of his career. 

 

Kershaw benefits because he got a nice deal but he gets to test free agency again. 

[Angel Oracle]

Great deal for both sides, because 5 years (if Kershaw opting out) is still a ways away and gives the Raviners time to develop more pitching. 

This might be what gets Tanaka to ultimately sign with someone.   Like Kershaw, he's only 25.

 

 

This may become an increasing trend in MLB (big contracts with opt outs).  

Maybe Trout's contract ends up being for say 8 years starting in 2015 (age 23/24 to age 30/31 seasons), with an opt out after 6 years (age 28/29). 

Edited January 16, 2014 by Angel Oracle

[Chimi]

I think the Dogs did a good job with the deal. You don't want a contract to a mega star to linger in his last year before FA'cy. It's a distraction, because all everyone will be talking about and asking said player is, will you re-sign. Or FA'cy. Players say it won't be a distraction. But every reporter will be asking the FA question.

for the Dodgers, it is good that it limits their liability to only 7 years. A lot can happen in 7 years. Look how quickly Halladay broke down. And just because they give him a 5+2, doesn't mean they can exclusively negotiate an extension later on. They can keep adding years if they both agree and see fit.

This is what I think most people lose in the Trout talks. They think it's a finite 10 or more years so that you can lock him up. Where a lower deal like a 6-7 does the same thing, and reduces the risk. Because nothing says that after 3 years you can't negotiate another 3 years.

This is a good point about break down. Kershaw has pitched a lot of innings at his going age. He's been pitching over 200 innings since he was 22 and pitched 170 at age 21. His arm may very well fall off before most.

[UCLAngel]

Great deal for both sides, because 5 years (if Kershaw opting out) is still a ways away and gives the Raviners time to develop more pitching. 

This might be what gets Tanaka to ultimately sign with someone.   Like Kershaw, he's only 25.

 

 

This may become an increasing trend in MLB (big contracts with opt outs).  

Maybe Trout's contract ends up being for say 8 years starting in 2015 (age 23/24 to age 30/31 seasons), with an opt out after 6 years (age 28/29). 

 

I agree. I could see it too.  I wouldn't mind the Angels offering Tanaka something like this:

 

7 years/$129M

 

Year 1 - $20M

Year 2 - $20M

Year 3 - $20M

Year 4 - $20M

OPT OUT OPTION

Year 5 - $17M

Year 6 - $17M

OPT OUT OPTION

Year 7 - $15M

 

(Just for illustrative purposes)

 

I would decrease the amount of salary for years after opt outs.  It just seems like the Dodgers take on all the risk.  If Tanaka (or Kershaw) hold or increase their value, then they can capture that, but the Dodgers are protected if he decreases his value beyond that lowered salary.  I wouldn't mind seeing this type of contract structure.

Edited January 16, 2014 by UCLAngel

[gotbeer]

The one thing you have to remember about Tanaka.  He is in all intent and purposes a FA right now.

 

But in the MLB world.  Once he signs a contract.  He becomes property of that team for 6 MLB experience year purposes.  In some cases, a player may put in their contract that they become a FA after the contract expires.  But since Tanaka's posting will be $20 million, I'm sure whatever team will want his services for the entire 6 year term.  

[m0nkey]

Miranda?

[YouthofToday]

Timing was perfect. They needed to do this deal before submitting arbitration numbers.