I think this deal is great for both sides. Especially with revenue sharing money, teams can afford the risk of flushing three million dollars a year away. Longoria has completely divested himself of all his major financial risk, and they Rays have a potential All Star locked up at a more than affordable price for six, seven, or nine years, depending on what they want.

Teams are starting to recognize that the utility of money is highly non-linear. That $17.5 million means way more to Longoria than it does to the Rays. Thus, the Rays have the option of getting a steal on Longoria's free agent years (in terms of both contract length and dollar value) and Longoria has financial security. Great stuff.

Man, you start getting cash from Match.com and all kinds of things happen.

It's a pretty good deal from both sides, but if I'm the Rays, I'd maybe rather wait until the end of the season and pay a bit more. He looks like he's going to be a hell of a ballplayer, but man...making that kind of investment after 24 major league plate appearances is either brilliant or insane. Or both.

Wow, I think this is awfully premature. What's the rush? Make him produce at the big league level for at least a season. I know he's a great prospect, but there have been more than one great prospect who fell completely flat on their face at the big league level.

Kinda surprised they've locked him up, but not BJ Upton.

I like this deal for the Rays, but I wonder if the pendulum for this type of deal is going to swing too far in the other direction.

One of the reasons a young, pre-arb player is so valuable to a major league team is because the team has the ability to cut them and stop paying them the minute they stop producing.

A few of these types of contracts are going to come back to bite the team that signs them, and the Rays in particular can ill-afford to be bitten by a bad contract.

This is insane concession Longoria has given up. Has his agent paid any attention to the trend in arbitration lately?

The deal doesn't make any sense to him unless he's hard up for cash right now. He's going to be getting much less than the average 3rd baseman over the next 6-9 years.

The deal doesn't make any sense to him unless he's hard up for cash right now. He's going to be getting much less than the average 3rd baseman over the next 6-9 years.

is his agent a major player? If not, it could be that his agent is looking to get his commission now before one of the big boys steals Longoria away.

The deal doesn't make any sense to him unless he's hard up for cash right now. He's going to be getting much less than the average 3rd baseman over the next 6-9 years.

But so what? He now has total financial security. The goal for the player isn't to maximize the dollar value of his career, it's to maximize the utility of his career. If Evan blows out his knee, or gets hit in the head, or falls down the stairs tomorrow, it doesn't matter. He's still wealthy. I think you are greatly underestimating the downside for a young professional athlete.

Well, let's just hope he doesn't pull an Eric Hinske... that's the last thing the Rays need.

Well, let's just hope he doesn't pull an Eric Hinske... that's the last thing the Rays need.

It would be pretty funny if Longoria pulled an Eric Hinske but Hinske kept hitting well and replaced him.

I tend to agree with John Lynch here -- total security now is worth leaving some potential money on the table.

There will be busts with this kind of a deal -- what if the Braves gave one to Marcus Giles or something -- but on the whole, I'll bet teams come out ahead on them.

I think this is great for Longoria, and probably the Rays too.

I might have waited til the end of the season. What could that have cost them, an extra $3-5 M if he's ROY.

I'd like to see a little MLB performance before locking him up, even a Alex Gordon first year would make me more confident.

But, even so, $17.5M over 6 years won't cripple them, even if he is a total bust.

But so what? He now has total financial security. The goal for the player isn't to maximize the dollar value of his career, it's to maximize the utility of his career.

I know the downside potential of his career. I am baffled by the ease he totally gave up the upside of his career for a long time. The most money he can make in the next NINE years is $45million. Factoring in salary inflation, that's probably much mroe than 50% less than he would make if he had gone the arbitration then FA route.

A few of these types of contracts are going to ocme back to bite the team that signs them, and the Rays in particular can ill-afford to be bitten by a bad contract.

How bad can it be? Right now, the Rays are locked into $17.5M over six seasons; if someone like Jose Bautista can earn $1.8M in a split-the-difference deal as a Super Two, it's hard to imagine Longoria actually earning less than $10M total over the next six years, so the Rays really don't lose much unless he suffers a catastrophic injury or has a Sean Burroughs-like collapse.

The upside for the Rays is much, much higher; even if he's just an above-average player and not a star in his prime, they're still saving far more than the $17.5M they just committed.

The best thing about this is actually what the headline implies: now the Rays have every incentive to do what's best for Longoria, instead of potentially sticking him in AAA for a few extra months just to avoid early arbitration or free agency. Longoria gets security, the Rays save money, and they align their incentives for the foreseeable future; sounds good to me. . .

The first $20M has much greater utility than the following $200M. This signing makes total sense for Longoria.

I don't at all disagree with John Lynch, but Longoria got a $3 million signing bonus. Even lopping 60% off for commission and taxes, he's still sitting on more than $1 million. That plus his league minimum salary in '08and he's earned nearly $1.5 million at age 22.

