Jump to content

Providing independent coverage of the Minnesota Twins.
Photo

Alternative FA Contract Strategies

  • Please log in to reply
23 replies to this topic

#1 amjgt

amjgt

    Senior Member

  • Member
  • 2,792 posts

Posted 13 October 2020 - 08:55 AM

This is general to baseball, but also will have an effect on some of the Twins’ free agents-to-be.

 

What’s up with 2021? Does anyone really know?

 

Free Agents (as usual) are going to want as much guaranteed money as possible, but teams might be reluctant to have high payrolls in 2021.

 

With unknowns come…. Market inefficiencies. So what are some alternative contract strategies?

 

Tactic #1 – Back loaded contracts. Instead of 3/30 being 10/10/10, why not 4/13/13. This pushes the bulk of the contract out to when the finances of baseball will likely have stabilized more. Additionally, this is beneficial to the player (not counting time value of money) because I’d say it’s still a bit of an unknown whether the full 162 will be played in 2021. For the sake of easy math, lets say it gets chopped to an 81 game schedule. When that happens instead of the player losing out on 5M (half of 10M) they only lose 2M (half of 4M). That brings me to ….

 

Tactic #2 – Front loaded contracts. Instead of 10/10/10, why not 14/8/8. If you’re a team and you’re fairly confident that a decent amount of 2021 is going to get lopped off then why not front load the contract with a year that’s going to get trimmed down, then have the player at a discount after that. The risk is that the full 162 gets played, but if that’s the case, then likely we aren’t in the financial doomsday scenario that teams are dropping their payrolls to protect against. From the players perspective it’s not great, but nothing about this offseason is going to be great for them and having those guaranteed pay days in 2022 and 2023 might be worth it.

 

Tactic #3 – Signing Bonus. Are these allowed? We never hear about them. It’s more of an NFL thing since their contracts aren’t guaranteed like MLB, but if they are allowed… The deep-pocketed teams might be able to sway some free agents their way by having a signing bonus. Frustrated that your paycheck was depressed in 2020? Well here’s a check for $10M and then your contract will be 4/8/8 for the next 3 years.

 

Tactic #4 – Deferred money. (See: Bonilla, Bobby)

 

I’d say the most likely Twins Free agents to be affected by any of these would be Odo and May.

 

Odo is coming off a nightmare season in terms of injuries. Which would normally point to a 1-year make good contract. Not being able to really hit the FA market last offseason was made better with that $17.8M guarantee…. That turned into $6.6M. So he’s still hunting for that BIG payday that will set him up for life. But there’s a non-zero chance that if he opts for a 1-year make good contract, that he never makes good, and never gets that big payday. Ultimately it was the Odo discussion in the Gleeman and the Geek podcast that led me to go down this “Contract Tactics” rabbit hole. He maximizes his eventual earning potential with a 1-year contract, but also leaves open a doomsday scenario for him. So, would Odo take a 3/30 contract, let’s say, backloaded a little 8/11/11? Worse case that’s probably $26M guaranteed. But that’s also below full market value if you look at how he’s pitched the last couple years.

 

As for May, he doesn’t have the nightmare 2020 looming over him like Odo, but he’s likely fighting against a market that, if payrolls are dropping, will largely ignore high priced RP. Why not pay Alcala $500k instead of May $6M? Also, as they noted in the GATG podcast, he’s never earned more than $1M in a season. That sounds like a good opportunity for a signing bonus. $4M signing bonus, then 2/5/5 after that. From the team’s perspective a $4m signing bonus is a relative drop in the bucket, but for May it represents more money than he’s earned in his entire career up to this point. But to warrant that signing bonus, he’s going to have to take a bit of a discount after that.

  • nicksaviking likes this

#2 Major League Ready

Major League Ready

    Senior Member

  • Member
  • 2,282 posts

Posted 13 October 2020 - 10:02 AM

What you have done for the most part here is change when the money is paid. While cash flow is a consideration, it’s not the primary driver. Avoiding another $100M+ loss is goal #1. Goal #2 is to recoup some of the gigantic losses teams suffered in 2020. Just changing the cash flow won't accomplish this goal. I would expect teams to cut payroll for the next 3-4 years, especially small and mid-market teams.

 

The Twins lost the rough equivalent of 4-5 years of income this year. Would you spending habits change for a period of time if you lost 5 years income? I could be wrong but I don't think owners are going to just absorb these huge losses and they are going to take measures to protect their clubs from similar losses next year. For example, Rooker @ 600K has a high probability of getting the nod vs Rosario at $10M given what happened this year and the uncertainty of next year.

