November 30th, 2010
by hofrewrite

Do you know what you’re gonna be doing in ten years (and spare me the 2012 jokes)? I for one am 22. I don’t know what I’m going to be doing in, like, two months. Ten years from now, I will be 32 (yeah, this is a mathy site sometimes). I don’t even have a concept of what ’32′ is.

And yet, Troy Tulowitzki knows that in ten years, he will be playing for the Colorado Rockies and making a lot of money to do so. Kinda nice to have that kind of security, no?

Today, Tulo put his name to a seven-year, $134MM contract extension that will kick in in the 2014 season and run throughout the 2020 campaign. This extension is to his current deal that will still govern his 2011-2014 salaries; he had a club option in 2014 for $16MM that becomes guaranteed with the new deal. From 2015-2019, he’ll pull down $20MM per year, with a drop to $14MM in 2020 and a club option for $15MM in 2021 that, in all likelihood, will be bought out for $4MM.

So! Is this a good deal? Well, it depends mostly on two things. (1) How highly do you think of Tulowitzki? (2) To what degree do you think that teams who ink players to long-term deals like this deserve a discount? And, as an addendum to (2), what do you think will become of the inflation rate as we move toward 2020?

Let’s start with the first one. I don’t think anyone would make a serious case that’s he’s not one of the ten best position players in baseball; he did, after all, finish 10th in WAR last season despite playing in just 122 games. I also don’t think it’s out of the question to place him among the top 5 in the game, as his combination of elite defense at shortstop plus one of the best bats in the league is a potent one. And whom would you place above him? Albert Pujols, certainly. Maybe Joey Votto, if you buy into his 2010 being his true talent level. Evan Longoria? Ryan Zimmerman? Tulo outhit both of them this season, and could very well have surpassed their fielding numbers had he played the whole season. Hanley Ramirez doesn’t have Tulo’s bat. Joe Mauer is probably up there, too. Beyond that, who’s even in the conversation?

In any event, suffice it to say that Tulowitzki is an elite player. He’s a careeer .290/.362/.495 hitter, which is stellar for a shortstop…but belies just how good he’s been in the past two seasons, where he’s hit a combined .306/.379/.560. Part of the reason for the uptick in hitting is – and I’m just guessing here, but bear with me – is that he just finished his age-25 season. Which surprised me, and makes what he’s been doing in the league all the more impressive. He’s a player with an outstanding glove and phenomenal talents at the plate…and he’s about to hit his prime. Really, the only thing that looks like it could slow him down is injury.

Critics of the extension will jump at the chance to point out that he played just 122 games last year, and 101 in 2008. They will likely ignore two important arguments, though: one is that he played 155 games in 2007 and 151 in 2009, and the other is that, of his three major injuries, only one was of the non-freak variety – a torn left quad suffered in ’08. Later in ’08, he missed time after shards of a bat that he broke cut open his palm; in 2010 he hit the DL for 32 games after having his wrist broken by a pitch.

Obviously, I’m a big fan of Tulo’s, and believe that his performance has merited the kind of money the Rockies will be paying him. But let’s take a closer look at the financial side of things. The Rockies’ payroll in 2010 was $85MM, but it’s shortsighted to say that Tulo’s deal is going to cost the Rockies nearly a quarter of their payroll. For one, the team has increased payroll in each of the past four seasons, and will go past $85MM with the recently-announced re-signing of LHP Jorge de la Rosa (at 2/$21.5MM with a player option for a third year). So obviously, the team is willing to commit money to the on-field product. But even throwing out the issue of ownership, simple inflation will make the deal seem more palatable.

I’m just going to quote Dave Cameron on the numbers here, because I’m not all that sharp on my inflation rate calculations (Finance class was, like, two whole semesters ago).

…if we see 10 percent salary inflation over each of the next four winters, $20 million per year now would be equivalent to $29 million per year in 2015. Over a six year contract, this deal would be a $45 million savings over what they would have to pay Tulowitzki in that market, given that he had aged normally and was still perceived in exactly the same way.

10 percent yearly salary inflation is pretty aggressive, though – that is the kind of annual raise we saw during the dot com and housing bubbles, where spending exceeded rationality. If we lower than rate to 5 percent, then $20 million now is equivalent to $24 million in four years, and the Rockies would only be saving $24 million over a six year deal handed out when Tulowitzki became a free agent.

Given how low the economy’s inflation rate has been of late (average of 1.7% in 2010, and even worse in 2009, where we actually had months of deflation), and what’s looking like the unlikelihood of its rebounding anytime soon, I’d agree that expecting 10% salary inflation is a bit foolish. So let’s run with that 5% figure, and assume that the Rockies save an average of $4MM per year versus the fictional free agent contract. That $4MM is essentially the hometown discount, the tradeoff for teams being willing to take on the risk of paying a player over a long-term contract. Evan Longoria’s contract is the most extreme example of this; shortly after making his debut in 2008, he and the Rays agreed to a 6-year, $17.5MM deal that saw him earn less than a million dollars last season and will put just $2MM in his pocket this season. Longoria would probably pull down over $20MM per year as a free agent, so it should come as no surprise that his is the most team-friendly contract in the game. The Rays took on the risk of paying a rookie guaranteed money for the next six seasons, so Longoria had to leave some – ok, a lot of – dollars on the table.

Now, the Rockies aren’t taking on the same risk as the Rays – indeed, they’re taking on a lot more, since this extension doesn’t even begin until 2014 (or ’15, depending on how you look at it). So one would expect them to receive a bit more of a financial break than what they’re actually getting – particularly considering the disastrous Mike Hampton contract and the Todd Helton contract that would be a disaster had they not reworked it. But even then, it’s not a question of whether the Rockies are overpaying Tulo, but whether they’re underpaying him by enough. Looking at it from that perspective helps take the sting out of the deal, and so does this: in the next three seasons – i.e. his age-26 through 28 years – he’ll make $5MM, $8.25MM and $10MM.

The Rockies have been underpaying their star shortstop, and will continue to do so over the next three seasons. Tulowitzki’s earned the privilege to be paid close to market value by the team for what should be some of the most productive years of his career, and now Rockies fans have the privilege of watching the guy don those ugly, ugly pinstripes for the rest of the decade.

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