Jay Jaffe responds to Keith Law's opinion about opt-out clauses, saying that he doesn't think they're a bad idea. Let's be clear about this: opt-out clauses increase the cost of a contract to a club. Depending on the player, they could cost a lot.Dave misconstrued some of what I had to say, so I responded via email:
Let's take CC Sabathia, who can reportedly opt out of his new seven-year Yankee deal after three years. Two basic things can happen: Sabathia can go downhill and decide to continue playing under the contract because he's overpaid compared to the "market" (bad for the Yankees) or he can continue to pitch well and the market for free agent pitchers can become even more expensive than it is now. In that case, he'll opt out of the contract and the Yankees will have to replace him at the now-higher free agent rate (bad for Yankees).
Opt-out clauses impact the value of options in the financial market and the impact the value of contracts in baseball. For CC, that impact is positive. For the Yankees, it's definitely negative.
[Y]ou've overstated my case regarding opt-outs; it's not that "he doesn't think they're a bad idea." It's that I don't think this particular one is a bad idea because of the way it could get the Yanks out of the back end of their deal after getting the more palatable portion of CC's services.Back in Dave's court, via email:
Functionally there's really no penalty for the Yanks in him going downhill and not opting out in year 3, because that's what 99% of all long-term MLB contracts are anyway -- guarantees that offer no leeway for such circumstances anyway. That's not to say 7/$161M contracts are a good idea by any stretch, but it's money the Yankees have already decided they need to spend to get the player. It's a sunk cost, and anything they get back from that is a bonus -- even if it costs more to replace him, they can spend it on a younger player with a lower injury risk, or on an area where they have more need circa 2011. They also get the draft picks at a time when he's more likely to be a Type A, with zero incentive to accept arbitration.
It's impossible to project pitchers very far into the future; if I get the next three years of prime CC but there's a chance I get off the hook for his Age 32-35 seasons once I've ridden him for 700 more innings, I'm not sure I complain. And if I'm stuck with him for those years because I misjudged how well he might hold up over the first three, I've got no right to complain.
I didn't mean to overstate your case -- I guess I was confused because you also referred to other opt out clauses in the same paragraph. I thought you were making a judgment about opt out clauses in general.So far as I know, no further details about the fine print on the contract or the opt-out clause have emerged, but the breakdown suggests that the salary remains a flat $23 million a year across the life of the deal, which to me telegraphs Sabathia's intention to opt out because to stay in would mean he doesn't expect his value to increase at all over that period, or even over the shorter increment.
I understand your argument but hey, I disagree. :) The opt out clause lets the Yankees get out of the back end only if it looks like it will be a good deal for them. They will stay in it if it looks like a bad deal for them. That's taking the risk without keeping the reward. It's basic finance, and not a good idea.
Thinking about this particular one, I disagree even more. The Yankees like to sign stars, and they pay more per talent than any other team in baseball. So if CC walks, that means that other teams are willing to pay even more than the Yankees are on the hook for -- which means the Yankees are losing out even more, based on their terms.
The compensation choices are a good point, but they don't offset the general argument to me (though I might be undervaluing them). Particularly for a team like the Yankees, which focuses on the "present value" of success. Sometimes the agents negotiate arbitration offers out of the contract in those situations -- do we know those details yet?
While this technically is a seven-year, $161-million deal, it's spiritually three years for $69 million. Is there any doubt Sabathia will use that opt-out after 2011? In signing this deal, he has sent a telegram to the Giants: "You have three years to get your house in order for my arrival! See you then!"Back to what Dave wrote, I don't think the Yanks "are losing out even more, based on their terms" because they're always going to find something they value more than what they have just as surely as God made little green apples, and having the inconvenience of a current payroll obligation disappear works to their advantage. I also think that if Sabathia stays in the deal despite being unproductive and/or unhappy in New York, the final four years of his contract might wind up being a miserable experience that could destroy his market value once the full term of the contract runs, so I see him as that much more likely to exercise the opt-out barring a year-three arm injury.
One more time: I agree with everything Keith [Law] said. In *this* case, however, I see Sabathia as such a long-term risk that I don't want his 32-35 years, even if he pitches well enough to make the opt-out a good idea. I would happily take the three good seasons and let him walk, even if the last four years of the contract looked reasonable come November 2011.At the end of the day, none of this settles the argument, but it makes for an interesting debate. Time will tell, of course, whether the gambit pays off. The bet here is that it will, even if Sabathia leaves after three years.
Labels: Yankees
June 2001 July 2001 August 2001 September 2001 October 2001 November 2001 December 2001 January 2002 February 2002 March 2002 April 2002 May 2002 June 2002 July 2002 August 2002 September 2002 October 2002 November 2002 December 2002 January 2003 February 2003 March 2003 April 2003 May 2003 June 2003 July 2003 August 2003 September 2003 October 2003 November 2003 December 2003 January 2004 February 2004 March 2004 April 2004 May 2004 June 2004 July 2004 August 2004 September 2004 October 2004 November 2004 December 2004 January 2005 February 2005 March 2005 April 2005 May 2005 June 2005 July 2005 August 2005 September 2005 October 2005 November 2005 December 2005 January 2006 February 2006 March 2006 April 2006 May 2006 June 2006 July 2006 August 2006 September 2006 October 2006 November 2006 December 2006 January 2007 February 2007 March 2007 April 2007 May 2007 June 2007 July 2007 August 2007 September 2007 October 2007 November 2007 December 2007 January 2008 February 2008 March 2008 April 2008 May 2008 June 2008 July 2008 August 2008 September 2008 October 2008 November 2008 December 2008 January 2009 February 2009 March 2009 April 2009 May 2009 June 2009 July 2009 August 2009 September 2009 October 2009 November 2009 December 2009 January 2010 February 2010 March 2010 April 2010 May 2010
Subscribe to Posts [Atom]