The value of extensions are often distorted by unfair comparisons to free agency. When a guy signs a pre-free agency extension, the reaction is usually that the team got a huge deal, due to the low cost in comparison to the outrageous free agent contracts.
Take Andrew McCutchen as an example. That extension — $51.5 M for six years — is seen as a massive value, especially when guys like Jacoby Ellsbury are getting $150 M contracts. McCutchen’s deal is a value, but only because he’s living up to the deal and exceeding the deal. At the time he signed the deal, it just looked like it was market rate for a guy with his service time and his production. The reason $51.5 M was considered market rate for guys like McCutchen, and others who signed similar deals (Jay Bruce, for one), is because of the risk involved.
Teams control a player’s rights until that player has six years of service time. In most cases, the team will get a player for six full seasons, plus one partial season. Until a player gets three years of service time, he is limited to making the league minimum. From there, a player will have three years of arbitration, where he receives a percentage of his free agent market value.
When an extension offer is made, it is made with the knowledge that the player is looking at a reduced salary for his first six seasons in the majors. Then you add in the risk factor, with the possibility that the player might not live up to expectations (SEE: Tabata, Jose), and the cost gets lower.
The result is that there are two markets. There’s the free agent market, which usually reflects a player’s full value. Then there’s the market for extensions, which is starting to get established over the last few years.
As we saw with Starling Marte, plus a lot of other players recently, the market for hitters with more than one year of service time, but less than two years is $30-35 M. McCutchen’s extension is a few years old, but as we saw with Matt Carpenter and Jason Kipnis, the market for players with more than two years and less than three years is still in the $52 M range. There’s not really much of a market for players with less than one year of service time, since there aren’t many players who sign extensions that early.
So what does that say about the extension offer that Gregory Polanco received? The Pirates offered him $25 M for seven years, plus three option years that would have taken the deal to $50-60 M total over ten years. I’m assuming the deal would start in 2014, rather than beginning in 2015. If it started this year, the deal would buy out control of three free agent years from Polanco. That’s the same amount of free agent years the Pirates got from McCutchen and Marte.
Since we can’t compare Polanco’s offer to any recently signed extensions, let’s compare him to the other outfielders in Pittsburgh.
The Years of Control
There are three factors to a guaranteed contract — the signing bonus, the guaranteed years, and the buyout prices in option years. Marte and McCutchen both got free agent years guaranteed. Marte got one year guaranteed, while McCutchen got two years guaranteed. The proposed deal for Polanco wouldn’t have any guaranteed free agent years. So the best way to compare the guaranteed money would be to look at the normal years of control (the 0-6 years) for each player, along with the signing bonus and buyouts.
Polanco’s guaranteed deal through his sixth year of service time would have paid him $25 M.
Starling Marte will receive $22.5 M guaranteed through his sixth year of service, and that is including his 2013 salary before the extension. It doesn’t include his partial 2012 salary. That total also includes his signing bonus, and his buyout prices.
Andrew McCutchen’s price is $25.375 M. Again, that includes his 0-6 contracts, including what he earned prior to his extension. It also includes the signing bonus and buyouts.
The reason I included the signing bonus and buyouts for both players is because those are probably included in Polanco’s deal as well.
So by comparison, the guaranteed amount is very fair for Polanco, considering the years it covers, and considering that he has one and a half fewer years of service time than Marte, and two and a half years less than McCutchen.
The Free Agent Years
It seems that the later you sign your extension, the more you get guaranteed in free agency. Polanco has zero service time, and didn’t have any free agent years guaranteed. Marte had a little over a year, and got one year guaranteed. McCutchen had a little over two years of service, and got two years guaranteed. That also seems to be standard for other extensions around baseball.
It makes sense. The further you are away from free agency, the bigger risk you take in guaranteeing those years. Since these extensions we’re looking at all buy out three free agent years from the Pirates outfielders, we can compare the potential added values. Note that I used the buyouts above, so I won’t be including the additional costs here for the option years.
Starling Marte could receive an additional $31 M if his option years are picked up. He has two option years, totaling $24 M, which would add an additional $21 M to his deal. He also has one guaranteed free agent year for $10 M.
