Yu Darvish is not a Texas Ranger. Despite the mutual interest, despite the Texas Rangers needing pitching, despite the Rangers having room in their payroll to sign Yu and still keep the payroll at or below 2016 levels (much less 2017 levels), Yu Darvish will not be pitching for Texas in 2018.
He will be, instead, a Chicago Cub.
When the news first broke that Darvish and the Cubs had agreed to a 6 year, $150 million deal, my initial reaction was, that’s more than Texas should pay. I am a huge Yu Darvish fan, I wanted Darvish back in Texas, both for emotional reasons and for baseball reasons, but $25 million per year for six years is a deal that is more than you’d want to commit, if you’re the Rangers (or a Ranger fan).
When the clarification came, however, that Darvish was getting $126 million guaranteed, with incentives that could make the entire deal worth $150 million, that changed my thinking. $21 million per year isn’t ace money -- its #2 starter money, arguably strong #3 starter money. I’d have been on board with 5 years, $110 million. Is the extra year at $16 million really enough risk to make this deal unpalatable? At 6/$126M, it puts this deal in a gray area where I think there’s no definitive right answer for the Rangers — I can understand passing on it, but I certainly think there’s a strong case to be made for bringing Yu back at that price.
Of course, as I’m processing all that, we get additional details -- Yu Darvish is getting some form of no-trade protection, though whether that’s a partial or full no trade clause still isn’t clear, from what I’ve seen. While I’m not sure what dollar value you’d put on that, there is value to a no-trade clause, and that pushes the “real” value of the deal up a little, though probably not enough to materially impact the Rangers’ evaluation of the deal.
More importantly, however, Darvish has at least one opt-out in the deal. And according to Jerry Crasnick, it is either after 2018 or, more likely, 2019.
And that opt-out clause makes all the difference in the world, if you are the Texas Rangers. An opt-out clause in the first part of this deal changes this from a contract that you could justify from the Rangers’ point of view to a contract that it makes zero sense for Texas to offer.
Why is the opt-out so meaningful? Let’s clarify what an opt-out is -- it is effectively a multi-year player option. In the case of Elvis Andrus, for example, he is guaranteed 4 years, $58 million after 2018, and has opt-outs after both 2018 and 2019. Effectively, after 2018, he can exercise a player option for 1 year, $15 million for the 2019 season. Should he do so, after 2019, he can exercise a player option for 3 years, $43 million for the following three seasons. And as we all know, having discussed this at length here for the past year or so, the effect of that is that if Elvis can make more money on the free agent market than he is under his existing deal, he will opt out. If he can’t make more money on the free agent market, he will not opt out.
What the opt-out clause does is shift all of the risk of the contract for the years after the opt-out to the club. If a team signs a player to a deal that is perceived as having surplus value at the time of the opt-out, the team doesn’t get the benefit of that surplus value, as the player will opt out. Conversely, if the deal has negative value for the team at the time of the opt out — if the team is on the hook for more to the player going forward than he could get in the open market — the team is stuck with the contract.
The opt-out clause was rarely used before about a half-decade ago, but has significantly increased in frequency in recent years, as agents have seen this as a way to get around teams’ reluctance to significantly increase the top annual average values of free agent contracts. It gives the player the security of a huge guaranteed deal, while also allowing the player the flexibility to opt out of the deal at a certain point if it turns out he agreed to get less for those years than what the market would end up paying down the road.
Now, there are people who have argued that opt outs actually work to the benefit of the team, not the player. The argument goes thusly:
Players who receive lengthy, big dollar contracts in free agency usually provide any surplus value in the early years of the contract, while the value provided to the team in the later years is negative, relative to what is being paid in those final years. Thus, by providing a player opt-out, the team reaps the benefits of the “good” early years of the contract, while not being stuck with the negative value of the back end of the contract.
The first part of this argument is accurate — when you hand out a free agent contract of a half-decade or longer, you are likely anticipating the contract looking bad in the final years, but you are betting that the value you get in the early part of the deal outweighs the bad back end. That’s not always the case -- Adrian Beltre’s 6 year, $96 million free agent deal with the Rangers, for example, was just as attractive at the end of the contract as it was in the beginning — but for most free agents, particularly those in their 30s, the end of a long-term deal is going to look ugly for the team.
