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Youth is King. Let’s Wrap Up Them Up Through Arbitration PDF Print E-mail
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Written by Maury Brown   
Monday, 04 May 2009 02:29

Biz of Baseball - ExclusiveOnce again, youth is king in Major League Baseball. For an “era”, 40 seemed to be the new 30. Veteran free agents were the desired staple of any club’s roster, regardless if they seemed to be performing past their prime.

Whether that “era” was of the steroid or league-wide free spending variety is debatable. What isn’t debatable is that developing your roster from within, as opposed to stocking it with high-priced free agents as your foundation, is the continuing vogue.

On top of the changing outlook on player development has been the increasing focus on salary arbitration.

Before the start of the 2008 season, agent Chase Carey and 1B Ryan Howard, looked to move the bar even higher for players in salary arbitration after Marlins third baseman Miguel Cabrera won his case in February of 2007 where he was then awarded $7.4 million.

Carey and Howard had hefty stats with which to build their brief off of. In 2006, Howard had 58 HRs, 149 RBIs and a .313 average, one of the best seasons ever for a player in his second year of major league service. That garnered Howard the NL MVP award in 2006, two years before salary arbitration eligibility. When he hit his first year of salary arbitration eligibility, he followed up with a respectable fifth in the NL MVP voting. Now, with Howard having just over two years of major league service time (2.145), he came looking for a big payday.

When Howard filed his salary arbitration figure, when compared to the Phillies’ figure, there was a vast chasm between the two.

In early March of 2007, Howard, was given a $900,000 – the highest salary every offered a non-salary arbitration eligible player. Now, Howard was asking $10 million as a Super Two salary arbitration eligible player compared to the Phillies’ $7 million offering figure. Howard’s $10 million figure, if awarded, would match the highest ever doled out through arbitration when Alfonso Soriano lost his arbitration case with the Nationals, and was awarded the club’s lofty offering figure.

The Phillies, who had never lost a salary arbitration case, and had veteran salary arbitration expert Tal Smith presenting the brief, looked to be in a good position to win the hearing. On Feb. 21 a panel of Stephen Goldberg, Robert Bailey, and Jack Clarke ruled in favor of Howard. Depending on who you ask, there is a belief that if the panel of Margaret Brogan, Stephen Goldberg, and Fredric Horowitz who ruled on Mark Loretta’s case a couple of days earlier had been on the Howard case, the results may have gone in favor of the Phillies. As they say, the rest is history.

That history has, in large part, accelerated many clubs to wrap up their young player talent through salary arbitration eligibility, hoping that the player remains a productive member of the roster, and more importantly, doesn’t wind up spending a large percentage of the contract on the DL.

This isn’t to say that this practice wasn’t happening before Howard’s landmark ruling. Many low-to-mid revenue making clubs have seen the Moneyball aspect of banking on young talent.

Depending on your point of view, the recent signing of third baseman Ryan Zimmerman of the Nationals might well be viewed as an extension of Troy Tulowitzki, or Nick Markakis, or for that matter, even Evan Longoria. They are all players that have reached long-term contracts that wrap them up through their salary arbitration eligibility years. In some of these instances, the player has barely been on a major league roster (in Longoria’s case, he appeared in just six games) before clubs take on the risk of signing young talent.

The reasons for the behavior come in a few flavors, but knowing that the amount of player payroll tied up through the salary arbitration process is causing many clubs to take on the risk of the player possibly becoming a bust or being injured in favor of saving millions on the youngest players to engage in what I call “Marvin Miller’s greatest gift to the players”: salary arbitration.

Below are some key contract details that show how the practice of wrapping up young player talent is being put into practice.

Select Read More to see some examples of young player talent being wrapped up by long-term contracts

Robinson Cano (contract reached January, 2008):

While the wrapping up of young talent has been done primarily by those low-to-mid revenue making clubs, the club with money to burn has actually engaged in the process. Second baseman Robinson Cano did so in January of 2008. Robinson had been seeking $4.55 million, while the Yankees were offering $3.2 million, thus seeing a mid-point figure of $3.875 million between the two figures.

The contract avoiding salary arbitration, covers all of Cano’s salary arb years, and if the player option is engaged, will cover his first year of free agency. The details are as follows: In 2008, Cano made $3 million, he will make $6 million in 2009, $9 million in 2010 and $10 million in 2011. In 2012, Cano has that player option for $14 million with a $2 million buyout. If the option is picked up, Cano will have another option in 2013 for $15 million with a $2 million buyout.

Troy Tulowitzki (contract reached January, 2008)

While Ryan Braun won the NL ROY award, Rockies shortstop Troy Tulowitzki was all of two votes short of taking the award that year after posting a .291 BA with 24 home runs and 99 RBIs in the year the Rockies went to the World Series. Following the World Series appearance, the Rockies pushed the “wrap up young talent” envelop by inking Tulowitzki to the largest contract ever – a six-year, $30 million deal – for a player with less than two years of ML service time, passing Grady Sizemore’s six-year, $23.45 million contract in 2006.

Tulowitzki saw $750,000 in 2008, and will do so again in 2009, $3.5 million in 2010, $5.5 million in 2011, $8.5 million in 2012 and $10 million in 2013. The Rockies have a $15 million option for 2014 with a $2 million buyout.

Showing that long-term deals of this nature of fraught with risk, Tulowitzki spent a fair part of 2008 on the DL with 46 games due to torn thigh tendon as well as an embarrassing 15 days on the DL after slicing his right palm, a result of pounding his maple bat into the ground in frustration, where it shattered.

