skyking162

Even after I dissected Longoria’s base contract and three option years, there’s still some confusion in the blogosphere about why Evan Longoria’s new contract is a great deal for the Rays. Here are some answers to common questions and arguments:

Why couldn’t the Rays have waited a year or two to make sure Longoria is actually any good?

They could have, but the price would have gone way up. Considering the contract is pretty cheap for what Longoria might become, the only reason he signed it is to assure himself financial security for the rest of his life. The closer he gets to arbitration and free agency and the more it becomes apparent he is a star (instead of going-to-be a star), the more money he can demand.

If Longoria doesn’t pan out, the Rays could have saved themselves some money by waiting. But they would have cost themselves even more money if Longoria does become a stud.

Longoria’s only played six games in the majors — how do we know if he’ll be any good in five years?

How do we know Albert Pujols will be any good in five years? Longoria has a top notch college track record, is a good fielder, is young, and tore up the minors (.301/.386/.534 in 881 PAs). By looking at minor league numbers in the right way, you can predict future performance almost as well as by looking at major league numbers. Yes, prospects flame out. But so do major league veterans.

Is cost assurance really that important? What do the Rays gain by knowing how much they’ll be paying Longoria for the next six years?

I don’t like the term cost assurance, because the benefit isn’t knowing how much they’ll be paying Longoria, it’s knowing that they’ll probably be paying him less than he’s worth. If Longoria becomes an All-Star, his arbitration salary would be more like $10-12MM per season and his first three free agent seasons might cost $20MM each. The Rays will only be paying an average of $8MM for those six years. That’s a net gain on the order of $50MM. That’s $50MM the team can spend on free agents or use to sign more of their young talent to beneficial contracts.

Since they have such a small payroll to start with, how can the Rays afford to risk $19MM? If they lose this bet, won’t it kill them for years?

No, for the simple reason that they’re insuring Longoria’s contract with other similar contracts with James Shields, Carlos Pena, and probably more in the next couple years. The odds of one player tanking is significant. But the gains from the other contracts will offset that “mistake”.

In addition, $19MM isn’t actually that much money. It’s not like the Rays are giving Longoria $19MM per season. Spread over six years, the Rays’ are only out $3MM per season.

Why would Longoria sign the deal if it’s so great for the Rays? Isn’t this a zero sum game?

An individual is more risk-averse than an organization because he’s only betting on himself while an organization is betting on a whole bunch of players. The Rays have also signed Carlos Pena and James Shields to long-term deals and will continue to lock up their young, talented players. The more players they sign, the less one flam-eout will hurt because the others are saving you money. To Evan Longoria, the first $19MM he makes in his career is much more valuable than the next $50MM. As of yesterday, he’s financially secure for the rest of his life. Future earnings are just icing on the cake.

This salary system seems so unfair to young players.

I agree, but that’s the system MLB has in place and it’s the system that the players’ association agreed to. My guess is that as more and more of these deals are signed with young players, it will become more of an issue. (Remember Jon Papelbon’s mini-tirade during spring training?) Paying young players adequately will probably be the next hot-button labor issue.

Popularity: 17% [?]

In my first post about Evan Longoria’s long-term contract, I completely ignored the three option years (2014 through 2016). The six-year base contract was already a no-brainer for the Rays and team-options can never be a bad thing. But after figuring out exactly what those options included, this is an even a bigger steal for Tampa Bay than I first thought. If Longoria could have signed the six-year contract without the option years, he should have.

Part of the base salary of $17.5MM that everyone’s quoting is a $3-4MM* buyout of the first option year. So the additional cost of the listed $7.5MM 2014 option is really only $3.5-4.5MM. That’s peanuts, especially considering the Rays only have to pay it if they want to. Actually, the cost of the option is $1MM more than that because it triggers a buyout on the 2015-2016 combined option.

