The 2018 off-season got a bad rep for the lack of big signings and a lackluster of free agent deals. As spring training opens, there are still marquee players such as Jake Arrieta and Mike Moustakas who have yet to find a team for 2019. The problem isn’t questionable talent; it is questionable long-term money.
Big contracts are traditionally back loaded, where the player receives more money each year as the contract plays out. There are examples where the player ended up being worth the money. There are many more where he was not.
Part of the problem with long term back loaded contracts is that the player gets older and can diminish in skills, yet the team is stuck paying more money. The ball club is essentially paying for previous services rendered versus present value. That is the biggest problem with 7 and 10+ year deals: they value the production of a player the same at 25 years old as they do at 33 or later. Yet that commitment to guaranteed money for such a long duration is what gets the player to sign with a given team. These contracts typically end up being short-term successes and long-term financial headaches.
For baseball teams able to afford such large contracts, the financial burden of a back loaded downtrodden contract is more about the luxury tax rather than the inability to sign new players. Teams like the Red Sox and Yankees and Angels have money available to spend; it is simply a matter of where the money is allocated and how much of a luxury tax hit the team is willing to take.
Albert Pujols may be the best example of a contract a team is simply waiting to expire. Pujols is signed through 2021 (10 yr/$220 million) and has not had the same production value he had with the St. Louis Cardinals. It is Los Angeles who is stuck paying for his relative marginal decline in ability at his rising production and prime rates.
Giancarlo Stanton is another example of a contract that could end up being troublesome by the end of it. Stanton will be 38 once his contract runs out (13 yr/$325 million). The good news is that the last three years of Stanton’s contract begin to decline in value. In comparison, Pujols will be 41 when his contract expires and has an increasing salary every year until it is over.
So what about front-loaded contracts? The idea of a front-loaded contract is to pay the player more in the present and early years, and save more in the latter year of a deal. There are pros and cons to both the player and the team. The player can get paid more money up front rather than waiting until the back end of the contract. He may get better as the contract progresses but end up being paid less.
For a team, the payroll will be higher in the short term, but not as inflated for the long term. They are saving money later on a player who might or might not be worth the value of what he was at the signing.
Front-loaded contracts are not as important in baseball, which are guaranteed deals, as opposed to other sports where a player can get released and only be paid a fraction of what he initially signed for. This refers to the well being of the player. A team must take the weight of payments into consideration for luxury tax purposes. Outside of the fact that a team does not want a $500 million payroll for one season, they will get penalized for being over the luxury tax threshold; this increases exponentially each season they go over the cap.
A problem the front-loaded contract offers is the immediate payroll increase. The payoff is savings at the end of the deal, which presents a possibility to also trade a declining player.
The bigger the numbers, the bigger the discussion about a contract. Max Scherzer signed a deal in 2015 for 7 years/$210 million. His contract is spread out over 14 years, much as the infamous Bobby Bonilla contract was deferred (until 2035 to be exact). The deal is not front-loaded, but it is deferred so as the team is able to spend more money now in other areas.
Eric Hosmer was one of the lone gunman free agents who did not have a deal until right before spring training. He signed an 8 year/$144 million deal to go to the San Diego Padres. He will be paid $21 million a year through 2022, then $13 million annually for the final three years. Hosmer has an opt-out clause after the 2022 season when his salary will take an automatic pay cut. Could this be the new trend for “big” contracts? It is not likely the MVP caliber Bryce Harper or Manny Machado will be in the market for front-loaded contracts next off-season, but this contact style could provide opportunity for more teams to become players in the free agent market.
Imagine if the Angels had front-loaded contracts in place when they signed Pujols? Maybe they paid him closer to $20 million a year from the start of the deal and saved $5-6 million a season for the last few seasons. Like I said before, the teams that can afford to sign the big back loaded contracts are not in need of extra funding – if they want a player, they find the money and sign them. However, at some point, the dollars don’t make sense, and a team must change its payroll tactics.
Front-loaded deals
Front-loaded contracts are a great thing for a place like San Diego, given their lack of success in recent years (decades?) The location is pristine, but the baseball has been lackadaisical as of late. Players do not sign there with the intent of competing for a World Series, but if the Padres want to pay someone lots of money, it better be in the best interest to do it right away. Hosmer gets paid more right away with the ability to opt-out after making over $100 million. If the team isn’t winning or he is worth more than the backend of his deal, he can walk. If the team is amazing or he has become a benchwarmer, he can ride it out.
There is a definite shift in the contract negotiation process, at least for this off-season. There were a handful of big names that waited longer than usual to sign, but there are any perennial all-stars or Hall of Famers who have gone unsigned. Nobody left is going to get paid like a face of the franchise just because they are the best available this off-season.
The market could be reset again next off-season, or right before 2019 spring training if things wait as long as they did this year. Few teams will be able to compete for the services of Machado and Harper, but the rest of the free agent class will at least know what’s coming in terms of expected offers. Some players might not decline a qualifying offer or turn down an option year. Or maybe Scott Boras has some big paydays in store for future front-loaded contracts.
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