Long-Term Free Agent Contracts: A Historical Perspective
As the old English proverb goes, hindsight may be 20/20, but there's a lot of evidence that signing another team's free agent to a long-term, big money contracts is poor business. My interest in this topic was set in motion last year when the Dodgers shelled out Darren Dreifort money to perennially-injured outfielder J.D. Drew, 5 years $55 million. Right away you heard the cries: "DePodesta waaaaay overpaid," "He'll never live up to that contract," and then the comments regarding his walk year being a "free agent push."
When Toronto GM J.P. Ricciardi doled out a combined $102 million to free agent hurlers A.J. Burnett and B.J. Ryan this off-season, similar comments were heard uttered. Perhaps J.P. just likes guys with initials for first names (look for F.P. Santangelo to get a coaching job). It's hard to fault Ricciardi though, as the Blue Jays needed a closer and a front-line starting pitcher and got arguably the best of each that were available (sorry Billy Wagner fans).
All this got me thinking: exactly how true is the statement that signing another team's free agent to a long-term, big money free agent contract is often a losing proposition? It's easy to look back on some of the more noteworthy and controversial contracts of the recent past and wonder, "What was that GM thinking?" As a Dodger fan, I was thrilled that the team added Kevin Brown to the rotation after the 1998 season. So what that they spent $105 million over seven years on a 34 year-old pitcher? It wasn't my money. Brown, of course, was coming off a great 1998 in which be put up a WARP of 9.9 while pitching the Padres to the World Series. He then went on to have good seasons for the Dodgers in 1999 and 2000 (WARPs of 7.7 and 7.9) before being hurt for a good portion of the following five years. I won't even get into the Dreifort contract.
I thought it would be interesting to dig into the numbers and determine whether the "walk year" phenomenon held up to the underlying data. I hypothesized that the good deals would balance the Kevin Brown-type deals and that there might be a slight regression in terms of the free agent's year-by-year performance over the life of the contract as the player aged.
In order for this analysis to encompass an adequate amount of data, I selected all free agent contracts signed during the 2000-2004 off-seasons that met the following criteria: 3 years or more in length at a minimum of $5 million per year OR 4+ years and a minimum of $15 million total. Totals much less than that wouldn't impact a team's budget too significantly, save the bottom-feeders such as the Devil Rays and Royals.
Total players in sample 29 17
Average age when signed 30.5 yrs 31.6 yrs
Average contract length 5.7 yrs 4.1 yrs
Average total contact $55.5M $43.7M
Average annual salary $9.7M $10.7M
Contract Yr Year 1 Year 2 Year 3
OPS 0.914 0.831 0.830 0.802
EqA 0.307 0.290 0.283 0.273
VORP 48.1 40.4 36.9 27.6
The good signings: Alex Rodriguez (although at $25 million, you could make the argument that he's still overpaid), Manny Ramirez (see A-Rod comment), Hideki Matsui, Cliff Floyd, Miguel Tejada, Vladimir Guerrero, Richie Sexson, Johnny Damon, Ellis Burks (at least until the final year of his 3 year $20 million deal), Ray Durham, Carlos Delgado (so far).
The bad: David Segui, Todd Hundley, Edgardo Alfonzo, Charles Johnson, Edgar Renteria, Roger Cedeno, David Bell, Kaz Matsui.
The in-between: Moises Alou, Tino Martinez, Mike Cameron, Jim Thome.
Jury is still out: J.D. Drew, Adrian Beltre, Carlos Beltran, Jason Giambi, Ivan Rodriguez, Magglio Ordonez (although there is an argument to be made that this already is a bad signing).
As one might expect, the data gives credence to the oft-uttered "contract drive" theory. Clearly, free agent hitters had excellent years in their walk year and followed that up with ever-increasingly worse years. The biggest offenders (a.k.a. the guys who took a dive) were, by far, catchers Charles Johnson and Todd Hundley. After posting a terrific .954 OPS in 2000, Hundley signed a lucrative four-year $23.5 million with the Cubs and proceeded to put up OPS numbers of .642, .722, and .735 in several injury-riddled years with the Cubs and Dodgers. Johnson, meanwhile, put up a .961 OPS, also in 2000, before signing a five-year $35 million deal with the Marlins (back when they had money). He never came close to 2000 again, posting OPS totals of .771, .670, and .775 between 2001-2003.
More recently, the Dodgers' Adrian Beltre and Carlos Beltran had career years in 2004, posting OPS numbers of 1.017 and .927, respectively. Those years netted Beltre $64 million over five years from the Mariners while Beltran, the prize acquisition last season of the Mets, took $119 million on a seven-year deal. 2005 OPS totals?: Beltre: .713 and Beltran .744. Not exactly what the Mariners and Mets were hoping for. David Bell was given a four year $17 million deal by the Phillies after he hit 20 home runs in 2002, but he's been nothing but a headache for the Phillies since the signing and now they can't give him away.
