Tuesday, December 18, 2012

Inflation, Inflation, Inflation: The Contract Race in MLB

It is no secret that sports have become an international, multi-billion dollar business. The sport of baseball, in particular, has really become a cash cow. 162 games, 40,000+ seat stadiums, $10 beers, $100 jerseys; no wonder they have hundreds of millions of dollars to spend on free agents every year. My question for Major League Baseball teams is: Why are you continually overspending for players that are often old and over the hill? Throughout the post I will examine some of the most outrageous contracts of this and past off-seasons.

This off-season we have seen some prime examples of desperation signing or/and incredible over-spending. The fab of signing star players to ginormous contracts is nothing new, but it hit a new high (or low) in the winter between the 2007 and 2008 season. Vernon Wells at 7 years, $126 million was a lot, but that was just a teaser for what was to happen next: Alex Rodriguez signed a 10 year, $275 million contract. By far the largest contract signed in professional sports history. At the time the New York Yankees signed the third baseman, he was 33 years old and at the peak of his career. In the 2007 season, Rodriguez had one of the most impressive offensive seasons in MLB history. In 158 games, A-Rod hit .314, with 54 home runs and 156 RBIs, with a slugging percentage of .645. Even with these remarkable stats, many fans and baseball experts questioned the signing of a 33 year old player to a 10 year contract. Now, New York must be regretting this blunder. In the 5 seasons the monster contract was signed, he has averaged just 124 games, 130 hits, 26 home runs, and 90 RBIs per year. Yes, the man put fans in the seats, yes, he had the possibility of continuing the greatness he showed in 2007, and yes, he has struggled with injuries, but now New York fans hate him because of his inconsistency, he has clearly peaked and is on the downside of his career, and he is clearly not going to provide a great return on investment for the Yanks in years to come. The worst part about this for the Yankees, because after all they don't care about money, is that they will never be able to trade him because of his contract.

You would think that teams would see this and learn to not sign older players to huge contracts, but this and last off-season showed that is just not the case. Last year, it was Albert Pujols. At age 32, coming off of his worst statistical year since 2006, the Los Angeles Angels of Anaheim signed Pujols to a 10 year, $240 million contract. This is even more interesting than Rodriguez, because at least the Yankees had the decency to front-load A-Rod's contract. The Angels, on the other hand, thought it better to allow Pujols' contract to exponentially grow for the 10 years that it binds the two sides. Albert made just $12 million in 2012 and will make just $16 million in 2013, but beginning in 2014, he will earn $1 million more per year, starting at $23 million in 2014, eventually growing to $30 million in 2021, when Albert is 41 YEARS OLD. Yes, he will make $30 MILLION at 41 YEARS OLD. The Angels will pay Pujols $114 million of his contract after Pujols turns 37.

Now, this off-season, we are seeing a little bit different of a trend. A lot of players are being signed to shorter contracts, but at very inflated prices. David Schoenfield on ESPN.com said it best, "Five years and $75 million for a player coming off a .298 on-base percentage (B.J. Upton), and everyone is already referring to the deal as a bargain. Four years and $40 million for a 31-year-old center fielder (Angel Pagan), and nobody blinks an eye. Three years and $39 million for a catcher who hit .227 and likely will spend most of his time at first base (Mike Napoli), and the signing sort of makes sense. Three years and $20 million for a 37-year-old second baseman who posted a .684 OPS in 95 games with the Rockies in 2012 (Marco Scutaro), and the contract isn't roundly criticized." He also goes on the mention the ridiculous contract signed by Shane Victorino with the Boston Red Sox of 3 years, $39 million, at age 32. Without considering to two biggest free agent signings, which I will mention later, this off season has been plagued with over spending out of desperation. Teams want quick fixes and no long term commitment, and for that they are willing to pay inflated per-year rates.

Now to the big fish: Josh Hamilton and Zach Greinke. Hamilton signed a 5 year, $125 million contract with the Los Angeles Angels of Anaheim and Greinke signed a 6 year, $147 million contract with the Los Angeles Dodgers. Both teams have become new entries into the big market world of spending that previously only contained the Red Sox, Yankees, and Phillies. It is expected that both the Angels and the Dodgers will surpass the Red Sox in payroll this year, disrupting the top end of the payroll scale and really swapping around the order of spending. The question that still stands is whether this spending will actually lead to winning, and will this inflation in Major League Baseball ever stop?

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