Article: What A Miguel Sano Long-Term Contract Might Look Like

[Seth Stohs]

On April 12, 2008, Evan Longoria made his major league debut with the Tampa Bay Rays. Six days later, he signed a six year, $17.5 million contract with the team that included three option years which really made it a nine year, $47.5 million deal.

 

Miguel Sano burst onto the scene and has now played 40 games for the Twins. The topic of signing him to a long-term contract has already become a talker on Twitter and on local radio air waves. So, I thought I would take a few minutes to think about what a long-term contract could potentially mean for Miguel Sano and the Twins.Of course, it turned into a lot of work. Trying to find similar contracts wasn’t easy. A lot of players sign long-term deals to eat up some arbitration years and buy out a couple of years of free agency. In the last 15 years, the Twins have done that with the following players (and some that didn’t work out as well):

• Joe Mauer – 4 years, $33 million - bought out three years of arbitration and a year of free agency.
• Torii Hunter – 4 years, $32 million – bought out two years of arbitration and two years of free agency. It included an option year that made it a five year, $42 million deal.
• Michael Cuddyer – 3 years, $24 million – bought out one year of arbitration and two years of free agency.
• Justin Morneau – 6 years, $80 million – bought out two years of arbitration and four years of free agency.
• Johan Santana – 4 years, $39.75 million – bought out two years of arbitration and two free agent years.
• Joe Nathan – 4 years, $47 million – That came after two separate two year deals.

If the Twins go that route, they can wait until after the 2019 or 2020 season to try to lock him up long term. It may make sense. The sample size and his track record will be much more telling than a 40-game sample. However, here are some recently signed deals for players who waited until they were arbitration eligible to sign long-term deals.

• Mike Trout – 6 years, $144.5 million – Trout is obviously in a world all of his own, so this would be the ceiling for a potential deal. He would have gone through his first arbitration year but instead signed the deal.
• Albert Pujols – 7 years, $100 million – This deal was almost a decade ago, but he, like Trout, should have had more MVP awards than he actually did. He avoided arbitration with this deal.
• Giancarlo Stanton – 13 years, $325 million – Stanton made $5.5 million in his first year of arbitration. The Marlins surprised many with the deal, though Stanton has an opt-out in six years, if he feels he can make more. The first six years of the deal are worth $107 million. The seven years after the opt-out would be worth $218 million.
• Ryan Howard – 3 year, $54 million – Howard set records before arbitration and made $10 million in year one of arbitration. He signed the three-year deal the next year and then got a huge deal later.

Sano has less than a year of service time. As I said earlier, there are not many examples of players who signed long-term deals with less than one year of service time.

• Evan Longoria – 6 years, $17.5 million with three option years. As I mentioned above, it turned into a nine year, $47.5 million deal. He remains with the Rays and has signed another long-term deal to stick there.
• Ryan Braun – 8 years, $45 million – Braun came up about the same time Sano did and the next offseason reached this deal. He proved to be well worth it and has signed another long-term deal.

Those two deals were made about eight years ago, and inflation and new national TV deals mean that Sano should make a bit more than they have.

 

Let’s play a couple of scenarios out. Let’s say that Sano becomes a perennial All- Star, maybe even an MVP candidate. Let’s estimate what he would make from year-to-year if the Twins and Sano went year-to-year.

• 2016: $550,000, 2017: $650,000, 2018: $800,000 (pre-arbitration, $2.0 million)
• 2019: $7 million, 2020: $14 million, 2021: $20 million (arbitration years, $41 million)
• That would be $43 million for six years.

At that point, he would become a free agent. He would have teams lining up for his services and $30 million annual salaries might be the starting point for negotiations.

 

So, after looking at the contracts of mentioned above, plus the long-term contracts of All-Stars like Andrew McCutchen, Anthony Rizzo and Paul Goldschmidt, let me try to lay out what a long-term deal could look like for Miguel Sano and the Twins.

• Pre-Arbitration – 2016: $600,000, 2017: $700,000, 2018: $1 million ($2.3 million)
• Arbitration Buy-Out – 2019: $5 million, 2020: $8 million, 2021: $12 million ($25 million)
• Free Agency Buy-Out – 2022: $18 million, 2023: $20 million, 2024: $30 million option with $8 million buyout ($46 million)
• That equates to an 8 year, $73.3 million deal, with a team option.