I know (or at least I strongly suspect) that the difference between having $1.5 million in the bank and having a guaranteed $17.5 million is pretty huge and more or less guarantees that Longoria (and his children) will never have to work another day in his life when his career's over. But it seems to me that in his situation there's a case to be made for leaving the $17.5 million on the table and shooting for triple that amount in arbitration.

Sound like I'm waffling? I am. I understand his decision, but I can see it the other way too.

I don't know why Longoria signed this deal. He pocketed a $3 million draft bonus less than two years ago, so it's not as if he needs the money - He already has a fair bit of financial security. If he managed to put up a couple good seasons in the next few years, he could have tripled his leverage. Heck, Longoria could have made more than this over the next six if he was just average. I can understand players trading upside for security, but Longoria gave up a ton of upside and already had a fair bit of security. The fact that he gave the Rays option years is just madness.

I agree with Lynch as well. Worst case scenario for Longoria is he puts 17.5 mil in the bank, but he probably is going to put away 44.
Get the first deal to make you set for life...never have to worry about paying your bills, how your kids are going to pay for college, how you are going to pay for retirement (and still have plenty left over) and you still have plenty of time in your career - if you excel - to get the contract that will buy you a private jet.

If he turns into the star he could be he could probably still get a big payday at 31 or 32 as an All-Star 3b with some .300, 30 HR seasons.

And I was questioning from the Rays standpoint at first, I'd usually like to make a guy play in the majors more than a week but even if he can have a Marcus Giles career this isn't a bad deal for them. It would be 3 years, 17 mil or something which isn't so much for a decent 2b/3b, especially the way salaries are rising

haha, from the Chris Young thread:

3. Cabbage Posted: April 08, 2008 at 12:33 AM (#2734534)
How soon before a team locks up a hot prospect to a big extension before he hits the big leagues? It would have to be a situation like the Brewers with Ryan Braun. That is, an older, hot hitting prospect who the team is obviously keeping down to hold off the arb clock.

I imagine it will have to be a mature, and level-headed kind of player who the team could go to and say, "Look, we both know why your still in AAA. why don't we cut the crap. We'll bring you up right now if you'll sign a long-term deal and give us what we'd be saving by keeping you in AAA until June."


4. "vicinity of the zip code of brain power" Posted: April 08, 2008 at 12:56 AM (#2734546)

I imagine it will have to be a mature, and level-headed kind of player who the team could go to and say, "Look, we both know why your still in AAA. why don't we cut the crap. We'll bring you up right now if you'll sign a long-term deal and give us what we'd be saving by keeping you in AAA until June."


That'd be cool. Heck, it could work for Longoria right now.

How bad can it be?

Pretty bad.

The BA top 10 positions prospects from 2001 (excluding Ichiro):

Josh Hamilton
Corey Patterson
Sean Burroughs
Nick Johnson
Carlos Pena
Vernon Wells
Drew Henson
Antonio Perez
Alex Escobar
J.R House

Tampa would be pretty unhappy paying $17.5MM for most of those guys. Wells is probably the only one where they get a steal.

I'm sure the success rate is higher if you restrict it to players from the high minors, and I may have picked a bad year, but there's a number of different paths Longoria can go down that will make this contract look foolish.

This is terrible for Longoria, and there's really no arguing otherwise. He's not leaving "some potential money" on the table. Those last three years are on the order of 50% discount if he becomes a star. And they're *options*. This so he can achieve "total financial security"? His bonus was $3MM. Merely being of journeyman quality would have made him millions more. Being even average would've easily netted him eight figures his first six years. The only way this works out in his favor is if he's incapacitated before 2012.

I don't know why Longoria signed this deal. He pocketed a $3 million draft bonus less than two years ago, so it's not as if he needs the money - He already has a fair bit of financial security. If he managed to put up a couple good seasons in the next few years, he could have tripled his leverage. Heck, Longoria could have made more than this over the next six if he was just average. I can understand players trading upside for security, but Longoria gave up a ton of upside and already had a fair bit of security. The fact that he gave the Rays option years is just madness.

That $3M is probably more like $1.6 after taxes, commission etc.

If that's all he ever makes, that would yield him an income of maybe $60-80,000 per year, which is going to be eaten away by inflation. Probably not the lifestyle he has in mind.

But, add the $17.5M to the $3M, and he has an annual income in the $400-500K range.

That's why he does it.

Also, kudos to Longoria.
He hasn't been a guy who has been hyped as the next hot thing since he was 15 or 16.
As far as I know he wasn't a big deal out of HS, and didn't get good offers from top teams, so he settled for going to Rio Hondo JC for one year and then transferred to Long Beach for his sophomore year where he put up only average numbers (though it is a pitchers park) and was second fiddle to their star shortstop... a big, athletic kid named Tulowitzki : )

He didn't really start to get attention til his Cape Cod stint before his Jr year. I think his name on BAs top Cape Prospects list surprised some who saw a guy with ordinary college numbers the year before. For awhile, the only thing people knew about him was that he was unrelated to Eva.
Then, Aaron Crow or Josh Phegley-style, he keeps his strong Cape stint going straight on into the next spring. Next thing you know he is a top pick and the next big thing

Some people would like to get the money squared away so he and the team are in 100% agreement on his career. No longer will he be sent to the minors to delay his free agency. No longer will he have to enter the offseason of his arb years going to war with his employer.

