Miguel Cabrera, Mike Trout and the Absurdity of Baseball Contracts

Baseball was newsworthy this past week, not only because it was the final week of spring training, but because two of baseball’s biggest stars received humongous, incredible and downright comical contracts to stay with their current teams. The Detroit Tigers gave Miguel Cabrera $292 million for 10 years, while Mike Trout agreed to a six-year, $144.5 million deal with the Angels that will pay him above $30 million a year for the last two years of the contract. Whether these players deserve their contracts or not can be discussed ad nauseam, but even more interesting is the future of baseball contracts. Since baseball began implementing free agency less than 40 years ago, we’ve seen contracts extend towards $300 million. When does this upward trend halt? Will we see a contract worth $400 million soon?

The answer seems to be yes. With absurd local TV contracts spurring large spending sprees – see the Los Angeles Dodgers for the best example – there is no reason for teams to stop spending. If they spend more on big name free agents, their TV contracts will only become more lucrative, and the cycle will continue. And while some say baseball is dying, its TV contracts may not be.

One solution that can possibly save small market teams from engaging in this no-win proposition could be the model implemented by the Tampa Bay Rays. For the last few years, the Rays have made wagers based on their scouting system, overpaying young prospects in their farm system in order to lock them up for the distant future. Take third baseman Evan Longoria, for example. Longoria signed a six-year contract in 2008 worth less than $20 million. By giving Longoria a contract extension before he reached the majors or even began to fulfill the promise that scouts knew he had, the Rays were able to lock him up. As a reward for their forward guidance, the Rays only paid Longoria $6 million last year.

This strategy isn’t all fun and games, though. If a team makes a few mistakes, they can end up paying multiple minor leaguers contracts worth over $5 million annually. It’s a risky proposition, but if it pays off, it could buy a small market team a few extra years of paying less for a superstar and allow them to reap the benefits of a local TV contract. This seems to be the only solution to a free agency system that leads to lucrative contracts for star players. However, clubs seem to be hesitant to pull the trigger on their young players. If teams don’t begin overpaying early and lock up their future stars, we can expect contracts to begin trending toward numbers like $350 million and even $400 million.