One of the biggest stories of this MLB offseason has been the rise of the opt-out clause. With these clauses in hand, free agents get the security of a long-term contract, but with the chance to bail out partway through if they think they can find a better salary on the open market. In other words, a seven-year deal becomes, say, a three-year deal with a four-year player option, a situation with clear benefits for the player.
We saw this play out in real life this winter when Zack Greinke opted out of his final three years with the Dodgers and signed a bigger deal with Arizona -- he walked away from $24 million per year in L.A. and will now be earning $34 million annually during those seasons (plus three more guaranteed years after that). The only way he would have played out the rest of his old contract with the Dodgers would have been if he was no longer worth the money, whether because of injury or ineffectiveness. For an example of how that would have looked, well, there's only one player so far who has received an opt-out clause and not used it when it came due: Vernon Wells, whose contract was legendary for being an albatross.
Greinke and Wells were once the exceptions for having opt-outs in their deals, but it's quickly becoming more common. The Economist put together a nice-looking chart that includes a list of all the players who received opt-outs prior to this winter, and there had been 12 of them dating back to Alex Rodriguez's first mega-deal with the Rangers in the 2000-01 offseason. There have been seven this winter alone, which matches the number from the previous five winters combined. Furthermore, it's not just the biggest superstars who get them:
- David Price
- Jason Heyward
- Justin Upton
- Johnny Cueto
- Wei-Yin Chen
- Scott Kazmir
- Ian Kennedy
That list starts strong, but there's a sudden drop off from "elite" to "pretty good." And that's not a new phenomenon, either; check out the previous dozen, with the asterisk* denoting that the player eventually exercised the opt-out and the caret^ denoting that Wells (wisely) declined his chance:
- Alex Rodriguez (00-01)*
- J.D. Drew (04-05)*
- A.J. Burnett (05-06)*
- Vernon Wells (07-08)^
- CC Sabathia (08-09)*
- Rafael Soriano (10-11)*
- Elvis Andrus (11-12)
- Zack Greinke (12-13)*
- Clayton Kershaw (13-14)
- Masahiro Tanaka (13-14)
- Giancarlo Stanton (14-15)
- James Shields (14-15)
All of those guys were good players when they signed those deals, but for every Heyward-like superstar (A-Rod, Kershaw, Greinke, Stanton) there is a Chen-like secondary star (Burnett, Soriano, Drew, aging Shields), and of course there are many superstars who aren't on that list. Point being, opt-outs are not reserved only for the best of the best, but rather for situations that makes sense -- such as the secondary tier of talent that small-budget teams might still be targeting (like Chen on the Marlins, or Kennedy on the Royals, or Shields on the Padres).
So with that scene set, how will all of this affect the Oakland A's?
The immediate reaction is that this is a bad thing for Oakland and its fellow small-budget brethren. Opt-outs are inherently player-friendly because they give the player a chance to bail out of an unfavorable deal without affording the same option to the team; that adds to the relative risk for the club by reducing the possible benefit. Either the team loses an underpaid player, or keeps an overpriced one. As The Economist put it, "heads I win, tails you lose."
But where there is new ground being broken, there is room for innovation. On a macro level, this trend will make it more difficult for the A's to sign free agents and manage their long-term payroll. But on a case-by-case basis, there could be ways to turn this into an advantage if a team is willing to take on some extra risk. Dave Cameron at FanGraphs has explored the potential pros and cons from the team perspective (Link 1, Link 2, Link 3, plus Eno), and the bottom line is that it's a stretch to ever consider these clauses to be a good thing for a team. Even if you consider that losing a player halfway through a mega-deal might coincidentally save you from paying for his less-valuable decline years, the fact remains that you could have simply traded that player instead and recouped far more value than a qualifying offer draft pick. It's possible the Dodgers might end up happy to have shed Greinke's salary from ages 32-34 if he declines, but if they truly feared that risk then they could have just dealt him -- given what Arizona gave up for Shelby Miller, imagine what they might have dangled for a true ace.
No, if we want to spin this as a positive for the A's, we'll have to get more creative. The place where Cameron's excellent analysis falls short for us is that he's looking from the perspective of all teams, including big-market clubs like the Dodgers and Red Sox who operate in an entirely different universe than Oakland.