It's easy for those of you to criticize from your mom's basement.

"Tampa would be pretty unhappy paying $17.5MM for most of those guys. Wells is probably the only one where they get a steal."

I think that is over stating it. No one is saying 17.5 for three years would be a good deal even if he busts but that his odds of becoming at least a mediocre player are fairly high.
3 years/17 mil for any given stretch of Corey Patterson, Carlos Pena(pre-07) or Nick Johnson wouldn't be a steal but it would not be bad either and I think it is reasonable to expect him to become at least that decent of a player.

Granted, the original three million dollar signing bonus does alter things somewhat. Even accounting for that though, I still think that this makes sense for both parties. I think snapper drives this home pretty well in #21.

Also, I think it's interesting that you have a handful of people that think the Rays have committed too early and people who believe that Longoria committed too early. As the list in #19 demonstrates, there's more risk involved for the player than may seem readily apparent. At the same time, that $17.5 million is not really a huge risk for the Rays, especially considering any inflationary effects over the six years. Three million dollars buys you almost nothing on the free agent market these days.

I agree with Snapper. I think you are far removed from reality if you are thinking a 22 year old guaranteeing himself an affluent lifestyle for himself and his family for the rest of his life is a "terrible" decision for him.

Imagine what it would be like to never have to worry about making a mortgage or rent payment, never having to worry about how you will have to pay for your kids, and being able to travel anywhere you want in the world without having worry about how you are going to pay for it

Pretty bad.

The BA top 10 positions prospects from 2001 (excluding Ichiro):

Josh Hamilton
Corey Patterson
Sean Burroughs
Nick Johnson
Carlos Pena
Vernon Wells
Drew Henson
Antonio Perez
Alex Escobar
J.R House

Tampa would be pretty unhappy paying $17.5MM for most of those guys. Wells is probably the only one where they get a steal.

This is a little misleading, as not all of these players were at the major-league ready stage, as Longoria is right now, and many of the busts were perceived as more risk/reward guys than the consensus review on Longoria.

Plus, to use one example from this list - according to BBRef, Corey Patterson made just under $11 million from 2001-2007, which will probably be close to $17.5 in 2008-2014 dollars. So in a not-good scenario, they pay market price for not-great performance; in a better-case scenario, they make out like bandits.

That $3M is probably more like $1.6 after taxes, commission etc.

If that's all he ever makes, that would yield him an income of maybe $60-80,000 per year, which is going to be eaten away by inflation. Probably not the lifestyle he has in mind.

But, add the $17.5M to the $3M, and he has an annual income in the $400-500K range.

That's why he does it.

Well, the $17.5 mil is probably between $9 - $10 mil after taxes and probably only has a present value of around $7 mil. Let's also not forget about the option years. The Rays will only exercise those options if they are below market value. They are a detriment to Longoria - not an asset. By the time this deal expires, Longoria will be 32. He gave away all of his upside earning potential for the majority of his career after 1 day in the major leagues for $17.5 million.

Well, the $17.5 mil is probably between $9 - $10 mil after taxes and probably only has a present value of around $7 mil. Let's also not forget about the option years. The Rays will only exercise those options if they are below market value. They are a detriment to Longoria - not an asset. By the time this deal expires, Longoria will be 32. He gave away all of his earning potential for the majority of his career after 1 day in the major leagues for $17.5 million.

No. If they exercise the options he gets $44 M. And, he'll get another big contract at 32 if he's good.

Either way he's set for life. Hard to turn down.

Put it this way. If he doesn't do the deal, and sucks, or gets hurt in the next 4 years, he has to work for the rest of his life. Now, he'll never have to work another day in his life once baseball is done.

The most money he can make in the next NINE years is $45million. Factoring in salary inflation, that's probably much mroe than 50% less than he would make if he had gone the arbitration then FA route.

This is exactly my point though. The correct way to approach decision making is not to examine the expected dollar value of that choice. The correct way is to analyze the expected utility of any particular choice. The utility of money is highly non-linear. Your first $45 million is far and away more useful to you than your second $45 million.

To use an extreme but simple example, imagine that you are offered the opportunity to play a particular game exactly once. In that game, you have one choice to make. You may choose to walk away with one million dollars or to risk that million dollars on a coin flip. If the coin comes up heads, you win three million dollars. If the coin becomes tails, you receive nothing at all.