 

I would hope the players and owners will negotiate a salary structure for next year that takes into account attendance. They should begin the moment the WS concludes. That way they can get in 162 games which will be better for players than getting 100% of 37% (60 games).


#3 amjgt

amjgt

    Senior Member

  • Member
  • 2,792 posts

Posted 13 October 2020 - 11:49 AM

I have no doubt that most teams lost money this year, but they will never convince me in a million years that they lost 4-5 years worth of income.

  • Otwins and Battle ur tail off like this

#4 tony&rodney

tony&rodney

    Cedar Rapids Kernels

  • Member
  • 190 posts

Posted 13 October 2020 - 03:27 PM

The financial arguments/discussion are mere play until or unless the MLB books are opened. I don't think or know that there are many fans who believe owners should operate at an "actual" loss. It is a business after all. However, the numbers that we can speculate on do tell somewhat of a story. Franchises are fought over whenever they do go on sale and the "owners club" is careful to manage who is allowed to buy a team. At point of sale the numbers are pretty telling -baseball is still a viable investment. Yes, there are other avenues for wealthy individuals but for status and payoff, baseball is still quite attractive. It is not like the "good old days" when Steinbrenner bought the Yankeesfor around $8-9 million in 1973 or even the Twins, when Carl Pohlad paid $5 million down with annual payments (which were less than his profits each year) of $5 million for a few years. Nevertheless, today the owners still hold the main cards and the MLBPA, the strongest union in sports, is fighting to maintain a percentage for the players. While I may be uncomfortable with anyone making $10-40+ million per year as a common man, the economics should be dictated in some reasonable manner. We do know that exactly zero owners would accept an annual income across their businesses of a mere $40 million per year. MLB is very healthy financially and hopefully, for the fans sake (I think that is all of us), there will be agreements that push the game forward in a positive manner without labor strife and greed driving either side. 

As a side note, this seems like an opportune moment for the local nine to stretch the payroll in a gamble of a massive fan rebound in 2021 and 2022. 

  • SQUIRREL and DocBauer like this

#5 Vanimal46

Vanimal46

    Pitch(er) Mix: Tequila, Orange Liqueur, Lime Juice

  • Member
  • 13,813 posts
  • LocationAustin, TX

Posted 13 October 2020 - 04:39 PM

I think the free agent market this winter is going to be ice cold, just like 2018. If not worse. There’s no denying that revenues were different this year - less games, no fans, yadda yadda. While there may be optimism for fans in the stands, the season starting on time, etc. in 2021, we don’t have any idea if that will be the case.

I haven’t looked at the FA class yet, but the top names will still get their money. The rest will be looking at reduced rates compared to their counterparts in the 2019 class.

I see the Twins playing this out like they did in 2018. Trying to target players on 1 year or 1+ option contracts.

The Twins have roughly $105 million in commitments if they retain everyone on arbitration and pre-arb. $95 million without Rosario. ~$90 million without Romo and Rosario. The Twins spent $140ish in payroll for 2020. I can’t envision a scenario where they match $140 million in 2021... Does anyone?
  • Shaitan and Battle ur tail off like this

#6 Major League Ready

Major League Ready

    Senior Member

  • Member
  • 2,282 posts

Posted 13 October 2020 - 05:54 PM

 

Forbes estimated MLB teams brought in 9.9 Bil last year. Roughly 4.5 Bil of that was from game day revenues (tickets, concessions, etc.). Leaving 5.4 Bil from other sources (TV deals, MLB network, MLB.tv, etc.) that is still intact. So the league made about 55% of its usual revenue this year. There's probably some losses taken from local TV deals and sponsorships so we'll drop it down even more than the 5.4 to account for those factors. We'll say they brought in 4 Bil from the non-gameday revenue. 9.9-4.5-1.4=4 Bil in Revenue for 2020 Covid season of doom.

 

Forbes estimated MLB teams spent 8.7 bil last year. 4.6 bil to players and 4.1 bil to other things. So with the prorated deals the teams spent roughly 1.7 bil on players this year. Where things get rough is estimating how much less the teams spent on the "other things." We know they saved on minor league costs. Assume the MLB central office took some hits and that reduced costs. Game day employee savings certainly helped. Think it'd be aggressive to say they cut those expenses by as much as the player salaries, but lets call it 25% savings (could certainly be closer to, or more than, 50%). So they spent 3.075 bil on "other" expenses. 1.7+3.075=4.775 Bil in expenses for 2020 Covid season of doom.

 

So 4 bil in revenue and 4.775 bil in expenses seems like the teams aren't really losing as much as you suggest. And if they were able to cut their non-player costs by even more than the 25% I accounted for they may have even made a little money. Lets say they cut "other expenses" by 50%. They spent 2.05 bil this year. Which means they had a total of 3.75 in expenses compared to the 4 bil in revenue. They made money. Entirely reasonable numbers.

