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Home Maury Brown Who Came Out Ahead on the Strasburg Deal?

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Who Came Out Ahead on the Strasburg Deal? PDF Print E-mail
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Written by Maury Brown   
Tuesday, 18 August 2009 16:33
Nats

With just over a minute before midnight Monday night, the Washington Nationals and agent Scott Boras reached a $15.67 million deal for San Diego State pitching phenom Stephen Strasburg, setting writers near and far to place the deal in perspective.

At the highest levels, it’s a win for both sides. Boras gets his client signed to a record breaking deal, and the Nationals get their pick under contract, without going into exceptionally high overall dollar figures.

But, when looking at the deal top to bottom, and taking in when Strasburg may be in a Nats uniform, the deal may lean slightly more one way than the other.

Breaking Down the Deal

Strasburg deal is a major league contract over just over 3 years ($400,000 of it prorated for the rest of 2009), with $15.1 million of it guaranteed. On top of the contract dollars, he will receive a $7.5 million in signing bonus (for those scoring, that's $3.3 million over the MLB recommended bonus slot of $4 million).

Tim Lemke of the Washington Times does some great legwork breaking down the years of the Strasburg contract:

2009: $400,000 (pro-rated)
2010: $2 million
2011: $2.5 million
2012: $3 million

The signing bonus pays over time as follows:

Sept. ’09: $2.5 million

Jan. ’10: $2.5 million

Jan. ’11: $2.5 million

So, pulling the contract and bonus monies together, we get the following:

2009: * $2.515 million

2010: $4.5 million

2011: $5 million

2012: $3 million

* approx. based upon prorated salary

Will “Strasburgmania” Offset Contract Costs?

The Nationals, mired in losing, desperately needed to get Strasburg under contract in order to test his talents, and eventually (or at least it’s the hope of the Nationals), Strasburg helps get the Nationals on the path to winning. In-between, the club gets some much needed buzz given that Strasburg has been given the mantle of “possibly the greatest pitching prospect in a generation.”

Darren Rovell reports on how added ticket sales based upon fans coming to just see Strasburg will work to offset the Nationals investment. Rovell tapped Vince Gennaro, who uses this year’s Team Marketing Report, which shows the average ticket price, as well as the average cost for a premium ticket to calculate. As reported:

According to Team Marketing Report, the Nationals average ticket price this year is $30.63 per game.  Therefore, in order for Strasburg to pay off, he’d have to sell 2,250 additional season tickets or keep 2,250 people who were going to give up their tickets –- per year.

The average premium ticket is $193 per game. So Strasburg, Gennaro reasons, would also be worth it, if his performance would lead to 360 premium tickets sold for the season.

In actuality, the deal could be paid off even sooner.

The average ticket price for the Nationals has risen from $21.11 in 2007 to $30.63 this year, and increase of 31 percent. There was a dip of 7.1 percent from 2008 to 2009 for the Nationals as they adjusted for the recession. With another year of losing, coupled with the recession and restrictions on gifts for politicians in DC, it may be that the Nationals opt for “flat” as opposed to “increases” next season for average ticket prices.

The question will be, do the Nationals keep their premium tickets at their current levels? Entering 2009, only the Dodgers ($222.38), Cubs ($239.43), and Yankees ($510.08) had higher average premium ticket prices.

Look for Strasburg to Pitch for the Nationals in… 2010?

So, the Nationals will be looking to offset the cost of the Strasburg deal with the increased buzz surrounding him, which translates to extra ticket sales. So, Strasburg will be in a Nats uniform quickly, right? Not so fast.

Scott Boras said that he will not pitch at the major league level this season due to the long layoff. He has not pitched since May 29. Strasburg will most likely pitch in the Arizona Fall League.

"We're just going to let him get his feet on the ground here in Washington, D.C," Nationals interim general manager Mike Rizzo said, "and we'll figure out a plan for him in the very near future. We have to figure out where he's at, how in shape his arm is, how much we have to ramp him up before he can start pitching competitively.

That means that the earliest the Nationals will be able to capitalize on Strasburgmania in DC would be next April… should he make the ML roster.

Where the Deal Leans In Strasburg’s Favor

As with all things in sports, nothing is a given. Expectations are based upon projections, which can fail, or worse, a player can be injured. For now, at least at the major league level, Strasburg is a blank slate; a projected great player with no major league service time with which to evaluate. But, if history is any indication, and barring a complete collapse or catastrophic injury, Strasburg comes out ahead in the deal reached late last night.

The key, as noted in a prior column, centers around the number of years in the contact. With a three year deal, Strasburg will be eligible for all three years of salary arbitration eligibility, a system that weights almost entirely in favor of the players. Last year, the average increase in salary for players in the system was 143 percent.

So, while the Nationals may have won a victory of sorts in getting Strasburg under contract without completely derailing the signing system with a total dollar figure much higher, they will most likely be paying much, much more for Strasburg’s services once he hits salary arbitration. Conversely, the deal that the Rays signed Evan Longoria could be one of the best in recent history due to wrapping up the slugging third baseman.

Longoria’s deal is 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.

Back to Strasburg, according to comments by Boras, based upon whether Strasburg is salary arbitration eligible, after his third year of major league service time, his $15.1 million deal could reach at least $19 million, based upon an exception clause in the current CBA, which reads:

A Club may submit a salary figure for salary arbitration that is at least 80% of the Player’s previous year’s salary and earned performance bonuses (and at least 70% of his salary and earned performance bonuses two years previous).

But, what Strasburg would get in salary arbitration would most assuredly be higher. While the club would be held to the offering figure rule, the asking figure by the player and agent will be looking at a far higher. Unless the salary arbitration case were to go to hearing, most all salary arb deals land exactly at, or just in favor of the player. The Nationals will have to deal with this not once, not twice, but three times before Strasburg hits salary arbitration.

Conclusions

The Nationals and Boras came close to a draw on the deal for Stephen Strasburg based on the particulars of the three-year deal. If Strasburg is the star he is supposed to be, the cost for his contract could be offset relatively quickly. As of now, it appears that won’t occur until Spring of 2010 as Strasburg is being ramped up slowly after not pitching since late May.

Finally, the Nationals will wind up spending more by not wrapping up Strasburg through part or all of his salary arbitration eligibility years. That could be where they get bit the hardest if Stephen Strasburg is as great as he is projected to be.


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 (select his name in the dropdown provided).

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