We’re all weirdoes. Truly, we are. If the collective intents of our nature were described to any of us without reference points we’d eagerly dismiss ourselves as being ridiculous nitwits. This is perhaps best seen in our eagerness to categorically judge the actions of others into being either positive or negative, with little regard given to the complications and unconsidered dynamics that destroy the unsophisticated dichotomies that we build for ourselves for the sake of simplification.
In sports, this occurs most often in “analyzing” trades and transactions. Trading Wil Myers, Jake Odorizzi, Mike Montgomery and Patrick Leonard for James Shields and Wade Davis is good for the Tampa Bay Rays and bad for the Kansas City Royals. I don’t disagree with such a notion, but mine is an opinion that comes with a caveat: It’s based in a vacuum context on my own limitations of understanding.
I’m not familiar with the job security of Royals General Manager Dayton Moore, other than knowing that his current contract runs through 2014. I don’t know about the pressure that ownership has placed on him to succeed right now, and I’m unaware of what other alternatives he had. It could very well be that the factors that I can’t consider were the most informing for the decision. Perhaps, all things considered, it’s a win-win situation.
Unfortunately, our minds aren’t considerate, they judge. One party is good, and so the other must be bad. As soon as we find the benefits, we lazily dismiss the other option as being a consequence. Staying within the world of baseball, we find this phenomenon occurring once again with the terms of Zack Greinke’s recently signed free agent contract with the Los Angeles Dodgers.
As part of the deal, Greinke has the option of walking away from his six-year contract after three years. There is little doubt that pitcher benefits from the arrangement. If, after three seasons in Los Angeles, Greinke proves himself to be as excellent as many believe he can be, it’s quite likely that he can earn more money than the $71 million he’s currently guaranteed as part of the back-end of his deal with the Dodgers.
It’s been assumed that this is a concession that Los Angeles had to make in order to sign the pitcher to such a long contract. It’s been thought of to be a negative for the team because it means that Greinke could leave earlier than the club would theoretically prefer, while still enjoying the security of a six-year guaranteed contract if he doesn’t think he could earn more on the free agent market.
I’m not so convinced that such an opt-out clause is as detrimental to the Dodgers as it’s being presented. In order to understand this perspective, two concepts need to be explained: aging curves and where value is derived in long-term contracts.
This first is a simple concept to grasp. Using historical data, we find that starting pitchers don’t get better after their age 28 or 29 seasons. They get worse. This shouldn’t be very surprising. We feel the decline of our physical abilities as we get older, and so too do professional athletes.
Given the way that Major League Baseball contracts work, with two to three years of contract renewal and three to four years of contract arbitration, we can expect that by the time a pitcher signs a contract as a free agent, he’s reached his decline stage of his career. Therefore, a pitcher performing in the first year of a free agent contract is most likely performing at his true talent best in terms of the years covered by the deal.
However, long-term contracts aren’t constructed in a manner that pays a player according to his performance. Contracts are much more likely to have an even annual distribution. This means that front offices consider things like a player’s probable decline and inflation to offer a contract that is fair by comparison to other contracts as a whole rather than season by season. Therefore, a team ends up underpaying for performance at the beginning of a contract, and then overpaying for performance at the conclusion of a contract.
It’s a bit like paying for a car via payments over time. As the car depreciates in value, you’re still making the same monthly payments, as you were when the car was at its most valuable. So, would it be a terrible thing to have the depreciated vehicle and the amount of money you owe on it completely removed from your responsibility halfway through the arrangement you’ve made? Ultimately, it represents the opportunity to pay for the peak performance at a reduced rate, and that’s it.
In terms of Greinke and the Dodgers, it also means that the pitcher performed at such a high level as to warrant a better contract on the open market than what he agreed to three years previous. The enormous amount of value that’s gained in those three years makes a short-term contract – into which Greinke’s opting out would essentially transform the deal – worthwhile. The team would have to look at re-signing Greinke to a new and presumably more expensive contract as an entirely different deal with an entirely distinct examination of factors from the process in which they engaged when they signed the pitcher this off-season.
It would hardly be surprising to me, given the way in which pitchers decline, if the money they committed to spending on Greinke before he theoretically opts out, would be better spent on another asset instead of bringing back what will be a 32-year-old pitcher for another multiple-year contract. However, the contract that follows the most recent signing is irrelevant.
The Dodgers can look at this as two potential contracts, both of which offer the team good value. Contract A means that Greinke stays for six years and is paid what the team considers to be a fair amount of money for an expected quantity of production. That’s great, but Contract B, as a sole entity, is even better. Contract B means that Greinke provided enough production over three years to lead him to believe that he can earn more on the open market than what he originally agreed to be paid. That means that the player provided a lot of value over the short term. The Dodgers will be able to reap this without a long-term commitment, and then choose if they want to pay a premium for more years of the pitcher when he’s even more likely to decline than he was when the first deal was signed.
It’s easy to be confused by our urges to compartmentalize the outcomes into good and bad categories, especially when we think of a player and a team as adversaries in negotiations. However, if we parse through the possibilities, we realize that contract options can be mutually beneficial. If Zach Greinke opts out of his contract after three seasons in Los Angeles, it could be a very good deal for both the player and the team.