Why the Twins Should do this deal?

 

 

 

The term ‘cost certainty’ comes up when these types of deals are made. Rather than going year to year and not knowing what it’ll cost, they will have one certain contract for eight years. Also, if Sano becomes the player that many believe that he will become (a slugging, middle of the lineup hitter), this deal would give them at least two to three extra years with the slugger. They would also potentially save a bunch of money to spend elsewhere, including a similar deal with Byron Buxton or others. He’s 22, and eight years would take him through his 20s, his best years.

Why the Twins Should Not do this deal?

 

 

 

That’d be a $73 million risk. What if he gets hurt? What if he strikes out 240 times every season and never makes an adjustment? Knowing the make-up for Sano, there is little concern that he will take the money and stop working, but how a player will handle that kind of financial security has to factor into the discussion. Most believe that he will be a star, but there is risk. As Nick wrote yesterday, the Twins have tied themselves to some big contracts in recent years that have not yet paid off.

Why Miguel Sano Should do this deal?

 

 

 

Can you imagine being offered $73 million when you’re 22 years old? That kind of money takes care of Sano and his family for generations to come. He can still become a free agent at age 30 and get another long-term deal.

Why Miguel Sano Should Not do this deal?

 

 

 

If he truly wants to optimize his earning potential, it makes the most sense for him to go year-to-year. He would then become a free agent at age 28 and be set up for a ten-year deal if things play out right.

It is an interesting discussion, and likely one that we will have regarding Byron Buxton in the next year or two as well. Who knows? Maybe they’ll pull a Parise-Suter and sign equal contracts to stick around together for the next eight to ten years.

 

What would you do? Reach out to Sano’s agent (Rob Plummer) now, or wait a couple of years?

 

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[The Wise One]

The MO of the Twins is to wait and see. When they strayed they got burned.

[nytwinsfan]

Yeah, I'd do that deal. I'd probably go more than $73.3.

[tobi0040]

Ideally the twins could go more like 10 and 100 and entice sano by overpaying more in the front years.  Is the deal laid out really saving the Twins much money?  I just don't see the value in "certainty", when you are locking him at Stanton or Trout rates.  I suppose you effectively sign him to a FA deal in the 3-68 range, which is something that wont' be available later.  You get fewer years but not a huge annual discount.

I do 10-100 if I was the twins because his floor is incredibly high. 10 and 100 averages to 10m a year. Have we any doubt that his bat alone is going to be worth that as a DH, even if he does not become a perennial MVP candidate? give him 600 AB's and he will hit 30 HR and walk 80 or more times. That is an incredible floor and makes it very unlikely this would backfire.

 

 

[Madre Dos]

that sure beats the $4.11/hour he was making in Elizabethton.

[wavedog]

Nice write-up and analysis Seth!  I would certainly do this deal - locking Sano up for his most productive years.  He is not a pitcher or catcher so I think there is less risk for a serious injury.   Saves about a projected $20M in his 2 Free Agency years.  To put in perspective this total cost is $100M less than Mauer's deal for the same number of years.    

[HitInAPinch]

After a fraction of a season, I can't believe anyone would bring up a long term contract for Sano.  And considering the number of times Buxton has gotten injured, he'd be the last guy on my list for a long term contract.

 

If Sano starts raking early next year, I'd consider it.  If Buxton doesn't get hurt at all for a full calendar year, I'd consider him, too.

[beckmt]

I would do the deal in a heartbeat, before other agents and players start getting to him.  If you go to an average of $12 million a year it could still (and probably will) be a bargain.

[markos]

 

Ideally the twins could go more like 10 and 100 and entice sano by overpaying more in the front years.  Is the deal laid out really saving the Twins much money?  I just don't see the value in "certainty", when you are locking him at Stanton or Trout rates.  I suppose you effectively sign him to a FA deal in the 3-68 range, which is something that wont' be available later.  You get fewer years but not a huge annual discount.

I do 10-100 if I was the twins because his floor is incredibly high. 10 and 100 averages to 10m a year. Have we any doubt that his bat alone is going to be worth that as a DH, even if he does not become a perennial MVP candidate? give him 600 AB's and he will hit 30 HR and walk 80 or more times. That is an incredible floor and makes it very unlikely this would backfire.