 

They certainly didn't make the 1.9 bil in profits, but to suggest it would be appropriate for them to act as if they've been devastated by the loss of income is pandering to billionaires who want you to think they're struggling to make ends meet. And they definitely didn't lose the billions they claimed they were going to.

 

4-5 years of income is $8-10 Billion. Suggesting that's what they lost this year seems a little outlandish. Assuming by income you mean profits.

 

Their losses are not measured in revenue. Income is the net of revenue and expenses. You also completely butchered the revenue estimate. The 55% might be right but even if it's 60%, they made 60% on 37% of the normal number of games. Even at 60% that equates to 22% of normal revenue.

 

According to Forbes, the average in per team has been around $40M in net profit and the Twins have been considerably below that number.Therefore 4 years profit would be $160M per team or 4.8 Billion unless you also take into account that they also did not earn the normal $40M they would have earned.

 

When I ran the numbers I came up with a number around $100M per team but obviously I don't perfect information. The league claims the number is higher. Regardless, teams are going to adjust their spending. THAT's the POINT. We can bitch that Billionaires should just take it in the shorts and playersmaking hundreds of millions deserve every dime all we want but they are going to adjust spending as would any business no matter how successful that business has been in the past.


#7 Rosterman

Rosterman

    Senior Member

  • Member
  • 3,621 posts

Posted 13 October 2020 - 07:23 PM

You can also subtract losses against future income (or in the case of one individual talked about in the NYT, past income). We will never know exactly how much teams lost.

 

 

Joel Thingvall
www.joelthingvall.com
 


#8 amjgt

amjgt

    Senior Member

  • Member
  • 2,792 posts

Posted 13 October 2020 - 08:51 PM

 

I think the free agent market this winter is going to be ice cold, just like 2018. If not worse. There’s no denying that revenues were different this year - less games, no fans, yadda yadda. While there may be optimism for fans in the stands, the season starting on time, etc. in 2021, we don’t have any idea if that will be the case.

I haven’t looked at the FA class yet, but the top names will still get their money. The rest will be looking at reduced rates compared to their counterparts in the 2019 class.

I see the Twins playing this out like they did in 2018. Trying to target players on 1 year or 1+ option contracts.

The Twins have roughly $105 million in commitments if they retain everyone on arbitration and pre-arb. $95 million without Rosario. ~$90 million without Romo and Rosario. The Twins spent $140ish in payroll for 2020. I can’t envision a scenario where they match $140 million in 2021... Does anyone?

 

When I ran the numbers a couple weeks ago, the Twins were at $79M in full or likely commitments (No Rosario or Romo) and a reasonable amount of incentive reached by Maeda.


#9 amjgt

amjgt

    Senior Member

  • Member
  • 2,792 posts

Posted 13 October 2020 - 08:57 PM

Per my unscientific calculations, the Twins have $79M in firm and likely commitments next season, with some Arb guesses by me.

Garver – 1.0
Jeffers – 0.5
Donaldson – 21.0
Polanco – 4.3
Arraez – 0.5
Sano – 11.0
Kepler – 6.5
Buxton – 4.0

Maeda – 3.0 (officially, but likely much higher with incentives)
Berrios – 6.0
Pineda – 10.0

Rogers – 5.0 (included, but…. Are we sure?)
Duffey – 3.0
Wisler – 1.5
Stashak – 0.5
Alcala – 0.5
Thielbar – 0.5

 

Looks like it was $79M without any Maeda incentives


#10 amjgt

amjgt

    Senior Member

  • Member
  • 2,792 posts

Posted 13 October 2020 - 08:58 PM

Not listed and not included in the total… Dobnak and Smeltzer

 

26-man spots that still need filling…
SP
SP
RP
RP
LF
4th OF
IF
Util
DH


#11 chpettit19

chpettit19

    Cedar Rapids Kernels

  • Member
  • 203 posts

Posted 13 October 2020 - 08:58 PM

 

Their losses are not measured in revenue. Income is the net of revenue and expenses. You also completely butchered the revenue estimate. The 55% might be right but even if it's 60%, they made 60% on 37% of the normal number of games. Even at 60% that equates to 22% of normal revenue.

 

According to Forbes, the average in per team has been around $40M in net profit and the Twins have been considerably below that number.Therefore 4 years profit would be $160M per team or 4.8 Billion unless you also take into account that they also did not earn the normal $40M they would have earned.