Evan Longoria (contract reached April, 2008)

The Tampa Bay Rays wasted no time wrapping up slugger Evan Longoria. Barely wet behind the ears, Longoria played in just six major league games before agreeing to a $17.5 million, six-year contract. The deal could be worth up to $44.5 million over nine seasons.

Longoria earned $500,000 in 2008, when the club made its phenomenal run to the World Series. He will earn $550,000 this season, $950,000 in 2010 and $2 million in 2011, a salary that would increase to $2.5 million if he is eligible for salary arbitration that year. He receives $4.5 million in 2012 and $6 million in 2013.

The deal is complex with the Rays having a $7.5 million option for 2014 with a $3 million buyout, with the buyout price increasing to $4 million if Longoria was eligible for arbitration in 2011.

By November 2014, the Rays must decide whether to exercise an option calling for salaries of $11 million in 2015 and $11.5 million in 2016. His 2016 salary can rise to $14 million, depending on his finish in MVP voting.

If Longoria's 2014 option is exercised, the 2015-16 option would carry a $1 million buyout.

Is he worth all that? An AL ROY says yes. If you measure how well he’s done against the Red Sox, the answer is an emphatic yes, and then some. In Thursday night’s series opener against Boston, Longoria had a bases-clearing double in the fourth inning, on Friday he had a grand slam off Justin Masterson. As of Saturday, in the five games against the Sox this season, Longoria was hitting a torrid .455 (10-for-22) with four homers and 13 RBI.

The Rays may have had the easiest decision to make in wrapping up their young slugging talent. Short of a major injury or the wheels falling off, Longoria is going to be a star for a good time to come. By wrapping up Longoria, the Rays keep valuable salary to work with over the years. If they exercise all of their options, the Longoria will be in a Rays uniform far longer than he would be if he went through the natural salary arbitration process to free agency. If he keeps going at this rate, Longoria will fetch a king’s ransom in free agency, something hard, if not impossible, for the Rays to compete with given their limited revenues.

Nick Markakis (reached in January of 2009)

Andy MacPhail and the Orioles wanted a young player with which to build a nucleus around, and in January, they did so, inking outfielder Nick Markakis to a 6-year, $62 million contact.

Markakis was looking for $5 million for 2009 via salary arbitration while the Orioles’ offer figure was $2.9 million, or a difference of $2.1 million. That translated into Markakis receiving $950,000 below the mid-point of $3.95 million.

The deal was reached one day after players exchanged figures and shows you how much faith the Orioles have in the young player. In terms of guaranteed salary, it is the largest Orioles contract behind only Miguel Tejada’s $72 million deal in 2003.

The contract details break down as follows:

Markakis will earn $3 million this year, $6.75 million in 2010, $10.25 million in 2011, $12 million in 2012, $15 million in 2013, and $15 million in 2014. There is a club option in 2015 for $17.5 million. There is a $2 million buyout clause but Markakis can void the option with no buyout and become a free agent. He also will receive a $2.1 million signing bonus. Markakis can raise his base salary each year by $500,000 if he makes the All-Star team, or finishes in the top 10 in MVP voting the previous year.

Ryan Zimmerman (reached April, 2009)

Maybe it’s a beltway thing, but the signing of Ryan Zimmerman by the Washington Nationals last month has many of the earmarks of the Markakis deal with the Orioles. President Stan Kasten had made it known that they viewed Zimmerman as a “cornerstone player” – one that the Nationals could be built around, just as the Orioles said they wished to do with Markakis. They also had nearly identical ML service time leading into the season (Markakis had exactly 3 while Zimmerman had 3.032).

Zimmerman was the last player to reach a contract before going to hearing in salary arbitration earlier this year, agreeing to a one-year, $3.325 million contract on Feb 20.

With the new long-term deal reached, Zimmerman's contract now runs through 2013 and replaces the one-year contract Zimmerman agreed to in February, when he avoided an arbitration hearing. Zimmerman will still make that amount in 2009 and the new deal kept the old one's additional $175,000 in bonuses available based on plate appearances (75,000 for 500 plate appearances, and $50,000 each for 550 and 600 plate appearances).

But, to add some sweetener to Zimmerman’s bottom line, he gets a $500,000 signing bonus this year, something absent the original one-year deal. He will see salaries of $6.25 million in 2010, $8.925 million in 2011, $12 million in 2012 and $14 million in 2013. In keeping with Kasten’s contract philosophy, there are no player or club options involved in the deal.

Contracts By AAV

Looking through some contracts where younger players have been wrapped up, we can see how this trend may continue. The following data is based on total salary within the contract and years, should all player and/or club options are exercised. The far right column is based upon average annual value (AAV).

Player
ML Service *
 YearsTotal
AAV
 E. Longoria
6 days
9$44,900,000
$4,988,889
 T. Tulowitzki
Less than 2 yrs
6
$31,000,000
$5,166,667
 R. Zimmerman
3.032
5
$45,000,000
$9,000,000
 R. Cano
2.153
6
$57,000,000
$9,500,000
 N. Markakis
3.000
6
$66,100,000
$11,016,667

 * At time of contract

Ryan Howard (revisited)

Some will note that while I references Ryan Howard's landmark salary arbitration ruling, I did not add in his contract reached this year. The reason is that it is only for three years. However, for those interested, Howard reached the largest AAV deal this off-season seeing a 3-year, $54 million contact (translates to $18 million AAV). Howard will earn $15 million this season, $19 million next year and $20 million in 2011. Howard asked for $18 million in salary arbitration, the third-highest figure submitted since the process began in 1974. Philadelphia offered him $14 million.

MORE ARTICLES ON SALARY ARBITRATION:


Maury BrownMaury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey. He is contributor to Baseball Prospectus, and is available as a freelance writer. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.

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