Andrew McCutchen has two guaranteed years at $27 M total. He also has one option year for $14.5 M, minus the $1 M buyout. In total, that gives him an additional $40.5 M through those free agent years.
We don’t know the potential breakdown of Polanco’s extension offer. Jon Heyman reported that the deal could have reached $50-60 M. That means those extra three years would have been worth $25-35 M.
In comparison to Marte and McCutchen, the $25 M figure is a bit low. Then again, Polanco doesn’t have a single at-bat in the majors, so it’s hard to argue that he deserves the exact same deal as Marte or McCutchen. The $35 M figure would fall between those two deals, giving Polanco more than Marte, but about $5 M less than McCutchen.
Usually when there’s a difference in future value like that, it has to do with Super Two status. I’m not sure if that’s the case here, but I do know that Super Two isn’t reflected in the guaranteed value of extensions. Instead, there are clauses in the contract that increase the value of certain years if a player does qualify for Super Two status.
I don’t want to say that Polanco’s offer had a Super Two clause to give that potential added $10 M. So we’ll just stick with what we know. Polanco’s additional deal, at its lowest, would have added $25 M for the three free agent years. By comparison, that’s $6 M below Marte, who was $9.5 M below McCutchen. Considering the service time for each player, the tiered structure seems fair.
Is the Extension Fair?
If these reports are correct, then the Pirates made a very fair offer to Polanco. They offered him the same amount of money that McCutchen received for his 0-6 years, and a few million more than Marte received. They offered him a potential $25 M or more for his first three free agent years. That’s $6 M less than Marte, and $15.5 M less than McCutchen. The differences make sense due to Polanco’s lack of service time. Also, keep in mind that Polanco is receiving more in the 0-6 years, so his difference, compared to Marte, would only be $2 M.
It’s hard to argue that this isn’t a fair offer when looking at it side-by-side with Marte and McCutchen. It’s actually a very aggressive offer for a guy who hasn’t spent a single day on a Major League roster.
Does it Make Sense For Polanco to Reject?
I believe there is a reason you don’t see a lot of players sign extensions like this. That reason is because you don’t need much time in the majors to get more guaranteed money, and potentially more money down the line.
If Polanco waits a year and a half, he could get a deal like Marte, with an extra $6 M guaranteed, and a few extra million potentially added down the line. The real payout is waiting two and a half years like McCutchen. He’d get an extra $25 M guaranteed, and a chance to make an extra $15 M down the line.
There is risk involved here. Polanco could get hurt prior to reaching that two and a half year mark. He could struggle and fail to live up to his potential. Going back to the Jose Tabata extension, he received $15 M guaranteed. That was seen as a team friendly deal at the time. But what would have happened if Tabata declined and waited another year? Does he get an extension coming off his 2012 season, where he posted a .664 OPS and dealt with a lot of injuries? Unlikely.
If Polanco takes the risk to wait and try to increase his value, then it wouldn’t be unheard of. A lot of players do the same thing. That’s why you don’t see many players signing extensions with less than a year of service time.
The End of Negotiations?
I wouldn’t take much away from the news that Polanco rejected the deal. What that tells us is that the two sides are discussing an extension, and haven’t agreed yet. Maybe it means Polanco isn’t ready to sign an extension right now. I will point out that we’ve heard the same thing in the past with Starling Marte and Andrew McCutchen. We heard that the two sides weren’t close. During the Spring, we heard that Marte turned down an offer, only to sign less than a week later. This doesn’t mean an extension for Polanco is coming soon. It just means that the negotiations shouldn’t be ruled over just because the player didn’t sign the first offer we heard about.
Overall, it’s good that the Pirates are being aggressive with Polanco, and trying to extend him early. I’ve written in the past that this is the approach they should take with him. From here, we’ll have to wait and see if that approach ends up successful.
Links and Notes
**Pirates Offered Gregory Polanco a Seven Year Contract
**Prospect Watch: Andrew Lambo Misses Second Game With Bruised Thumb. Also in this, Wandy Rodriguez struggles in his latest rehab start.