 

When I ran the numbers I came up with a number around $100M per team but obviously I don't perfect information. The league claims the number is higher. Regardless, teams are going to adjust their spending. THAT's the POINT. We can bitch that Billionaires should just take it in the shorts and playersmaking hundreds of millions deserve every dime all we want but they are going to adjust spending as would any business no matter how successful that business has been in the past.

I didn't butcher it. You don't understand how TV deals work. The national TV deals bring in roughly 1.7 billion a year and are mostly based on playoffs. The league almost 100% assuredly got that 1.7 this year. The legal costs for the TV stations to fight it and give up the extra playoff game ad money for them wouldn't make sense. Those deals aren't prorated like the salaries. The local deals will lose some money based on lost advertising, but most of the money local networks make are on subscriptions, not ads so it's a limited loss. There was losses in the MLB central fund money almost assuredly, but it is a tiny part of revenue so also has very little impact. That's why I took off another 1.4. 

 

And I understand their losses aren't measured by revenue alone and explained that the league as a whole losing 4-5 years of income would mean the league lost 8-10 billion this year. Their typical profit in a year is around $2 billion. So 4-5 years of that means they lost 8-10 this year. I gave you all the numbers from revenue and expenses. Now I've given you the information on how their TV deals work. You can do with this info as you wish. 

 

The league will absolutely try to claim they lost billions this year and try to lowball FA all offseason. The MLBPA will sue them and claim collusion. The owners won't want to actually open their books and will pay reasonable prices. Mookie Betts is obviously an outlier, but him getting paid after the league knew their losses puts them in a tough place to claim they just can't afford to pay people. It will likely be similar to 2018 when things moved real slow, there was talk of action by the MLBPA and things ended up relatively normal. The new CBA is more of a real threat to the league than the lost profit this year. The Mets were just sold for almost $2.5 Billion during this lost profit season. The MLBPA won't let them get away with claiming being broke.


#12 Vanimal46

Vanimal46

    Pitch(er) Mix: Tequila, Orange Liqueur, Lime Juice

  • Member
  • 13,813 posts
  • LocationAustin, TX

Posted 13 October 2020 - 10:34 PM

Per my unscientific calculations, the Twins have $79M in firm and likely commitments next season, with some Arb guesses by me.
Garver – 1.0
Jeffers – 0.5
Donaldson – 21.0
Polanco – 4.3
Arraez – 0.5
Sano – 11.0
Kepler – 6.5
Buxton – 4.0
Maeda – 3.0 (officially, but likely much higher with incentives)
Berrios – 6.0
Pineda – 10.0
Rogers – 5.0 (included, but…. Are we sure?)
Duffey – 3.0
Wisler – 1.5
Stashak – 0.5
Alcala – 0.5
Thielbar – 0.5

Looks like it was $79M without any Maeda incentives


The numbers I used were from Gleeman’s article in the Athletic.

https://theathletic....y-have-in-2021/

#13 amjgt

amjgt

    Senior Member

  • Member
  • 2,792 posts

Posted 13 October 2020 - 11:00 PM

At first glance, as I fade off to sleep, I don’t believe he subtracted the minimum salary he had assigned to fill out the roster in the first section, when he added in the arb guys. So that’s like 4mil.
Will review more in the morning

#14 Major League Ready

Major League Ready

    Senior Member

  • Member
  • 2,282 posts

Posted 14 October 2020 - 10:17 AM

 

 

 

And I understand their losses aren't measured by revenue alone and explained that the league as a whole losing 4-5 years of income would mean the league lost 8-10 billion this year. Their typical profit in a year is around $2 billion. So 4-5 years of that means they lost 8-10 this year. I gave you all the numbers from revenue and expenses. Now I've given you the information on how their TV deals work. You can do with this info as you wish. 

 

We may not be as far off on the revenue and expense as I thought. My assumption for average profit per team is $40M/year or 1.2B for the 30 teams collectively. This substantially changes how long it will take to recoup losses. My source is Forbes.(see link) You are using a $2B number for profits. What is your source? I would change my stance if there was credible information the teams are making an average of $66M per team.

 

https://www.forbes.c...st/#tab:overall

 


#15 Major League Ready

Major League Ready

    Senior Member

  • Member
  • 2,282 posts

Posted 14 October 2020 - 10:40 AM

 

Per my unscientific calculations, the Twins have $79M in firm and likely commitments next season, with some Arb guesses by me.