If we analyze that decision using only the expected value of each choice, we will be lead to choose the coin flip because the expected value of the flip is $1.5 million. However, I suspect that most of us, not being millionaires (I think) will choose to take the one million dollars and not risk the coin flip. For us, that initial one million dollars has more utility than the chance at three million dollars. Someone who is already independently wealthy would probably be wise to choose the flip. For them, the utility of the money is much more directly proportional to its value.

Longoria chose not to flip. Even though his situation is far less extreme, it's probably the right decision.

I agree with Snapper. I think you are far removed from reality if you are thinking a 22 year old guaranteeing himself an affluent lifestyle for himself and his family for the rest of his life is a "terrible" decision for him.

Most 22 year olds don't already have $1.5 mil in the bank and aren't already one of the best in the world at their chosen profession. That alters the risk/reward calculus a little bit.

The first $20M has much greater utility than the following $200M. This signing makes total sense for Longoria.


Very good point. I would think going from $3 million (his signing bonus) to $17 million has a much bigger impact on his life than going from $17 million to ??? million.

Maybe he also really wants the organization to do well and have the financial flexibility to go out and improve the ballclub? Maybe its possible that not all ballplayers are out to squeeze every last dollar they can? I was thinking that if I were a ballplayer, I would probably set up a deal that gives me a decent salary, but not an enormous salary, because I would never want to become a financial albatross and give my team an incentive to trade me or waive me (and add an iron-clad no-trade clause). Maybe having some stability is more important than extracting every last dollar to a guy like Evan.

I was thinking that if I were a ballplayer, I would probably set up a deal that gives me a decent salary, but not an enormous salary, because I would never want to become a financial albatross and give my team an incentive to trade me or waive me.

I wouldn't. I'd squeeze every last penny out of them.

Better to have the money in my pocket than the owner's pocket.

Very good point. I would think going from $3 million (his signing bonus) to $17 million has a much bigger impact on his life than going from $17 million to ??? million.

Exactly. When I was in B-school, Warren Buffet came and spoke and said that the only real difference between his lifestyle and the lifestyle of an average B-school grad was that he has a private plane. And he's worth $50 billion.

Once he gets the $10M in the bank, additional earnings will mean almost nothing in terms of lifstyle.

Barry's Lazy Boy put it perfectly in #14. No argument.

Having said that, if Longoria would have said, "Scrap the last two option years," would the Rays have pulled this offer off the table? It still would have made a ton of sense to them AND guaranteed Longoria's financial security.

31,
Not to be cliche but I think this is a prime "get your head out of the spreadsheet" scenario.
There doesn't have to be any "calculus".
Its not just about the numbers. It really is about the human element. Not only complete security for life, but guaranteed affluence as well as being able to insure that no parent, brother, uncle, wife (potential in his case) or child of yours will ever have to worry about making ends meet.
Thats a pretty powerful motivation, personally.

Plus if Longoria does perform so well that he is being underpaid he probably will get a big payday at 32. Yes, being 32 reduces your FA value (duh) but legit big-time major leaguers don't seem to have too much trouble pulling in big-time deals at that age if they are still all-star level performers. Paul Konerko has pulled in 12 mil each the last two years. Yes, he signed at 30 instead of 32 but he is also an "old player skills" 1b rather than an athletic 3b.

"I was thinking that if I were a ballplayer, I would probably set up a deal that gives me a decent salary, but not an enormous salary, because I would never want to become a financial albatross and give my team an incentive to trade me or waive me. "

Only if I never wanted to move from where I was. And in that case, in exchange for the lower money, I'd ask for a no-trade.

Otherwise you're not really taking money from those in need. You're taking an extra mil or two from an owner needs it even less than you

No. If they exercise the options he gets $44 M. And, he'll get another big contract at 32 if he's good.

My point was that Longoria gave away all of his upside for $17.5 mil (I edited my post about a minute after I posted to make this more clear - I guess you caught me before then). The option years are bad for him - if it's worthwhile for the Rays to exercise them, Longoria would have been better off becoming a free agent. They detract value from the deal from Longoria's perspective. In addition to giving up whatever upside he may have had through the arbitration process, Longoria gave the Rays the ability to take his first 3 free agent years on 1 year contracts at below market value.

Sorry if this was already mentioned, but what caught my eye is the 3, THREE, options years buying out free agency. Why in the world would you give up three years of free agency if you perform well?

They detract value from the deal from Longoria's perspective. In addition to giving up whatever upside he may have had through the arbitration process, Longoria gave the Rays the ability to take his first 3 free agent years on 1 year contracts at below market value.

That's true to an extent, but the last 2-years are a two year option, so they can't year-to-year it at that point.

I have to think he could have gotten the same money without the option years. This is why I think it's a bad deal for him, not because I think he should be Gordon Gecko or aspire to swim in a swimming pool of gold coins ala Scrooge McDuck. But you got to hand it to the Rays. This will help them keep some of their other young talent now. They're building something.

The correct way to approach decision making is not to examine the expected dollar value of that choice. The correct way is to analyze the expected utility of any particular choice. The utility of money is highly non-linear. Your first $45 million is far and away more useful to you than your second $45 million.