**Minor League Schedule: Brandon Cumpton Returns to Indianapolis Rotation. When Rodriguez returns, he should be in the bullpen, with Cumpton as the fifth starter.
**Pirates Call Up Phil Irwin, Option Jeff Locke
**Prospect Highlights: Your Daily Alen Hanson Highlight
Tim started Pirates Prospects in 2009 from his home in Virginia, which was 40 minutes from where Pedro Alvarez made his pro debut in Lynchburg. That year, the Lynchburg Hillcats won the Carolina League championship, and Pirates Prospects was born from Tim's reporting along the way. The site has grown over the years to include many more writers, and Tim has gone on to become a credentialed MLB reporter, producing Pirates Prospects each year, and will publish his 11th Prospect Guide this offseason. He has also served as the Pittsburgh Pirates correspondent for Baseball America since 2019. Behind the scenes, Tim is an avid music lover, and most of the money he gets paid to run this site goes to vinyl records.
I believe Tabata received a 15 million dollar contract. I believe that 15 mil is the only reason Tabata is on the 40 man now. That was a really good deal for Jose. And a fair risk for the Pirates to take on him. They are offering Mr. Polanco 25 million dollars, guaranteed. Think about that number for a minute. Jose Tabata is set for life as far as money goes. “One less thing to worry about.” I bet Mr. Polanco signs and soon. Its stupid to walk away from stupid money. 25 MILLION DOLLARS. That’s a lot of cheeseburgers brother.
Tabata is also not smart and was desparate for cash, if you believe in the scuttlebut at the time. People are not considering the reverse, as a guy who has never even been in the big leagues, he may actually be INSULTED by the offer. A lot of young players think they are hot stuff. He never had a slump in the majors. He, or his friends and agent, may be telling him he is the next Bonds. In three years, he may believe he will be soo great that he will be getting 8 million in arbitration. That is another reason why these deals are stupid before they have a year or two in the majors.
Tabata may not be smart but he is rich. I hear what you are saying about players thinking they are the greatest. I still think this is a mutually beneficial deal RIGHT NOW for both GP and the Bucs. Maybe GP is a bust and gets overpaid, maybe he is great and is a bargain. Either way the Pirates got him for 6 and can QO him after that I believe.
I think Tabata was accidentally smart. If he didn’t have that contract the Pirates may have already gone looking for a better option. …I don’t hear Tabatas age ever being mentioned anymore. They didn’t change it in the official records but there was a lot of talk about him being older. Still listed as being 25 but yet has never showed any improvement like someone his age who is a top prospect would. You have to wonder if he is 27-28.
Interesting move. If he reaches his potential, it’s a massive bargain. But more prospects don’t reach their potential than most people realize, in which case this would be a painfully long contract. Although it’s not like they were giving him close to $10mil a year, so I like the offer from the Pirates’ standpoint. It also would’ve allowed the Pirates to call him up now without worrying about Super 2.
Polanco is smart to reject the first offer. Let the FO stare at Snider and Tabata’s combined .600 OPS for a few more weeks and continue to flirt with .400 at Indy and then talk some more.
Don’t be stupid enough, the FO knew what kind of ability Polanco has long before you ever had a clue as to he is.
leowalter – So your way of articulating your point is calling someone stupid. Stay classy. We have all been following Polanco for years but yes I agree, the FO knew about Polanco’s ability before me. How did they do that?
Buster how was that a relevant response? Freddy was making a statement that it was a smart choice to reject the first offer. If everyone accepted a ‘first’ offer, there would be less of a need for an agent to negotiate the best deal, right?
BTW, why do you think you know more about any prospect than someone else? Does info get disseminated faster in Altoona than the rest of the civilized world?
Although the thought of signing your young guys make some sense, I am against these contracts where the guy has not even had swing one in the major leagues. He looks great, but really, a lot of guys looked like they were can’t miss and never panned out. If you sign a guy for six or seven years, you are basically taking a huge gamble he works out or your stuck with him. If a guy is a bust, no one will take that contract even if you give him away.
Bob, then I hope you weren’t one of the people ( like lonely lib for one ) who constantly complain that the Pirates FO didn’t try to outbid the White Sox for José Abreu !
