With 2020 being such a strange year, teams at all levels had to adapt to the changes of a pandemic environment. COVID-19 sped up the process for changes in scouting, operations, and in the case of this article, player contracts. Contracts have been increasing in value seemingly every year, but the real question is whether teams are going to be prioritizing length or average annual value. The recent signings of Trevor Bauer and Fernando Tatis Jr. are interesting scenarios for the direction baseball contracts are heading.
Recent events in the world of professional baseball have made me want to write about the crossroads the sport is at in terms of salaries and contracts. The two largest of late would be Fernando Tatis Jr.’s and Trevor Bauer. One is a 14 year extension, while the other is a short term deal with high dollars out of free agency. While these are obviously the extremes, a real question is which kind of deal are we going to be seeing going forward.
Trevor Bauer just signed a 3 year $102M with the Los Angeles Dodgers out of free agency. What makes this contract so interesting to analyze is the way it is structured by year. This is how it is broken down: 2021 is $40M, 2022 is $45M, and 2023 is $17M. There is a player option after the first two years if he wants to test the free agency waters again.
This is where I, and many analysts, believe the way contracts would be heading. Short term and higher dollar deals allow teams that can afford it to be more flexible with their lineups in the coming years. Teams would avoid contracts such as Albert Pujols (10yr, $240M) and Chris Davis (7yr, $161M) that hinder a team’s ability to add players in free agency or extend young talent. Since the deal is only a couple of years it lessens the opportunity cost, which is the inability to make future decisions, at the price of a higher annual value for the contract. It is also enticing for the player because despite there being less guaranteed money, they can make more in the short term in hopes that they perform well enough for another large payday once they hit free agency again in a couple of years. It involves betting on themselves, but if we know anything about Trevor Bauer, he is the kind of character that will take that to the bank.
On the polar opposite, Fernando Tatis Jr. just signed a 14 year extension with the San Diego Padres worth $340M. He’s played less than a full season and was given a contract that will keep him in San Diego for the majority of his career. Now why would the Padres handicap themselves into paying a player until 2034? It seems that they are betting that he will become a similar player to Mike Trout but with even more marketability with his “let the kids play” attitude on the field. Trout earned a 12 year $432M extension so if all goes according to plan, the Padres could save over $100M and hold onto one of the most exciting players in the league for the foreseeable future.
Both Tatis and Bauer’s contracts are outliers when compared to the standard superstar contract. Bauer with the term, and Tatis with the lack of MLB experience. And with these coming weeks apart, it is going to be interesting to see which becomes more apparent for future stars. This will make the younger generations think hard about betting on themselves and waiting until free agency, or signing extensions early at the risk of less overall salary but increased security.
Even for players going into post-secondary programs, it is clear that economics are a large part of baseball and are the driving force of executive decisions. These players need to be thinking that if there is a chance to enter professional ball, what will the financial situation look like and how will they want to sort it out. Contracts seem like a boring subject, but when you bring the psychology of the decision-making process of the front office and the players, it can be a crystal ball into the future.