Given how much the front office has cried poverty this off season, I got thinking about some ways by which the Astros could control costs. The best strategy I can think of, besides have a great farm system, is contract extensinos given to players very early in their pro careers. Just the sheer proliferation of this strategy in the last few seasons is already altering the mechanics of the free agent market. Once the current crop of extended talent (Sizemore, Braun, Tulo, Crawford, etc.) reach the free agent market, they'll be old. Early thirties players have no where to go but down, but they'll be taking ludicrous bids for their value. If the Astros don't want to fall behind on another learning curve (previous failure: refusing to pay above slot money for draft picks and thinking that was OK), they need to get busy. So why not buy out arbitration years and the first one or two years of free agency from Hunter Pence and Wandy Rodriguez?
Pence could easily be extended for $Next to Nothing/year for the next five to seven years if we we are to be proactive in the process. So far, Pence has contributed $25.5 million in value to the Astros for pennies on the dollar. Assuming that Pence is only bound to get better at plate discipline, that kind of an extension could wind up providing the Astros tens of millions in surplus value, and also give Pence guranteed money—something a mid-twenties guy with a smoking hot girl friend has to desire. Even if Pence stalls out at where he is, I imagine a five to seven year extension wouldn't cost the Astros more than $15-20 million, and there's no way he wouldn't exceed the total value of that contract.
Wandy, who according to Cot's, only has slightly over three years of service time, is a no brainer for an extension too. There's no risk in a 3-5 year extension if he can provide solid number two/three pitching during the life of it. Maybe the first year or two of the extension he's slightly over compensated compared to what arbitration would garner him, but that first year or two of free agency would be a steal.
The strategy is all about longterm cost-containment—something the Astros have proved themselves to be woefully inadqueate at accomplishing. This kind of cost containment, coupled with brighter future in our farm system, could really open up the possibilities for making selective and wise free agent signings to maybe turn something like the 2013+ Astros into not just a contender, but a cost-effecitve one at that. Although Pence and Wandy seem like the obvious choices for extensions, to me, at present, the Astros need to focus on making this a priority from here on out—just look at the Ray's contracts...they're pretty much all cheap, cheap extensions.
0 recs | 7 comments
extensions for:
byrdak, tim
newhan, david
extend carlos only if he can put on a few lb’s….i mean, he’s looking a little thin
Evan Hochschild - February 19, 2009
in all seriousness
probably extend both
Evan Hochschild - February 19, 2009
I haven't been a fan of a contract extension for Pence at this point in his career.
If I were a GM, as a general policy, I wouldn’t extend contracts until the players are arbitration eligible. I think you are robbing the team of the most economically advantageous period that is associated with producing prospects. All you get is insurance against is the arbitration years, and those are team control years when the team will get a discount from market value anyway. I also think that the first couple of years of a prospect’s career are too risky (in most cases) to make a judgement as to whether the player is worth a long term contract. At the time Tulo was signed, I said that I felt it might be a bad deal for the Rockies. The subsequent sub-par season posted by Tulo makes me feel even more so now. Braun’s ceiling is so high that his contract might be a good one, though. After Pence’s season last year, I think it is too risky right now, unless you sign him to some ridiculously low contract. So I would say “no” on an extension for Pence. As an example of a bad extension for a young player, I’m sure that McLane still remembers the Hidalgo contract.
I think an extension for arb eligible players isn’t a bad idea, particularly if you can buy out one or more free agent years. So, as a GM, I would consider a long term contract for Wandy. However, if I were Wandy, I wouldn’t agree to giving up any free agent years unless I got a really generous contract. So, I have my doubts about that working out.
clack - February 19, 2009
I should note that the Pence decision, in the end, it depends on the numbers.
One of the things fans sometimes don’t put in the evaluation is that future payments have to be discounted to account for time value of money and risk. So it is really a numerical question as to whether the contract payment is lower than net present value of what you would pay out over the arb years. Suppose you expect Pence to be paid over the next 5 years: 500K , 600K, 3 M, 4 M, 6M. If you assign a 10% discount rate, the contract isn’t cost effective for the Astros unless the annual salary under the contract is less than $2.5 million.
clack - February 19, 2009
There's certainly the risk
But look at Longoria’s deal—there’s so much savings in that. Those savings can’t quite be matched if you wait until arbitration. Even if arbitration is below market value, you’re buying out their arb years at a discount as well.
You make an excellent point about NPV and that has to be a consideration. However, I think the NPV only makes a strong case for it working out. If the clubs discount the contract for that consideration, it benefits them. Since FV is generally significantly less in present terms, then it works out for the players.
It shouldn’t be a club’s gut reaction, but I think signing Pence to an extension this summer would be saavy enough move to keep someone around.
Stephen Higdon - February 20, 2009
it's an idea
it’s certainly the latest craze, but as clack pointed out there have been some bad counterexamples. The Robinson Cano deal the Yankees did may turn out OK, or it may not. I wouldn’t make it a blanket policy. I think Pence is a different enough player than Hidalgo to discount that worry and I think he’s likely to be a decent bet.
I’m torn about Wandy. I think his numbers are approaching the point where he’s a #3 starter, maybe even on the border of a #2. We can’t afford to turn up our nose at pitching either. But for whatever reason I’m not convinced.
Not much of an argument, but there it is. Extend Pence if we get a deal like you mentioned. Don’t extend Wandy.
lnewcomer - February 19, 2009
Pence vs. Hidalgo
I think if you look back at the time Hidalgo got his deal, he looked like a better bet than Pence. Hidalgo was coming off his first year as full time starter (558 AB). Hidalgo posted the following line that year:
.314, .391, .636, 1.027. That was at AGE 25.
With Wandy, the risk type question is: what kind of player will Wandy be at age 33 (first FA year)? Maybe his best years will be behind him at that point , who knows. However, the other side of that consideration is that he will be in for a big pay day in free agency if he has two more years similar to last year. Oliver Perez had a worse performance season, but the lefthander got 3 X $10 M in a recession affected free agent year.
clack - February 20, 2009
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