I agree with this, but $45 million is not the correct number to use - the $17.5 mil number is. He only gets the $45 mil if he is good. And if he was good enough for the Rays to exercise the options, he would have made much more as a free agent.

I agree, the options are curious. I can't help but wonder if they are a way for an agent to brag that he got a $44 million deal, when in fact, those years aren't guaranteed. Happens in the NFL all the time.

if it's worthwhile for the Rays to exercise them, Longoria would have been better off becoming a free agent.

But if it's not worthwhile, then there's a decent chance that Longoria has performed poorly enough that the $17.5 million part of his contract was a win for him. Those option years average under nine million dollars per season and the commitment is minimal. If you're performing poorly enough that the team doesn't want those options, would you really have made $17 million in arbitration? I'm not so sure.

re: the BA 2001 comment - why not use the BA 2004 list instead? Top 10 Non-Japanese position players only.

1. Joe Mauer - would have been a bargain
2. BJ Upton - would have been a bargain
3. Delmon Young - he was only 18 when he made this list, but this would still probably be a good deal
5. Rickie Weeks - not sure about a bargain, but definitely not a franchise crippling deal or anything
6. Alexis Rios - will make much more over his first 6 years than 17.5 mm.
9. Grady Sizemore - would have been a bargain
10. Prince Fielder - would have been a bargain

This is why I think it's a bad deal for him, not because I think he should be Gordon Gecko or aspire to swim in a swimming pool of gold coins ala Scrooge McDuck.

Yup, for the Rays, it still makes sense to sign Longoria even if he demands the removal of the final 2 year option.

I guess all the hoopla about delaying his arb clock was all about nothing.

Exactly. When I was in B-school, Warren Buffet came and spoke and said that the only real difference between his lifestyle and the lifestyle of an average B-school grad was that he has a private plane. And he's worth $50 billion.

The average B-school grad also doesn't figure into the fantasies of conspiracy theorists by being in the Bilderburgers, the Trilateralists, etc.

They are welcome to join the Masons.

Count me among those who think Longoria sold himself too cheap.

There's no new bonus money involved. His first three years' salaries are $500,000, $550,000 and $950,000. And the total for the first six years is actually $14.5 million or $15 million, depending on whether his first arbitration year would have been 2011 or 2012. (The remaining $3 million in the guaranteed $17.5 million is the buyout on the first option year, and barring some catastrophe, that buyout isn't going to come into play.)

Most 22 year olds don't already have $1.5 mil in the bank and aren't already one of the best in the world at their chosen profession. That alters the risk/reward calculus a little bit.

How do we know he still has $1.5 million in the bank? If I got a $3 million signing bonus, after taxes, the first thing I'd do is pay my parents' mortgage and car payments off, and help my father finally retire. I don't know if my mother still has hospital bills from her medical issues a few years ago (I'm not privy to such financial details), but I'd take care of that, too. I'd also help out my brother, his baby-momma and his baby. Sure, I'd stock away some for myself and just let it collect interest but after all that, there's not a whole lot of that $1.5 million leftover. For all we know, Evan has already spent most of it. Now he can make sure his kid's kid's kid's can retire.

I agree with this, but $45 million is not the correct number to use - the $17.5 mil number is. He only gets the $45 mil if he is good. And if he was good enough for the Rays to exercise the options, he would have made much more as a free agent.

Hell, I'm even comfortable with the statement that your initial $17.5 million is worth more than your next $45 million. Even so, if Longoria is not good, he's probably not getting another $45 million. That $45 million dollar figure is the extent to which he limited his upside, since if he only gets the $17.5 million he never realized the upside in the first place. In order for the deal to hurt him financially, the Rays have to exercise those options. Thus, I think the $45 million figure is appropriate.

As for the speculation as to whether or not he could have done better, who knows? I don't want to play that game. I will say that in order for the two parties to reach a deal, there has to be an incentive for the Rays. The only upside for a long term deal for them is to buy out as much free agency as possible. I'm not sure that I would do the deal, from the Rays perspective, if I was only buying out one year of free agency.

Yup, for the Rays, it still makes sense to sign Longoria even if he demands the removal of the final 2 year option.

Disagree. You've already got Longoria for six years with zero commitment. Why would you sacrifice all of that to buy one extra year of a promising but unknown commodity? I think it has to be more than one year for it to make sense for the Rays. I think the fact that the final option is a two-year option as opposed to two one-year options is a compromise between the Rays and Longoria: they can lock him up longer, but they don't get the flexibility of terminating the contract every year.

Maybe Longoria already has an injury he just isn't telling anyone about.

You've already got Longoria for six years with zero commitment. Why would you sacrifice all of that to buy one extra year of a promising but unknown commodity?