Garver – 1.0
Jeffers – 0.5
Donaldson – 21.0
Polanco – 4.3
Arraez – 0.5
Sano – 11.0
Kepler – 6.5
Buxton – 4.0

Maeda – 3.0 (officially, but likely much higher with incentives)
Berrios – 6.0
Pineda – 10.0

Rogers – 5.0 (included, but…. Are we sure?)
Duffey – 3.0
Wisler – 1.5
Stashak – 0.5
Alcala – 0.5
Thielbar – 0.5

 

Looks like it was $79M without any Maeda incentives

 

Looks about right. I would add $6M to Maeda and $5M to fill with pre-arb players gets us to $90M. The question is what will they be willing to spend given the revenue uncertainty. Then, what should the priority for spending be with whatever dollars are available.Another SP would be at the top of my list and I don't think we can adequately fill Marwin and Adrianza from within. I would also really like to resign Cruz if he can be signed to a deal similar to his last contract where we have a 2nd year option. BP needs some help too.


#16 Battle ur tail off

Battle ur tail off

    Pensacola Blue Wahoos

  • Member
  • 730 posts

Posted 14 October 2020 - 02:37 PM

My guess is the Twins drop about 50-60 million from their payroll. Be real here people. If they think they are gonna lose all of that money they will non-tender a bunch of guys and use minor league players. 

 

I would be the payroll settles into that 85-95 million dollar range when it's all said and done. 


#17 tony&rodney

tony&rodney

    Cedar Rapids Kernels

  • Member
  • 190 posts

Posted 14 October 2020 - 02:54 PM

Or, think the long game. The Twins ascertain that the market will be cool for free agents and stuff themselves with a few players who want to win, bringing payroll to $150 million. 2020 turns over and 2021 brings many positive changes that includes people in the seats, full crowds, good weather, and a World Series that brings the team moola.

  • chpettit19 likes this

#18 DocBauer

DocBauer

    Senior Member

  • Member
  • 6,922 posts

Posted 14 October 2020 - 07:19 PM

Skipping the massive math in the thread that I just won't address, lol, just a few comments. Sorry, but I said some of this on the front page as well.

While some guys will absolutely be paid, the general FA $ will be depressed. The problem with that is every/most teams will have depressed payroll cuts making lower values of offers equalizing out. Now, it's possible large market teams, with different revenue streams from merchandising and TV/radio deals could have lost less and be expected to spend more, I'm assuming a general loss % across the board.

Where it could get reaĺy interesting is a glut of non-tendered players to offset loses. Suddenly the pool gets deeper.

As to more of the original topic, there is still the CBA beyond 2021 to be determined. So any sort of backloaded contract may be impossible to predict, much less embraced. Logic would seem to dictate...lol at logic when it comes to MLB CBA contracts...would be status quo for multi-year offers vs some proration.

As to signing bonuses, my understanding has always been that incentives are allowed in MLB. Everything from performance numbers and bonus dollars to securing earnings the next season, including a guaranteed deal. But thus far, no CBA deal has ever allowed any sort of signing bonus.
"Nice catch Hayes...don't ever f*****g do it again."

--Lou Brown


#19 chpettit19

chpettit19

    Cedar Rapids Kernels

  • Member
  • 203 posts

Posted 15 October 2020 - 08:12 AM

 

We may not be as far off on the revenue and expense as I thought. My assumption for average profit per team is $40M/year or 1.2B for the 30 teams collectively. This substantially changes how long it will take to recoup losses. My source is Forbes.(see link) You are using a $2B number for profits. What is your source? I would change my stance if there was credible information the teams are making an average of $66M per team.

 

https://www.forbes.c...st/#tab:overall

I used the league numbers Forbes estimates for the larger breakdown of things and used some insider info on the $2B number. Not "I've seen the books" insider info so could certainly be some exaggeration from people trying to brag about things, but I'd be willing to wager quite a bit that the numbers are higher than the 1.2 Forbes guesses. Either way I think we're generally close on things. I just know the league is by no means being killed by this season. They have more money coming in than they'd like people to think.


#20 Major League Ready

Major League Ready

    Senior Member

  • Member
  • 2,282 posts

Posted 15 October 2020 - 08:46 AM

 

I used the league numbers Forbes estimates for the larger breakdown of things and used some insider info on the $2B number. Not "I've seen the books" insider info so could certainly be some exaggeration from people trying to brag about things, but I'd be willing to wager quite a bit that the numbers are higher than the 1.2 Forbes guesses. Either way I think we're generally close on things. I just know the league is by no means being killed by this season. They have more money coming in than they'd like people to think.

 

I have wondered about other sources of revenue looking at Forbes estimate for the Twins. They estimated $300M for 2019 and I was a little surprised. Even if they derive 45% of revenue from gate related income, that leaves $165M and their Local + National TV revenue is under $100M. What's the source of the other $65M? It does not seem to me like Forbes is underestimating revenue.