Monday, July 27, 2009

Contract Extensions - Last Minute Thoughts

I'd hoped to post a discussion of good and bad contracts that might have been signed last season to give some guidance but I both ran out of time and took a look at the list of salary increases/decreases and just froze on coming up with a ton of examples.

But - these players were the best to sign for a 2009 contract in 2008.

Tim Lincecum: 2008 Salary (and 2009 contract price): 1315; 2009: 6491; Savings: 5176
Cliff Lee: 2008: 1568; 2009: 5670; Savings: 4102
Josh Hamilton: 2008: 691; 2009: 4696; Savings: 4005
Rich Harden: 2008: 493; 2009: 4293; Savings: 3800

Now - it's doubtful that up until now Harden is living up to that high salary in the 2009 season, but it's a lot more tolerable if you bought his contract in 2008 for just 493.

Lincecum, by the way, is a great example of the possibilities of a 2-year contract.
2007 Salary: 100
2008 Salary: 1315
2009 Salary: 6491

In 2007, you would have paid 1500 for a contract covering 2008-09 (using the yearly minimums of 250 in year 1 and 1250 in year 2). If you had simply kept him on your roster without the extensions, you would have paid a total salary of 7806 for those 2 seasons. Using the 2-year contract, you just freed up 6306 over 2 seasons to spend on other players.

Beware, though...because there are always guys like Francisco Liriano. I spent 1500 in his rookie season for 2 years BEFORE he got injured (injury occurred at end of July 2006). 2006 Salary - 148 2007 Salary - 1883 2008 Salary - 694.

OK, so I paid 250 for the 2007 season and it looks like I saved a lot of money. But he sat out the whole season recovering from Tommy John surgery. And the 1250 I spent on the second year of the contract went toward the actual salary of 694.

Couple other points: Again - don't sign Stephen Strasburg or Dustin Ackley yet - or anyone else until they hit their first season of major playing time. And I'd also suggest that don't simply look for cost savings in a salary that will increase. Make sure that you think you really want that player on your roster next year, because you've got to keep him in the carry over period.

Good luck

Wednesday, July 8, 2009

Trades - Why are you giving the other team cash?

There's one thing that has always puzzled me when reviewing/approving trades over the last few years. Well, maybe more than one thing - but in this case I'm talking about teams giving up cash when it appears that they are giving up the established star in return for future help.

First, let me say, that I just don't tend to be a trader very often. Partly this is due to spending more time trying to run BWB than playing it and it seems like I have limited time to suggest trades or analyze requests sent to me. But, if I'm in a trade where I'm giving up a player who has a much higher salary than the player(s) I'm getting in return, I'm most often seeing part of that benefit being the salary rebate I'm getting for my original player - particularly if I'm getting prospects or backups in return. I'm less inclined to want to send back some cash to that other team.

Cash may be an essential part of the negotiation - and "buying" a player certainly is an option. But I'm referring more to a team that seems to be giving up the more established - key contributer type players - and then sends cash along with it.

An example. Let's say that I'm running the team "Minneapolis" and I'm in 4th place - 20 games out - and looking now to build for 2010 and beyond. Brad runs the team "Portland" and is just 1 game out in his division and fighting hard to win the title, but he has a big hole at 1B.

Current Cash Balances:
Minneapolis - 4500
Portland - 3000

My strategy for building for the future is to get prospects on my roster and cash ready to spend in the off season or to spend multiyear contracts by the end of July.

Brad sees Adrian Gonzalez on my roster (salary 5310) and covets his power for his cleanup slot and offers me Gordon Beckham, Travis Snider, and Dustin Ackley - 3 first-rounders from the past few years - each with salary of 100. Beckham's playing now. Snider could be back up later and maybe starting again in 2010. Ackley's a potential future stud.

Assume we're doing this in Week 14 and the cost/rebate is 44% which becomes 2336 for Gonzalez and 44 for the three prospects.

(I'm not saying this is a perfect trade...I'm just trying to find an example - maybe I'd actually want to be getting someone a little more established so I'd be getting more immediate help in 2010...but let's just go with it.)

So, we do the deal. No cash involved - and when it's all done, the cash balances are now:
Minneapolis - 6704
Portland - 796

This is good for me. I've taken a risk on future guys - given up an established power hitter - and I have extra cash for rebuilding to boot. But what I often end up seeing in these deals is a cash aspect too that Brad has attached to the trade details - let's say in this case 1500 from Minneapolis to Portland.

In this case, the cash balances after the trade are:
Minneapolis - 5204
Portland - 2296

In fact - often the cash transfer is worked out so that both teams have the same cash balance after the trade as they did before starting.

Why is that in my benefit? If I've got David Price on my pitching staff and I want to sign him to a contract for 2010 and 2011, 1500 is what that will cost. Or that 1500 will come in handy in December when I'm picking up players in the Redistribution Draft.

I also look at this as a continual competition. By sending Gonzalez to Portland this season, I may be giving him the missing link to a league title this season. By sending him 1500 in cash, I'm potentially setting him up to better defend that title and might be in direct competition with Brad for the same free agents over the winter.

I'm giving up Gonzalez and maybe won't see the full benefit of the three players for 2-3 years - if at all. I'm not necessarily concerned that Portland still has as much cash after the deal as he does before - that's his part of the risk.

There are many other side situations that come into play - and I am not looking at the back and forth that's going into trades before they are consummated, so I don't know where the negotiations are progressing. But I personally think many teams in the situation of Minneapolis are giving back too much. Maybe the Portlands of the world are just better negotiators, but I think that's because the precedent is set up around the leagues to do it.

It's a bit different when a multiyear contract is in play - there may be some cash to reimburse a team who has spent cash on the contract (though I usually see that contract as a bargaining chip). What if Portland's original cash was 2000, not 3000? Then he wouldn't have enough cash to cover this deal. OK, maybe now as Minneapolis I help him out with some cash back to help him pay for Gonzalez for the rest of 2009. OR - maybe it's just up to Portland to cut some dead weight on his roster or make a tough roster choice and cut/trade another productive player to get some cash back - that's usually the way I look at it.

And - I've been in the situation here of being the Minneapolis side of the deal and ME offering the deal and the cash - almost to make the deal too hard to turn down. Like I said, there are many situations in play...but put me on the side generally of wanting to reap the full benefits of the salary rebate if I'm giving up the more established players or I'm the team in rebuilding mode.

Tuesday, July 7, 2009

Multiyear Contracts - A rundown of help options.

I hope in the next few days to put up some examples of good/bad contract signings and some general thoughts. But as a quick service, there are some scattered pages on the site and on this blog that discuss multiyear contracts, particularly updated this year to try to correct some misconceptions.

It never fails, despite the comments and warnings, I will still have someone try to sign 20+ players on his roster to multiyear contracts, or try to extend Albert Pujols for 5 years. But hopefully, if you're not sure what's really going on with contracts and you take a look at some of these pages, you can get a feel for what to do and what not to do.

There are also some basic notes on the contract extension form as found on the web site.

If you're still not completely sure how everything works, after you submit your extensions:

  • Go back to the contract extension form and look in the last column (Contract Total). That will display how much cash you're going to have to spend on that player's contract if you keep it as is.
  • On your team's Transaction Index, below your Adds/Drops for the week, if you've submitted extensions, it will indicate the total cash needed for those extensions.
  • If after looking at these two pages, you realize that you don't have enough cash to cover the contracts (you pay the total IMMEDIATELY) or your badly calculated what it would cost you, you can go back to the form and modify or delete the contract.