You do that to avoid a Ryan Howard first year arbitration fiasco. What they are paying him in this deal in the next six years is probably going to be less than what he'll get in year-to-year arbitration, factoring in inflation. Add on one year of FA option makes it a very good bargain.

billy said it better than I did. The really bad part of the deal is the three option years for Longoria. He's giving up too much.

ps. Compared with what Wright and Tulow got, this deal looks ludicrous. Wright and Tulow did have a year or so more track record in the majors. I don't see why Longoria was in such a hurry he couldn't wait five months to give himself similar leverage.

re: the BA 2001 comment - why not use the BA 2004 list instead? Top 10 Non-Japanese position players only.

1. Joe Mauer - would have been a bargain
2. BJ Upton - would have been a bargain
3. Delmon Young - he was only 18 when he made this list, but this would still probably be a good deal
5. Rickie Weeks - not sure about a bargain, but definitely not a franchise crippling deal or anything
6. Alexis Rios - will make much more over his first 6 years than 17.5 mm.
9. Grady Sizemore - would have been a bargain
10. Prince Fielder - would have been a bargain

I used 2001 because those players have finished serving their pre-free agency time. The 2004 class looks a lot better, but I think it's too early to call some of those.

Rios actually illustrates my point pretty well, I think. He will make just over $14MM in his first 6 major league seasons (2004-2009).

So even in a case where a prospect pans out like Rios, there's not as much upside as you'd think.

Disagree. You've already got Longoria for six years with zero commitment. Why would you sacrifice all of that to buy one extra year of a promising but unknown commodity?

Because you could sign him to a lower price than what he would receive via arbitration. For Longoria, I think it's a good move to sign a long term contract through his arb years but he should keep his FA years if possible.

I think it has to be more than one year for it to make sense for the Rays.

It doesn't even have to be one year to make sense for the Rays. Arbitration between the team and player is a given assuming the player isn't cut.

Longoria's contract:

2008 – $500,000
2009 – $550,000
2010 – $950,000
2011 – $2-million
2012 – $4.5-million
2013 – $6-million
2014 – $7.5-million or $3-million buyout
2015 – $11-million or $1-million buyout of two-year option.
2016 – $11.5-million

They’re paying him the first 3 years what they would basically pay him anyways.

And then the arb years: $2M, $4.5M, $6M and then another $4m if they do not pick up his options. In terms of FA value, ie a player gets 40% of his FA value in his 1st arb year, 60% in his 2nd, 80% in his 3rd, that is $5M, $7.5M, $7.5M, with another $4M, with a $5M FA value, tacked on if they do not pick up his options, total of $25M /3 . That is what a slightly above league average player gets today, around 2-2.5 wins above replacement. In 2008. In 2011-2013 it is almost certainly going to be more.

So, they are valuing him at basically, league average, not over the entire deal, but only the last 3 guaranteed years. If he becomes league average in years 4-6, they get what they are paying him.

How is this not a bargain? Yeah, there's some risk. Conversely, there's also the risk that he becomes a star, and they are going to have to pay him a HUGE deal to retain him.

That $45 million dollar figure is the extent to which he limited his upside, since if he only gets the $17.5 million he never realized the upside in the first place. In order for the deal to hurt him financially, the Rays have to exercise those options. Thus, I think the $45 million figure is appropriate.

When I talk about upside, I am talking about the ability to be paid market value for his services. Presumably, over the next 6 years, Longoria could be worth $0, so the guaranteed $17.5 mil is an asset to him. But if he does get the additional $28 mil, it will only be because he was worth more than that on the free market. It gives Longoria more money, but does not give him any value because Longoria would be paid more money in the absence of the options.

Because Longoria didn't begin the season on the roster, he wouldn't be eligible for free agency until after the 2014 season. Right? So he sold his first two seasons of free agency for $22M, when (if all goes to plan) he might have received $50M for them.

Yeah, he gave up a lot for that guaranteed $17.5M. Makes me wonder if there wouldn't be a good business opportunity guaranteeing the careers of ballplayers? Would need an awful lot of money to write hedge contracts of that size, however.

Wright and Tulow did have a year or so more track record in the majors. I don't see why Longoria was in such a hurry he couldn't wait five months to give himself similar leverage.

There is no guarantee he does what Tulo and Wright did out of the gate. He could go BJ Upton, or Travis Hafner, or what any number of guys did.

The list of flops is probably longer than successes.

Though I will agree with posters who think he may have given up too much.

This is a bargain.

What's everyone think of the ancillaries though?
For a franchise that has no signature, building on a base of Crawford (as elder statesman), Kazmir, and Longoria gives them a solid marketing base. They are also committing to one of their players long term, giving them something ot point to. This in combination with the moves with Dukes and Delmon could be construed as having a plan. Even if I'm not smart enough to figure it out.

In terms of Longoria (who I think undervalues himself) there is something to be said for being the Face of the Franchise in Week 2

What are the other side effects?