Guys that continued to build upon their free agent year with their new teams (note that "N/A" refers to future years - i.e. Guererro has been an Angel for just two years):
Year Year 1 Year 2 Year 3
Carlos Delgado 0.907 0.981 N/A N/A
Richie Sexson 0.915 0.910 N/A N/A
Vladimir Guerrero 1.012 0.989 0.959 N/A
Miguel Tejada 0.808 0.894 0.864 N/A
Alex Rodriguez 1.026 1.021 1.015 0.996
Manny Ramirez 1.154 1.014 1.097 1.010
Unlike some of the guys whose performance took the proverbial dive after signing a big-money free agent contract, these superstars of the game proved to be worth the money. I think it's worth noting that none of the players who suffered declines after signing their deals (particularly Beltre, Beltran, Bell, Hundley, Johnson, and Roger Cedeno) have ever been classified as true superstars. Beltran is the closest, but even he had never had a .900+ OPS season prior to 2003. Seems safe to say that the superstars have been, in most cases, worth the big investment.
Pitchers have been an even riskier investment, and perhaps that isn't surprising given their greater injury risk.
Contract Year Year 1 Year 2 Year 3
Stuff 14.3 12.4 5.0 (0.4)
DERA 3.71 4.02 4.43 4.57
VORP 41.6 22.4 21.6 16.4
For those unfamiliar with the metric "Stuff," it is a measure of a pitcher's overall dominance and factors in strikeouts, home runs allowed, runs allowed, walks, and innings per game. A 10 equates to a league average pitcher. For reference, in 2005, Johan Santana had a 44 Stuff rating while a seemingly mediocre pitcher such as Brian Lawrence had a 6.
The good signings: Mike Mussina, Jason Isringhausen, Tom Glavine (barely), Greg Maddux, Andy Pettitte, Bartolo Colon.
The bad: Aaron Sele, Keith Foulke, Kevin Appier, Andy Ashby, Mike Hampton, Denny Neagle, Steve Karsay, Chan Ho Park.
The in-between: Kelvim Escobar.
Jury is still out: Carl Pavano, Pedro Martinez.
While it's not surprising that our pitchers' years following the signings of new contracts show a decline, the speed at which that decline occurred was a surprise. By the second year of their new contracts, the 17 pitchers in our sample had seen their average VORP sliced nearly in half and by the third year they were teetering on replacement level status. Hitters meanwhile had seen their VORP decline by approximately 23% by the second year. Worth noting here is the impact that a specific pitcher had on these results. His name: Chan Ho Park. After winning 33 games between 2000 and 2001 while making the All-Star team in his last season as a Dodger (2001), Park signed a five-year $65 million contract to go from pitching in pitcher-friendly Dodger Stadium to its polar opposite in Arlington. His new environs coupled with the pressure of a $65 million contract, combined to result in an increase of nearly two full runs in the Korean's ERA (3.79 as a Dodger to 5.76 with Texas and San Diego). Could A.J. Burnett be the next Park? History tells us it's a possibility. J.P. Ricciardi is gambling $55 million that Burnett will help Toronto close the gap in the AL East. In Ricciardi's defense, the team's locale basically forces the team to overpay for free agents.
So what conclusions can we draw from all this?
Hitters have historically been a better investment than their counterparts on the mound for teams looking to spend big money in free agency. There's not much risk in signing an under-30 superstar hitter to a long-term deal.
Home-grown is the way to go. Instead of overspending on guys who stand a great chance at underperforming once they sign, develop young, cheap pitching talent.
Contracts longer than three years for pitchers aren't a good idea. We've seen the rapid drop-off in years two and three of a deal, and it likely won't get any better in year four unless, of course, year four is another contract year.
Lengthy and lucrative free agent contracts are not going to go away.
It is likely that teams will continue to view the later years of a long-term deal as essentially "sunk costs." For instance, the Mets know that it's highly improbable that Billy Wagner will be worth eight figures in 2009, but it took adding the extra year to get the benefit of what are likely to be very good 2006 and 2007 seasons. Unfortunately for most teams, it's the type of deal that would bust budgets in and of itself, so the Wagners of the world will be reserved for the big-market teams only.
David Regan is a freelance writer whose previous work has been published at a variety of sources, including Baseball Prospectus, InsiderBaseball, and RotoAmerica.com. He welcomes comments, suggestions, and questions via e-mail here.