Let's start with the one area in which Cameron does see a potential benefit for teams. It might sound counter-intuitive, but that scenario occurs when the player doesn't opt out. You see, like any other chip in a negotiation, an opt-out costs the player some money -- he takes slightly less now in order to gain the future chance for more later. Let's say Roy Hobbs could command a 5-year, $100 million deal on the open market, but he signs with you for only $90 million because you let him have an opt-out. If he plays well, he can still end up making more than that original $100 million by opting out midway through and getting a raise in an ever-inflating market. But instead he disappoints, and ends up playing out the whole contract for you. It's a bummer because you had to give him the whole $90 million despite subpar play, but hey, at least you didn't give him the full $100 million he was worth, right? You essentially charged him for an opportunity he didn't end up using. And indeed, based on FanGraphs' estimate, Price may have left something like 10% of his market value on the table in order to get his opt-out.
It's easy to see how that benefits the A's. They often can't win a bidding war outright, but handing out an opt-out when other teams aren't willing to could give them a leg up by lowering the actual dollars in the deal. And if the player does play well and opt out, it's not like the contract was a failure; you still got a few good years out of that player before he bailed. The dark side of failed long-term contracts doesn't change except to get slightly cheaper; the clause just limits the potential benefit.
However, the area I'm more interested in exploring is contract length. This is where the discussion starts to leave the big-market clubs behind, because number of years is a different consideration in different situations. For the Yankees, it's a tool for outbidding other teams -- they can use their financial muscle to absorb an extra year of deadweight down the road in order to get the star player today. For the A's, it's a dealbreaker. They simply can't promise a premium salary five-plus years into the future, even for a top-shelf player, because if something goes wrong then that one contract can ruin them for many years. Price will be making at least 30% of Oakland's total payroll, which would be difficult for them to build around even if he was on top of his game; if he declines or gets hurt, it would be virtually impossible to afford a contending roster.
And that's where the big-time risk comes in. Including an opt-out might give you the chance to sign a player you otherwise could never have dreamed of getting. The A's can't promise eight years to Jason Heyward, but they could gamble that he'll at least be worth it for the first three years and that he'll therefore opt out when he gets the chance. You earmark that eight-year salary for him and hold your breath, but you bank on the hope that he will leave you after the first three seasons. It's an extraordinary risk, but it does open a door that was otherwise sealed shut.
That's not the best example, though. First off, this strategy would make more sense for Oakland when they're entering a likely contending season. Second, Heyward might still be too marquee for them, so let's bring it down a level. As a thought experiment, let's say the prospects come up in 2016 and create a promising core. They enter 2017 among the favorites for the division, and they have $24 million coming off the books just from Coco, Hill, Alvarez, and Rzepczynski. They want a new outfielder and have their eye on Carlos Gomez (just using him as an example), but he requires a five-year commitment and that's not something the A's can do. Theoretically, they could raise the stakes on their gamble by giving him an opt-out after two years, banking fully that he will play well and use it. They've gotten the guy they wanted for the two crucial contending years, but they don't have to keep paying him after that when their young core starts hitting arbitration. There is no opportunity cost of "but they could have traded him instead of losing him if he hadn't opted out" because they never could have signed him in the first place without the opt-out. The player-friendly clause opened a sealed door.
But again, we're talking about a mammoth risk and a super-best-case scenario. I don't know if the math would actually support taking such a gamble, I'm merely brainstorming here to figure out how these clauses might affect the landscape.
What about an even lower-profile example, like Scott Kazmir? He got a three-year deal with an opt-out after the first year (and the Mets are discussing the same structure with Yoenis Cespedes). Is that a model the A's could afford to play with? What about this winter, when they settled for one-year deals for starters looking to bounce back from injuries; could they have gotten a more reliable starter on a one-year deal by offering him a two-year player option on the back end? It's terrible business, but the players have all the leverage and it could be a way to do things that Oakland otherwise couldn't do. What if Billy Butler had signed for $25 million instead of $30 million, with an opt-out after last season? Sure, he'd still be here, but he'd be slightly cheaper. And if he'd hit great last year, then he'd be gone and there would have been more money around to focus on pitching.
I don't really have any grand conclusions here. This feels more like the beginning of a discussion, and I'm trying to think outside the box a bit and see what makes sense. All I know is that when I first started seeing opt-out clauses becoming prevalent, I was terrified. Now I'm not so much.