At Home Plate - Why deadlines for contract offers are neither smart nor believable

At Home Plate

Why deadlines for contract offers are neither smart nor believable

Written by Bjoern Hartig (Contact & Archive) on November 28, 2008

After the start of free agency, it did not take long for some big numbers to fly around between general managers and agents. But not all contract offers are created equal. Some, especially the really big ones, come with an expiration date. In particular, the Yankees offered CC Sabathia $140 million for six years while adding that the offer “is not going to be there forever”. Now, the Yankees were smart enough not to set an actual deadline, but the addition of the threat is not going to do them any good anyway. Here is why:

Threatening to withdraw a contract offer is only sensible if it coerces a player into accepting an offer earlier than he would like to, i.e. before he has been able to wait for and weigh all other offers. For that to happen, the threat must be believable, which means that a) it is actually possible that the player will not get a better offer and b) that the team will not put the offer back on the table once withdrawn. Now, a) may very well be the case here as it is unlikely that any other team will fork out more than $140 million (although the overall desirability of an offer usually also depends on non-monetary factors, of course). But what about b)? Is that plausible?

Every team has an evaluation of each player in the game, i.e. an idea of how much this player is worth to them. In the case of Sabathia, the Yankees obviously believe that the left-hander is worth more than $140 million over six years. Is that evaluation going to change when the initial contract offer expires? The answer is no, why would it? If he was worth more than $140 million to them on date X, he will still be worth more than $140 million on date Y (given that Sabathia does not to anything that diminishes his value in the meantime – like injuring himself – which is unlikely during the off-season). The Yankees would be stupid not to sign him when he signals his willingness to accept the offer on a later date.* It has happened before: Remember the A-Rod opt-out saga of last off-season? The Yankees said that once A-Rod opted out, they would not pursue him. But this threat was not believable and A-Rod called their bluff and terminated his contract, only to re-sign in New York – probably after quickly realizing no other team was willing to spend more on him. Had the Yankees been smart, they would have offered him an extension with the same value of the contract he eventually signed plus a few extra millions. That way, they would have saved about $30 millions (minus the few extra millions), because that is the amount of A-Rod’s salary the Rangers would have had to pay had he not opted out.

* The only reasons for the Yankees not to sign Sabathia to the original offer would be if a) they knew that they could offer less money and still get the pitcher to sign (something that only Sabathia could know and he would be stupid to give this information away) or b) if they are trying to built the reputation that they really commit to their deadlines (Like a government that issues a law that no ransom is ever paid to kidnappers and terrorists). This would actually be a pretty good idea and may work for teams that are not contending, but contenders will always have an incentive to deviate and sign the player anyway.

Of course, Sabathia risks that the Yankees sign other pitchers if he waits too long to decide where he wants to play, but that risk is there whether or not the Yankees add an expiration threat to their offer in advance.* Therefore, setting a deadline is not believable and Sabathia (or his agent) knows that, rendering the threat moot.

* In fact, pursuing other free agents (or at least giving the impression) is a much better strategy than setting deadlines. Edit: Coincidentally, just as I am finished writing this, the Angels have announced they intend to seriously pursue CC Sabathia, too, even though their main target is Teixeira.

Now what is the downside of setting a deadline? Well, if the players are rational, there is none. They will still accept the best overall offer in the end, deadline or not. But unlike organizations, players can afford to be (moderately) irrational. They may resent teams that set deadlines, because they feel disrespected or do not like to be pressured*, prompting them to sign elsewhere (after all, what are a few millions more or less if you can not spent your money this lifetime anyway?).

* Imagine an estate agent telling you that there is another couple also interested in the house you are considering.

So general managers would be smart not to include deadlines to their contract offers* – at least to smart players (or those with smart agents) and especially to those who are upset easily. If they do it anyway, do not read too much into it. Only because a player is not with a team at the deadline does not mean this he may not by opening day.

* Maybe the fact that the Yankees offer is “transitory” without having an actual expiration date shows that they do in fact know fixing a date is useless and instead count on their threat floating around vaguely in the mind of CC and his agent.

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