Buster why haven’t you been hired in the Buc’s FO? You seem to never be wrong. NH better be looking over his shoulder. Good thing Monday morning quarterbacking exists for people like you. It gives you an appearance of being intelligent.
I have no opinion on that, but I do think they have kept him because of the contract and have not had a good RF in years because of Tabata. Lambo had a bad spring, but they sent him down for Tabata/Snider because they foolishly spent money on them they do not want to waste. Or, they could have signed anyone really and received the same or better value. They let Jones go after one bad year and he is looking good in Florida.
Jones did absolutely nothing last season to deserve a $ 5 or 6 mil contract which he would have been given in Arbitration. Casey McGhee right now looks ok too. Maybe the Pirates or Yankees should not have left him get away in 2012 ?
Bob, to be fair, there is absolutely no comparison between the two players. I saw them both in AA, and Polanco was far more advanced than José Tabata ever hopes to be.
Yes, maybe, but they signed him to a long term deal and touted him in all their publicity as being “the future”.
If Polanco would have agreed to sign this contract during spring training, would he still have started the season in Indy to “work on some things”?
He probably would’ve started in AAA, but he’d definitely be in the majors by now.
You won’t know that ow,will you ?
There’s the Buster 09 that we all know and love. Someone pee in your Wheaties again?
If the Pirates can’t come to some agreement with Polanco and if I were the Pirates I probably would go the same route with Polanco that they are going to have to go with Alvarez, play him until his last year then trade him, get a nice value for him and move on, look at him like a 5 year player. Getting top prospects back for good players is also part of the overall plan, just more like plan B.
It’s great to hear the Bucs are trying to get this done early. Both sides have incentive to do so and therefore there’s a strong chance it gets done quickly. Way to go, Neil.
On the surface this looks like a good contract for both. I am sure the Pirates are very disappointed about the fact that these contract negotiations leaked out, this could affect further negotiations. Hope not.
I will repeat myself. Teams that have “arrived” have the luxury of doing this sort of silliness. Teams that are “on the way” need to WIN NOW. The Pirates made a huge mistake to think they had arrived – either hubris or stupidity. Polanco should have been the opening day right fielder. If he had a good year then you discuss an extension – ala Freeman, Trout, Cutch and Marte. A good attorney will be able to make the case that Polanco WOULD be playing now if he were willing to sign a less than fair contract – a sympathetic judge might see that as extortion.
Do you mean Mike Trout who the Angels did not have on the opening Day roster and brought up after a few weeks to gain the extra year? Freddie Freeman already spent an entire September the previous year before making the opening day roster…. Cutch debuted June 16th (after super 2) and Marte debuted on July 26th (also after super 2) I agree that Polanco should be up…. but don’t act like only the Pirates do this … with trout, cutch and marte you actually disprove your argument…
and on top of that its less expensive to do an extension if they are not going to be super 2…. so Cutch and Marte’s extension still had a year added on to them because of the years of control gained by holding them in the minors
You either have not paid one bit of attention to anything that is going on with other orginizations,or you choose to ignore it all so you can troll this site to bash the Pirates FO any time you think you have an opportunity. People like you make me laugh. You would be the first one in line to complain if they brought Polanco up and he got off to a slow start like Springer has with Houston, and you never mention the fact that the Cardinals needed a CFr badly, yet called up Grichuck rather than Oscar Tavares, their top prospect. Why is that ” lonely ” ? Because it doesn’t fit your narrative ?
Don’t even try to argue with him leo. The man is set in his ways, however wrong they may be
Meaty, I know, but sometimes the constant baseless bashing gets to me.
I agree, he uses examples all the time in his rants that contradict his arguments… but eys the Cardinals are donig the exact same thing with Tavares… and he has been more hyped than Polanco and people said he would be up in June 2 years ago, at the latest last year and he still isnt there…. but yes the Pirates are the only team that does this … (roll eyes)
I really, really enjoy Tim and all the work PP does covering the Pirates on this website but you are, by far, the best part of this site with your crazy ramblings and constant “kool aid drinking accusations” and backwards thinking approach to how an organization of the Pirates size should be run.