When I talk about upside, I am talking about the ability to be paid market value for his services. Presumably, over the next 6 years, Longoria could be worth $0, so the guaranteed $17.5 mil is an asset to him. But if he does get the additional $28 mil, it will only be because he was worth more than that on the free market. It gives Longoria more money, but does not give him any value because Longoria would be paid more money in the absence of the options.

Granted, the options are not an asset to Longoria, no question. Those are the concessions he makes for financial security. However, it is fair to say that he will receive $45 million if he meets his potential. Yes, that will be less than what he would have received, but I'm sure it still matters to him.

I think it is a mistake to treat this case as if Longoria would certainly have made more than $17.5 million in arbitration. He might have, no question. He is definitely capable of that. But there is also a non-zero chance that he might never make it to arbitration in the first place, or get there with much poorer credentials than expected. Until he signed this contract, Longoria was bearing virtually 100% of the risk in his situation. Now, he is bearing almost none of it. It's hard for me to believe that the additional reward above and beyond the $45 million, which he will make if he succeeds, is enough to offset the risk of not getting the $17.5 million.

Even lopping 60% off for commission and taxes

Either Longoria's a Swedish citizen, or he needs a new agent. Commissions for reputable agents are around 5%, and sometimes less.

"if it's worthwhile for the Rays to exercise them, Longoria would have been better off becoming a free agent."

That's when the star third baseman begins making noise about demanding an extension, demanding a trade, etc.

I think this is a good deal for both sides. Longoria has true financial security and the Rays have a potentially strong player for under-market value.

We can debate about whether or not he should have signed the deal, but unless we are the one holding the pen in our hands, we really don't have a good understanding. Pedants can argue whether either side got screwed until the contract ends, but the biggest fact in Longoria's favor right now is he has a boatload of money coming in that he didn't have yesterday.

Normally when a player signs a bad deal I think you just have to accept that he has different values than you do and move on, but this deal...wow

If pulls a Sean Burroughs and flames out quickly, he's still gonna be rich. 3 million signing bonus + probably about 7 million earned in the majors.

So he's costing himself 30-50 million to insure that in the relatively rare disaster scenario, he makes 20 million instead of 10. That's just an absurd level of risk aversion.

AP:

“First of all, I like being here,” Longoria said. “It’s an enjoyable place to live and play. Why not be here and be part of the nucleus of the team, the core group of young guys? As a player, you have to look out for what’s best for you. For me, the security of a long-term contract and knowing that now I’m pretty much set for life, it’s just very assuring to me. The money is one thing, but at the same time, it’s what the player wants. What I wanted was to be set and just worry about going out and playing the game and winning.”
...
Talks between the two sides started in early March, and many of the contract details had been agreed upon on April 11, one day before Longoria came up to the Rays.

“It was something both sides wanted to explore,” Friedman said. “It was something both sides had to make concessions along the way.”

The Rays have signed a number of their younger players to long-term deals, including right-hander James Shields, and outfielders Carl Crawford and Rocco Baldelli.

“Being a low-revenue team, we have to think differently to keep our nucleus intact,” Friedman said. “We’re very committed to this. We hope to demonstrate it a lot of the future.”

Tampa Tribune blog

Executive vice president Andrew Friedman said talks were under way during spring training and the deal would have been completed even if an injury to Willy Aybar hadn’t forced Longoria’s promotion to the Rays last Saturday.

“There was a very real chance this deal could have been announced while he was in Durham,” Friedman said.

This new wave of ultra early deals only looks good because we have not yet had a chance to see one blow up. Be reassured, many will blow up.

This new wave of ultra early deals only looks good because we have not yet had a chance to see one blow up. Be reassured, many will blow up.

Hinske is usually held up as an example of an early contract bust. And his was no where near as bad as the half-dozen or so boners teams routinely make in the FA market during every off-season.

I'd be interested to see if you have any candidate for busts in mind or just making **** up.

So he's costing himself 30-50 million to insure that in the relatively rare disaster scenario, he makes 20 million instead of 10. That's just an absurd level of risk aversion.

I haven't read every post, but I don't think anyone is arguing that he shouldn't have signed an extension. Obviously that's a good move in terms of managing risk. It's giving up his FA years that's questionable when there is a team incentive to sign him to an extension w/o buying up the FA years.

I'd be interested to see if you have any candidate for busts in mind or just making **** up.

Due to injuries, Baldelli hasn't really worked out. Jason Bay just had a down year during the second year of his contract.

And that contract was signed while Baldelli was injured, as I recall.

Looking pretty iffy in the field tonight...

Angel Berroa signed a long term deal just after winning ROY. That contract will expire this season, when he's done playing in Omaha.

Obviously Longoria is no Angel. Angel is one of a kind.

If Longoria is smart, then he'll properly convert his immediate payday into a useful longterm investment: a hot wife.

If Longoria is smart, then he'll properly convert his immediate payday into a useful longterm investment: a hot wife.

That's not an investment that'd be reducing the guaranteed money to 8.75 mil.

