Extension madness! I’ve written on this subject before: MLB is in the midst of an extension bubble. Every young player, whether they’re deserving or not, is receiving an extension of some sort. Is this good for teams? It was, until it got out of hand. MLB general managers now want to make sure no one reaches free agency. Twenty-two-year-old phenom? Lock him up for the next six years! Twenty-five-year-old fringe second baseman?… lock him up for the next six years?
General managers are behaving like it’s their first time at Walmart: yes, you can get seven screwdrivers for $9.99, but why would you want seven screwdrivers? The same concept applies to handing out extensions to average/below-average players. Matt Dominguez, third baseman for the Astros, recently accepted a 5-year/$17 million contract. Of course he accepted the $17 million. Here’s a secret: he’s not very good. There’s one thing to be said about cost certainty. Sunken cost certainty, however, is another issue.
I’m a fan of Houston GM Jeff Luhnow. He’s executed many inspired transactions: the drafting of Carlos Correa, the acquisition of Dexter Fowler, the trade of Bud Norris. But a Dominguez extension? It makes no sense. Is he any good? Nope. Is he nearing free agency? Nope. Is he a great clubhouse “personality”? Who cares?
I don’t mean to pick on Dominguez, just using him to make a point. Chris Johnson, Robbie Grossman, Jose Tabata, or Jedd Gyorko are also apt examples. Yes, you can lock these guys up for a long period of time, but why would you want to? Maybe Luhnow sees a future star in Dominguez, and this deal will look like a bargain in two years. Not likely. You know what I see? A below-average third baseman sticking on the roster because of his contract.
We’ve addressed the bargain, now let’s talk about the premium items. The long-term, big money investments. The houses, if you will. Thanks to the unfathomable amount of TV money flowing into the sport, small- and mid-market teams have more money than ever. They can finally afford to lock up their superstars to market level contracts: Joey Votto, Homer Bailey, Freddie Freeman, Troy Tulowitzki, Felix Hernandez, and Buster Posey are just a few of the beneficiaries of this new money.
Sure, these houses look great now. They’re young: they hit home runs, they take walks, they steal bases, they get strikeouts, they pitch complete games. And some of these houses will age beautifully, and will be great returns on their (substantial) investment.
Some, inevitably, will start to show cracks, will get creaky, will need continual repairs. Some will fall apart completely. Can a team like the Reds really afford a $225 million albatross? Can any team afford a $225 million albatross? It’s great if a player, especially a superstar, spends his entire career with one team. He almost always becomes a fan favorite, a guy to rally around. But there’s also an unappreciated benefit to letting a superstar reach free agency at age 28-30. Sure, you may miss a couple landmark seasons, but you’re also going to avoid a glut of expensive decline years.
The Red Sox are approaching contract negotiations with Jon Lester exceptionally well. Lester is in the beginning of what I predict will be the best season of his career. He’s leading the majors in fWAR and pitching like he’s on a mission (a mission to maximize his profits). What did Boston offer him? Four years/$70 million. That’s $35 million less than Homer Bailey. That contract would have been insulting in 2006. Needless to say, it’s growing more unlikely by the day that Lester will be wearing a Sox uniform in 2015. Can this approach really be smart? After all, they’re essentially letting their ace walk to another team without putting up a fight. My guess is that Boston GM Ben Cherington is looking at the Albert Pujols negotiations as inspiration for his talks with Lester. The Cardinals let their superstar go at the height of his powers. It worked out fantastically.
I recently predicted that the extension bubble would burst when the majority of players realize how much money can be made via free agency. I stand by this assertion, but I’d like to amend it slightly. I now think that MLB teams will be just as wary of long-term extensions as players.
Logic suggests that many of these extensions will go sour. Consider the Padres: I’ve never seen a team with such bad luck (or maybe it’s poor evaluative skills) in extending young players. Nick Hundley, Carlos Quentin, Cameron Maybin, and now Jedd Gyorko? This team doesn’t have any money to waste, yet they’re doing it constantly.
Enough relatively large money contracts will turn into albatrosses that teams will stop being so capricious about rewarding inexperienced players. It’s a juggling act: on the one hand, signing them when they only have one or two years of service time can spell out a potential bargain; on the other hand, it’s riskier. When teams start to hold off on these extensions, however, players will be more incentivized to wait out until the ultimate payday of free agency.
Which is the more productive team, the stable one, or the fluid one? Does it really make sense to build a club as successful as the 2013 Red Sox and then just let its key players drift away? Are the Braves taking unnecessary risk by locking down their core (and then some) to expensive, long-term deals? Both philosophies can work, if executed properly, but we’ll find out in due time.