I think the deal that Seth laid out has a strong probability of saving the Twins a ton of money. Just looking at the arbitration years, Chris Davis just make $25MM over his three seasons, and he only had one superstar year and was actually pretty bad during his pre-arb seasons. Davis's arb seasons were in 2013-2015, whereas Sano's arb seasons will come in 2019-2021. Baseball salary inflation is pretty fast (8%-ish), so it wouldn't shock me that $25MM in 2013-2015 is $40MM in 2019-2021. And that is the baseline of a decent slugger with one great season. Imagine if Sano is actually really good, and then the arb numbers are probably $50MM-$60MM. Seth's deal limits his arb years to $25MM, which I think is easily a $15MM saving, and likely a $30MM or more.

[Seth Stohs]

 

Nice write-up and analysis Seth!  I would certainly do this deal - locking Sano up for his most productive years.  He is not a pitcher or catcher so I think there is less risk for a serious injury.   Saves about a projected $20M in his 2 Free Agency years.  To put in perspective this total cost is $100M less than Mauer's deal for the same number of years.    

 

The difference is that Sano is 22 and has three years of basically league-minimum earnings plus three years of arbitration, so it's not apples to apples.

 

Mauer was about 28 when they signed him for 8/184. He had already gone through the pre-arb and had the four year deal that bought out his arbitration years plus one free agent year. 

 

That $100 million difference is maybe 3 years of Sano free agency years if he gets to that point. 

[Seth Stohs]

 

I think the deal that Seth laid out has a strong probability of saving the Twins a ton of money. Just looking at the arbitration years, Chris Davis just make $25MM over his three seasons, and he only had one superstar year and was actually pretty bad during his pre-arb seasons. Davis's arb seasons were in 2013-2015, whereas Sano's arb seasons will come in 2019-2021. Baseball salary inflation is pretty fast (8%-ish), so it wouldn't shock me that $25MM in 2013-2015 is $40MM in 2019-2021. And that is the baseline of a decent slugger with one great season. Imagine if Sano is actually really good, and then the arb numbers are probably $50MM-$60MM. Seth's deal limits his arb years to $25MM, which I think is easily a $15MM saving, and likely a $30MM or more.

 

Right, the difference is that if a guy gets to arbitration, there's less risk for the team since he'd have 3ish years of service time. If Sano puts up the numbers we think he could in these first four seasons, he could make $50+ million over those three arbitration years. The value in signing him this soon is that the Twins take more risk, but in doing so, Sano has to concede something too. 

 

It's an interesting discussion.

[Brock Beauchamp]

If I'm Sano, I probably avoid a deal that extends beyond age 30. If he continues to be as good as he looks today, getting financial security through his prime seasons - which are controlled anyway - and then looking for the huge payday in his age 29/30 season makes sense.

 

It's a lot easier to get that huge payday as a 30 year old than it is as a 32 year old.

 

Locking Miguel up through arb and then +1/2 free agent seasons seems a reasonable compromise for everyone involved, though I doubt it happens before the end of the 2016 season.

 

If you're a player, do you really care if you get $120m today if you can get $80m and a better shot at $200m when you're 29 or 30?

[Willihammer]

Has there ever been a bad pre-arb extension in the history of these deals?

[spinowner]

 

...before other agents and players start getting to him.

I think it's already too late for that. I'm sure his agent has already done the same research as Seth and more, and I'm sure players everywhere know what this young man can do to a pitched baseball. It's not a question of whether he gets a big long contract, it's when.

[kab21]

This is not very different from what I proposed in the thread 1-2 weeks ago but I think I had included even more money and not a 3rd year.  I think it is doubtful that a potentially elite player sells 3 of his FA seasons.  Two years is probably the max unless the numbers are ridiculous like Trout and Stanton. 

[nicksaviking]

 

Has there ever been a bad pre-arb extension in the history of these deals?

 

Jedd Gyorko, Dontrelle Willis and the Twins very own Joe Mays come to mind.

 

I'd do the deal, though I'd feel a lot more comfortable with the risk if the team wasn't already on the hook for Santana, Hughes, Nolasco, Suzuki and Mauer for what seems like an eternity.  Fortunately if Sano were to bust, he should still have options for the duration of most of those contracts. 

 

Do Sano, do Buxton, Berrios, May, Rosario, Hicks or whoever else looks like a good gamble in the next couple years, just no more long term deals to vets.