Sorry Tim, you are a close second by lonley is easily the most enjoyable part of this site that keeps me coming back for more.
Also, that same judge could say that a player demanding he earn more than last year’s NL MVP in his first 7 seasons before taking a single major league at bat or be forced to lose a full year of control is the real extortion.
…and in 6 years from now, you’d be screaming at how awful the front office is for giving up a year of control of Polanco for the 2 extra months he played way back in 2014. At least that time, you would be right.
This obsession with control and six years from now is so friggin stupid – hope u enjoy watching a team battle for 4th in September with 15,000 other loyal fans.
Continue drinking the Huntington Koolaid – it must be really tasty – meanwhile enjoy watching the AL rookie of the year hit 40+ HRs and drive in 120 while the Pirates awesome first base “solution” bats .235 with a combined 15HR and 70 RBIs
I agree with your thoughts abour Marte [-0i9c23r
This deal needs to get done sooner rather than later,before this season slips away before it has really begun. Also if you don’t think one player can make a difference for a team just look at what puig did for la last year.
Like comparing apples and oranges. Hanley Ramirez and the Dodgers pitching staff had more to do with that than Puig alone.
I don’t think this will affect the pirates waiting to call him up until he clears Super Two one way or the other unless there’s no clause in his contract giving him an increase in salary if he were to qualify. Tim posted an article before about the cost of Super Two status, and he wouldn’t be worth that extra multiple millions for 2 months of MLB work. Now, if there’s nothing in his contract about the Super Two, I could see him getting called up shortly after he signed.
Him signing a contract would completely eliminate the Super 2. He’ll be under contract for that extra year of arbitration, so he would definitely be promoted right away when he signs a contract.
Tim, let’s say an extension was signed or will be one next week. Does that mean they would likely promote him since the Super-2 status would be a non-issue? I just know that I have seen enough of Travis Snider and Josh Harrison has had a nice week, but he isn’t a ML player .
Good article Tim. Well done comparing the offer to Cutch and Marte. The way I see it is the $25mm guaranteed isn’t sticking point. As long as there is an escalator clause for Super 2, that is. The option years is what needs to go up to get deal done. Where I disagree w Tim is the fairness of Pirates offer due to normal salary inflation between now and 2021. Pirates don’t have risk since they’re club controlled options. It needs to be closer to Cutch FA year money.
This will be a done deal by this time next week. The bucs will bump the money up a bit and polanco will sign. I like these kind of deals they certainly make more sense than signing a 30 something player to a 10 year mega money deal on the downside of their carrers.
Never accept the first offer.
I agree with you, Tim – the real takeaway is that both sides are talking extension. The rest is just working out the terms.
No they did not. Only $25 million guaranteed over 10 years is nowhere near fair for a player with his ceiling, he could earn four times that, at least, if he is even close to the player we expect him to be.
Read the articles before posting, they really are well done. Gives both the risks and potential positives of both sides. Fair offer for a guy who hasnt touched a MLB field yet. He could earn 4 times that, or he could fizzle as a hitter and be a guy with good speed, good defense and poor hitting. Unlikely, but it has happened before. Guaranteed money isnt something to laugh at, especially this early in a career. He could take this deal, have that money for sure regardless of his performance and still cash in in FA when the deal is done for a ton.
I did read the article, but okay. Should’ve offered $35-40 million guaranteed with 10, 12, and 15 being the amount in the option years.
indybucfan below said it best in response to your drastic overpay at this point.
It’s $25 M guaranteed over 7 years. Did you not read any of the articles?
Tim: I read your article and in the Years of Control section referring to Marte as “Startling” Marte was very timely after last night’s walkoff. It was a fair offer to Polanco, and I hope something gets done. Can a contract extension for ‘Cutch be far off?
I meant to say 7 and typed 10, that’s a typo on my end. Regardless, I would have offered $35-40 million guaranteed with the option years being 10, 12, and 15.
Basically the first four would be the minimum for 2 mill and change and you’re going to give him 38 mill for 3 arb years. You don’t really understand how this part works huh?