Big contracts and little contracts

Major League Baseball’s winter meetings are generating as much talk as ever. Today, the Angels engaged in some economic stimulus with over $300 million in contracts for Albert Pujols and C.J. Wilson. Pujols’s deal is $252 million over 10 years. In ten years, Pujols will be 41.

This is basically the same deal that Alex Rodriguez got from the Yankees before the 2008 season (10 years, $275 million, age 32). Predictably, people are writing that Pujols’s contract is too long. I think this is the wrong view. I bet both sides think the total value is worthwhile for the team, but neither side thinks the player will be worth his salary in years 7 through 10. The contract is written for 10 years for two reasons: it gives Pujols assured cash flow for a long time and it lets the team space out the $252 million farther into the future.

In a land far, far, away where all contracts are one year, someone would probably pay Pujols $35 million for each of the next 5 years and then lower the amount each year through year 10. But, this scenario would make Pujols’s future income highly uncertain (even though he gets paid more upfront), and force the team(s) to pay a lot more upfront, which is almost always bad from a financial perspective. I can’t wait to read about Pujols “underperforming” when he’s 38 — it’s guaranteed to happen, just like A Rod right now (steroids issues notwithstanding).

In another land far, far, away, Danny Ainge is redeeming himself. Yesterday, I wrote about Ainge’s ill-conceived efforts to trade Rondo for Chris Paul. Today, my friend Tony (a big C’s fan) sent me better news: the Celtics are resigning Marquis Daniels. Who cares, right? Well, turns out that Daniels is the best defender in the league by points allowed (according to Synergy Sports) among guys that play a lot. This stat could be skewed for a number of reasons (Garnett is a great help defender, Daniels might spend a lot of time defending bench players, etc.), but the Celtics are going to get him for virtually nothing. Seems the old Moneyball theory of finding the undervalued asset is still relevant. This time the undervalued asset is defense in the NBA.

6 responses to “Big contracts and little contracts

  1. Also, the Pujols contract helps with the luxury tax problem (although it’s not nearly as bad as a cap, which lead to much trickery in the NHL) during the years when you may want to sign players to help win a world series around him before he starts to decline.

    • I absolutely agree – this is why the NHL has investigated some hockey contracts. As much as Pujols would like his money upfront, he’s probably getting paid a bit more overall (and definitely more years) by giving the Angels flexibility.

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