[Willihammer]

 

Jedd Gyorko, Dontrelle Willis and the Twins very own Joe Mays come to mind.

 

I'd do the deal, though I'd feel a lot more comfortable with the risk if the team wasn't already on the hook for Santana, Hughes, Nolasco, Suzuki and Mauer for what seems like an eternity.  Fortunately if Sano were to bust, he should still have options for the duration of most of those contracts. 

 

Do Sano, do Buxton, Berrios, May, Rosario, Hicks or whoever else looks like a good gamble in the next couple years, just no more long term deals to vets.

Thanks, so there is some risk but more for pitchers probably. Seems like the extensions for position players tend to fall somewhere between "good deal" and "stupidly good deal" with very rare exceptions (Gyorko and... any others?)

[Zachary]

How about the sheer fact that we have reason to even talk about this sort of thing. Would it not be awesome if the Twins had a top Offensive players? Ryan Howard in his prime struck out a lot but would you have not taken his production in his prime years? 

[rukavina]

One thing to keep in mind is the uncertainty around the CBA, which expires next year.  While I doubt it results in any major changes, it might make it harder to do something before 2017.

 

One thing working for a deal is that Sano's agent (Rob Plummer) has bootstrapped his way.  He also wants money sooner rather than later.  I suspect they will both want to have the Twins guarantee his controlled years.  Doubt they will sacrifice any years of FA.

 

[markos]

 

Thanks, so there is some risk but more for pitchers probably. Seems like the extensions for position players tend to fall somewhere between "good deal" and "stupidly good deal" with very rare exceptions (Gyorko and... any others?)

Here are a couple of articles on Fangraphs about recent extensions. 

http://www.fangraphs.com/blogs/the-freddie-freeman-deal-as-a-market-correction/

http://www.fangraphs.com/blogs/the-perfectly-reasonable-christian-yelich-extension/

 

In the first article, Cameron points out maybe 6 total deals in the last few years (out of 50 total) that could be considered fails. 

 

Also, 8/$73MM to someone with less that 2 years of service time would be really close to other deals. Looking over the list of extensions, the biggest contract for someone with less that 2-years is Andrelton Simmons with 7/$58MM. Other deals for the likes of Yelich or Rizzo are more in the range of 7/$40-$50 with at least one additional option year. Sano's deal is a little more expensive, but given baseball salary inflation and the extra year, it isn't way out of line.

[d-mac]

 

 

 

If you're a player, do you really care if you get $120m today if you can get $80m and a better shot at $200m when you're 29 or 30?

 

Time value of money. A dollar today is always worth more than a dollar tomorrow.

[d-mac]

 

Has there ever been a bad pre-arb extension in the history of these deals?

 

Nick Blackburn? Or was he already in his arb years when he signed his deal,

[jharaldson]

I think something that is not used as frequently as it could be is a signing bonus.  We gave $6 million to Morneau as a signing bonus.  I think Sano would have to think long an hard about Seth's proposal if it also included a $10 million signing bonus.  That kind of big money upfront could push him to sign.

[Loosey]

If the Twins wish to really compete, they need to consider any other deal that has failed as a sunk cost and not really take it into consideration when trying to extend someone of Sano's caliber. 

 

I'm positive there is a way where both the Twins and Sano can both win in a long-term deal.  I don't know what the numbers would look like, but Overpaying in the early and Arb years and getting a discounted price in first year or two of Free Agency seems to satisfy A lot.  Sano gets financial guarantees of somewhere in the $75-$100M range by the time he is 30 and the Twins lock him up for two years at a discount.  When all said and done if correctly done Sano will make close to what he would have made by his career's end doing it this way due to having Arb Years bought out and giving discounts on FA years 1 and 2.  Possibly make a little bit less, but the Twins are the ones taking the most risk in this scenario.

[Willihammer]

 

Here are a couple of articles on Fangraphs about recent extensions. 

http://www.fangraphs.com/blogs/the-freddie-freeman-deal-as-a-market-correction/

http://www.fangraphs.com/blogs/the-perfectly-reasonable-christian-yelich-extension/

 

In the first article, Cameron points out maybe 6 total deals in the last few years (out of 50 total) that could be considered fails. 