But the second part of this argument misses the mark. If a player is good enough that he can opt out of his contract and get a better deal in the open market, it necessarily means that the contract has (or is at least perceived to have) surplus value. And if the deal has surplus value, then the team is better off with the player not opting out of his contract — that is, on a fundamental level, the definition of surplus value on a contract.
Ah, the contrarian says, you are thinking too simplistically — the player could believe that he’s worth more than his contract, and the market may indeed pay him more than his contract, but the smart team that gave him the opt out knows that he “really” is worth less. Because of the opt out, the smart team that signed him in the first place gets out of a contract they think will have negative value going forward, a new dumb team signs him to a bigger deal, and everyone (well, except the new dumb team) wins!
That, however, again ignores a key point — that the player can be traded if he’s viewed by “dumb” teams as having surplus value. If you think Johnny Awesomehitter is worth $60 million over the next 5 years, and his contract is due to pay him $70 million, but another team thinks he’s worth $80 million, you can trade Johnny to that other team, get out from under the contract, and pick up something of value in the process.
Which is why, as noted above, opt outs are great deals for the players. They get all the upside of a big money guaranteed deal, while eliminating the risk that they’ll find themselves being locked into a team-friendly deal when they could get more money on the open market.
Having finished The Economics Of Opt-Outs 301, let’s turn back to how this plays out for the Rangers.
The Texas Rangers, as we all know, are not looking like a playoff team in 2018. The Rangers are generally projected to end up with a win total in the upper-70s — roughly a .500 team, and a team that appears to have a good deal of variability, but a team that faces long odds to make the playoffs in 2018. The high amount of variability makes it hard to forecast what the playoff chances in 2019 look like, but I don’t think anyone is saying the 2019 are more likely than not to be World Series contenders.
So if you are a team that isn’t doing a full-on rebuild, but is facing long odds for 2018, maybe better odds in 2019, with 2020 and beyond being when you expect your current group of young players to be blossoming and ready to make a push for serious contention, why would you give Yu Darvish a 6 year, $126 million deal with an opt-out after 2018 or 2019?
Yu Darvish improves your chances of contending in 2018 and 2019, but not dramatically so. You are likely projected to be an 81-84 win team rather than a 77-80 win team (ZiPS projects Yu as being worth 4 wins in 2018), but you’re still a team that is looking for things to go right to be a playoff contender. The most likely scenario is that you win several more games in 2018 and 2019, but not so many that Yu is the difference in being a playoff team or not. And then, after 2019, Yu opts out of his deal and is a free agent again.
Which is good! Winning 85 games is better than winning 81 games, and Yu is awesome and fun to watch. That’s better than not having Yu.
But ignores the risks involved. That ignores the possibility that Yu — who had Tommy John surgery in 2014 -- ends up with more UCL issues in 2018 or 2019, or sees the back issues that have cropped up periodically become more serious, or that he simply isn’t good enough at age 33, after the 2019 season, to be worth $21M or more per year for the next four years.
It ignores the fact that, after 2019, you’ll either no longer have Yu as part of your rotation (at least, not without giving him more than you’d originally guaranteed him), or you’ll have Yu under contract for $20M+ per year for the next four years — when you are hoping your window for being a Really Good Team again is opening -- and he’s no longer a $20M+ per year pitcher, and you’re wishing you had that money to spend on someone else.
To be clear, I’m not arguing for the Rangers not to spend money right now. If the Rangers go into the 2018 with a $13X payroll, then I’m going to be (barring something exceptional happening with the remaining free agents) rather disappointed.
But I want the Rangers to spend money now in ways that aren’t going to impact the 2020 team’s ability to contend. I want the Rangers to sign a Carlos Gomez or a Jarrod Dyson to a one or a two year deal, or take a short-term bad contract on from a team looking to shed payroll in exchange for getting prospects in the deal, or bring Andrew Cashner back on a one year deal.
What I don’t want is to sign a player to a long-term deal now that isn’t likely to move the needle for short-term contention, and that has a good chance of being regrettable down the road.
Which is why signing Yu Darvish to this kind of deal would have been a mistake. Teams that offer these sorts of deals should be teams that feel they have a good chance of flying a flag in the narrow window between signing the deal and the opt out, teams that see the chance of winning now being worth both the risk of being saddled with a bad deal later, and the risk of losing the chance of having additional surplus value years down the road.
In other words, this is exactly the type of deal that makes lots of sense for the 2018 Chicago Cubs, and very little sense for the 2018 Texas Rangers.