2014 – $7.5-million or $3-million buyout
2015 – $11-million or $1-million buyout of two-year option.
2016 – $11.5-million

You can't say he sold his upside for only $17M. He sold it for $17M plus those three years, i.e. $45M total. I.e. if he has no upside, he's getting $17M guaranteed that he would never have earned. If it turns out he's a great player, he's getting the $45M so he's only giving up an amount beyond that he would have earned.

He was facing a worst case of a million or so more with an average best case of maybe $80M or so, assuming he got $20M per year for his three free agency years. By accepting, his worst case scenario increased from $2M to $17M, and his best case scenario was reduced from $80M to $45M. And most of what he gave up is 6 years away, so the discounted cash value of that missing $35M is probably $20M in todays money.

Of course he might have been able to sign an 8 year $200M deal at free agency, so you could argue he cost himself more than $35M, but in that case he's likely to sign with Tampa Bay (or the team they trade him to) in 2015/2016 a new long term deal will comprise much of that anyways, so again, he's not losing much utility when he earns only $140M instead of $200M.

Everyone has pointed out relative utility of $17M over $2M is much greater than the utility of $80M over $45M. But too many people on this thread think $2M is a lot of money when it's not. It's enough to live a middle class lifestyle without working. You would need to have enough equities or reinvest enough income to keep up with inflation or run the risk of being poor in 40 years. About 3% a year or $60k a year would be your max spending limit. $10M after tax, or $300k per year, is enough to live a upper middle class lifestyle for the rest of your life without working.

I guess I'm in the minority, but spending that money on a non-proven player is a joke.

I was hesistant on Longria's chances to be a legitmate major leaguer, now I think it's guaranteed that he won't amount to much.

ValueArb,

Longoria already had $3.5 million locked up. If he suffers a horrible injury tomorrow and is never any good again he'll make maybe $5 million from basesball. This is maybe the 1-in-1,000 disaster scenario. If he massively underperforms he'll make maybe $10 million from baseball. This is maybe the 1-in-15 disaster scenario.

He's hedging against those two scenarios by guaranteeing himself $20 million, at the cost of about $40 million in expected earnings.

I'm a professional gambler so maybe I'm built a little differently than most, but come on!

It's not like he's a 21 year old pitching prospect who signed out of high school for 85k and by age 30 could reasonably be either broke or worth 9 figures

JB, EV is not utility. His record so far is less impressive than Sean Burroughs, and while it's unlikely he'll bomb like SB, it's far more likely than you think. A range of probabilities like 25% to end up with no career like SB, 25% to be a journeyman, 25% to be a solid player, and 25% to be a star is much closer to the truth.

Even $5M after tax, expenses, spending, representation is lucky to leave him with $2.5M. Properly invested to keep pace with inflation means he might generate $75k a year in income from it. That's a far cry from $300k a year.

Assume an arbitrary scenario where he's 75% to be a megastar with $200M in lifetime earnings, and 25% to be a bust with $5M in lifetime earnings and ignore taxes. By taking this deal he's reduced his lifetime earnings by 20% three quarters of the time, and quadrupled his lifetime earnings one quarter of the time. Even though his EV is dramatically less, his average utility is much higher. This is because extra utility between $5M and $20M is far far greater than the extra utility from $160M to $200M. Now, rerun the scenario where he becomes a superstar significantly less often than 75%, and the deal just becomes more attractive.

Think of it another way. The percentage of homes/cars he can own goes from roughly 50% with $5M, to 99.9% with $20M to 99.99999% with $200M.

The only way he makes $5 million is if he injures himself worse than Jason Kubel did. If he has no career, like Sean Burroughs, he makes $10 million.

Your arbitrary numbers don't really have any basis in reality. If you really think there's a 50% chance that Longoria never becomes a solid player, then I would be willing to wager large sums of money with you. I can find an escrow. Or you could just open up a PECOTA page

Evan Longoria's Agent .. . should have his children taken away.

thats a horrible deal for Longoria. So what if he gets the Ferarri now. In three years he can buy a fricking Ferarri dealership.

this is nuts.

Sean Burroughs made $4M in his career. If you really think a guy who hit .255 at AAA is a lock to be a Major League star you don't understand the historical success probabilities of prospects.

But my post was about the utility of money, which you didn't address or apparently understand. So I can respond no more.

2014 – $7.5-million or $3-million buyout
2015 – $11-million or $1-million buyout of two-year option.
2016 – $11.5-million



You can't say he sold his upside for only $17M. He sold it for $17M plus those three years, i.e. $45M total. I.e. if he has no upside, he's getting $17M guaranteed that he would never have earned. If it turns out he's a great player, he's getting the $45M so he's only giving up an amount beyond that he would have earned.

If Longoria gets that money, it's only because he was worth more than that on the FA market, which he could have, had he not bargained those rights away for $17.5 mil. All those salaries do is serve as a baseline for how much less than market value Longoria will make in those years. They hold no value for him.