And how about that second option? It’s for $11MM in 2015 and $11.5MM in 2016 for a total of $20.5MM (removing the $1MM buyout charged to 2014). That much money would buy a slightly above-average player on the free agent market — Longoria could be much better than that. There’s also an MVP-clause (I can’t find the details) that could bump the 2016 salary up by $2.5MM. Hmm, $2.5MM more if Longoria’s one of the best players in the league? I think the Rays would be ok with that.

So let’s break down the contract year by year given worst-case and best-case scenarios. If Longoria’s a complete bust but sits around in the Tampa system and earns the arbitration bonuses, the Rays will owe him:

Year  Salary
2008  $500,000
2009  $550,000
2010  $950,000**
2011  $2.5MM
2012  $4.5MM
2013  $10MM ($6MM plus 2014 buyout)
2014  nada
2015  nada
2016  nada
TOT   $19MM

If Longoria turns into a star, never goes back to the minors, and earns his MVP bonus, he’ll be paid:

Year  Salary
2008  $500,000
2009  $550,000
2010  $950,000
2011  $2MM
2012  $4.5MM
2013  $6MM
2014  $7.5MM
2015  $11MM
2016  $14MM
TOT   $47MM

Yowzers. Worst case, the Rays are out $19MM. Yeah, that’s a lot of money, but it’s not like we’re talking Barry Zito at $19MM per season here. Best case, the Rays have a superstar signed for three years of arbitration and three years of free agency for an average of $7.5MM per season. Just counting his free agent years, he’d average about $11MM per season. For an MVP candidate. That will cost you $20-25MM in today’s market. And again, the Rays only have to pick up those option years if Longoria lives up to the hype. If not, no worries.

Update: Here are some answers to common questions about Longoria’s contract.

Footnotes
* $4MM if Longoria was eligible for arbitration in 2011, which would only happen if he’s sent down to the minors for an extended period of time.
** It’s interesting to note that the Rays have already guaranteed Longoria more money in his third season than Pujols made, which is the record.

Popularity: 17% [?]

The Rays just signed Evan Longoria to a contract extension after his sixth game in the majors. Sounds a little crazy, right? It’s certainly never happened before. But I love it. Nothing’s for certain, obviously, but the Rays are set to save a lot of money over the next six years more likely than not.

The base deal is for $17MM over six years. Had Longoria gone year to year with Tampa Bay, his contract would have been dictated to him for the first three. Then he would have battled for three years in arbitration. Thanks to Tom Tango, we know approximately what arbitration payouts are: 40% of free agent value the first year, 60% the second, and 80% the third.

Therefore, Longoria would likely have been paid the league minimum the first three seasons, with perhaps a small bonus to build good will. That’s $500,000 per season or $1.5MM total, leaving $16MM over the final three years of arbitration.

Let’s translate what $16MM worth of arbitration money means on the free agent scale. The average arbitration payout is 60% of what a player would earn as a free agent, so the Rays are paying Longoria like a $27MM player ($16MM/.6) — that’s $9MM per year. Teams are currently paying $4.5MM per free agent win, meaning Longoria’s being paid as though he’ll be a two-win player during his arbitration years.

How good is two wins? It’s league-average. Longoria’s fielding should be worth half a win, meaning he can be a below-average hitter (.320 OBP and .400 SLG?) and still be worth his contract.

Sure, there’s always a chance that he crashes and burns, but is there anyone out there who doesn’t think Longoria will put those numbers to shame? The Rays’ new management is among the best in the game, and this is just one more big example why. (I haven’t even mentioned the three option years that the team will hold. Those can only be a positive.)

That being said, why would Longoria sign this deal if he could probably earn more money going year to year? Financial security. The first $17.5MM he earns in his life will be more important to him and his family than the next $50MM. Putting that money at risk (to injuries, to a crazy manager) just isn’t worth it.

Update: Here’s a look at the three option years of Longoria’s contract, which make it an even bigger steal for the Rays. And here are some answers to common questions about the whole situation.

Popularity: 20% [?]