 

Also, 8/$73MM to someone with less that 2 years of service time would be really close to other deals. Looking over the list of extensions, the biggest contract for someone with less that 2-years is Andrelton Simmons with 7/$58MM. Other deals for the likes of Yelich or Rizzo are more in the range of 7/$40-$50 with at least one additional option year. Sano's deal is a little more expensive, but given baseball salary inflation and the extra year, it isn't way out of line.

Yeah, and 4/6 of the fails were pitchers.

 

This is why I would try to get a deal done this winter.

 

 

 

The argument in favor of those contracts was always that a lot could happen in six years, but Freeman’s deal shows that even waiting just an additional year or two will lead to significantly higher payouts, and the risk of injury or performance decline for many of these players over 12-24 months is just not that high.

The Freeman deal might look like the outlier right now, but I think it is more of a market correction that is going to become more common. Good young players are worth far more than they’ve been settling for over the last few years. The extension prices of the past few years were simply too slanted in favor of the teams, making a fair deal like the Freeman one seem like an overpay in comparison. Given how much money MLB teams have now, though, I don’t think they’re going to be able to force the genie back into the bottle; the Freeman deal is probably more of a trend than an outlier.

For reference, the deal was 8/135, signed after 324 games.

 

Freddie Freeman.

[tobi0040]

 

I think the deal that Seth laid out has a strong probability of saving the Twins a ton of money. Just looking at the arbitration years, Chris Davis just make $25MM over his three seasons, and he only had one superstar year and was actually pretty bad during his pre-arb seasons. Davis's arb seasons were in 2013-2015, whereas Sano's arb seasons will come in 2019-2021. Baseball salary inflation is pretty fast (8%-ish), so it wouldn't shock me that $25MM in 2013-2015 is $40MM in 2019-2021. And that is the baseline of a decent slugger with one great season. Imagine if Sano is actually really good, and then the arb numbers are probably $50MM-$60MM. Seth's deal limits his arb years to $25MM, which I think is easily a $15MM saving, and likely a $30MM or more.

 

Salary inflation at the top end is not very well understood.  Most think it is much higher than it actually is.

 

In 2000, the highest paid player was A-Rod at $25M.  It took seven years for another contract for a position player to top that one, A-Rod Again at $27.5M per year.  It took seven years for the top player to get paid 10% more.

 

Fast forward seven more years, the top position player is Miguel Cabrera at $29.2M per year.  It took another seven years to move the top salary 6%.

 

If the inflation from A-Rod's $25M in 2000 was 8% per year, the top player in 2007 would have made $42.8M and in 2014 $68M.

 

Now the risk of Sano becoming a markedly better player than Cabrera and A-Rod is very low.  That is why throwing out numbers in the $30M range per FA year seems like we aren't getting a real discount.  Just prepaying the guy and taking all the risk.

Edited August 20, 2015 by tobi0040

[Brock Beauchamp]

Time value of money. A dollar today is always worth more than a dollar tomorrow.

Player salaries have eclipsed inflation by several magnitude over the past 40 years.

[tobi0040]

 

Time value of money. A dollar today is always worth more than a dollar tomorrow.

 

I don't know that the time value of money concept really applies in most sports contacts.  That assumes the players are saving a majority of their salary and investing it wisely.  In practice that seems to be the exception.

 

I am guessing what happen in most cases is the team owners calculate the value based on NPV analysis and prefer to backload the contracts. Conversely, players typically want their riches up front, not because they have a financial advisor ready but because they want to buy things.

 

 

[tobi0040]

 

Player salaries have eclipsed inflation by several magnitude over the past 40 years.

 

From the 60's to the 90's that was the case. But the high end has not moved much  annually  since 2000

Edited August 20, 2015 by tobi0040

[Brock Beauchamp]

 

From the 60's to the 90's that was the case. But the high end has not moved much  annually  since 2000

I think that's because elite position players stopped hitting the market, not due to any reluctance in offering a $30m a year contract.

 

It's hard to offer Mike Trout a $300m deal when the Mike Trouts of the world get locked up for 8+ years the moment they hit the show.

 

A-Rod was 25 when he signed that monster deal with the Rangers. We simply do not see players of his calibre hit the free agent market at age 25 anymore. Hell, we rarely see them hit the market at age 28 anymore.

 

Who's the best player to switch teams in a monster deal in the past few years? Cano? Sure, he's an elite player but he was 32 years old and he's elite, not legendary... A-Rod was a legendary-type player and was worth ~20 WAR over Cano during their first ten seasons in MLB.