Ryan Howard (left) and Albert Pujols

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In case you weren’t paying attention this week, Albert Pujols’ self-imposed deadline passed without signing a new contract with the team.   There’s a good argument to be made, however, that we never should have reached this point.  Following the 2009 season, I advocated the team taking a more active role in extending Pujols.  The team, obviously, elected not to do that and thus, they allowed him to play the 2010 season under the contract he signed exactly 7 years ago today.  (How’s that for timing, huh?)

The reasons I advocated attempting to extend Pujols at that time were that:

  1. The team could avoid the likely salary inflation that would occur in the subsequent year.
  2. The team could avoid any hard feelings that might result from their refusal to negotiate with Albert on a new contract.
  3. If the team concluded that they would not be able to afford a new contract for Pujols, they could trade him before his 10-and-5 rights kick in and receive more than 2 draft choices as compensation.

To be sure, this decision was hardly a no-brainer.  There were certain advantages to delaying those contract negotiations, including:

  1. It gave the team one more year’s worth of information to assess Albert’s value.
  2. It enabled the team to take advantage of Albert’s 2010 $16 million salary.
  3. The economy was in the toilet at the time and the team may have had reason to believe that salaries wouldn’t escalate the way they had in the past.
  4. The team’s revenue may fall a great deal due to the country’s economic state.

The team certainly did benefit by electing not to extend Pujols prior to the 2010 season, receiving a fangraphs’ estimated $29.3 M worth of value from Pujols (at $4 M per win) while paying him only $16 M.  That’s more than $13 M in surplus value from the perennial MVP candidate.  It can also be argued that the team would have been unable to sign Matt Holliday to his contract if they had given Pujols an additional $10 M or so last year.  Holliday’s surplus value in 2010 was nearly as great as Pujols’ as the Cards received an additional $10.6 M in value from his 2010 season as well.    The team also figures to receive a similar benefit from Pujols’ production in 2011, and maybe more based on the salary inflation that has occurred over the last 12 months.  If we project Albert as an 8 win player in 2010, at $5 M per win, Albert should provide the team an additional $24 M in surplus value in his walk year.  If he’s “only” a 7.5 win player (he was 7.3 last year), that’s still $21.5 M in surplus value for the team.  But what did it cost the team?

Let’s assume that the team ends up signing Pujols at the end of the 2011 season to the same contract they could have signed prior to the 2010 season.  Let’s say that contract matches the contract that Alex Rodriguez signed, thus tying Pujols with A-Rod as the game’s highest paid player.  That contract costs the team $27.5 M each year and those final 2 years figure to be Pujols’ least productive.  Instead of finishing his 10 year deal at 39 years old, he finishes it at 41 years old.

Using Steve’s projection from Monday, those final 2 years will be worth a grand total of 2 wins.  If we assume a 5% salary inflation rate over the course of those next 10 years, in year 9 a win will be worth $7.75 M and in year 10 a win will be worth $8.14 M.  So Pujols’ 2 wins in years 9 and 10 are worth about $16 M to the team, a net loss of $39 M ($55 M – $16 M).  Theoretically, Holliday’s surplus value will disappear over the course of his contract.  If he’s a $120 M player over 7 years and is worth exactly his contract value, the team gains $10.6 M at the beginning of the contract and loses it at the end.  Therefore, the net value to the team of waiting to extend Albert projects to:

Surplus value in 2010 $13.3 M
Surplus value in 2011 $24 M
Surplus value in 2020 -19.7 M
Surplus value in 2021 -19.4 M
Total surplus value -1.8 M

For all intents and purposes, the team seems to break even on Albert’s surplus value over that 12 year period, appearing as though the gamble is likely to pay off.  The team banks a lot of surplus value before his contract extension and then loses it during years 9 and 10 of his contract.

The question then becomes, “would Pujols have signed the same contract prior to the 2010 season that he’s likely to sign at the end of the 2011 season?”  Much has changed in the world of baseball in the last 15 months.  Not only did Holliday become the highest paid Cardinal, at $17 M per year and $120 M over 7 years, but Ryan Howard and Jayson Werth signed extremely lucrative contracts with the Phils and Nats that may have increased the size of Pujols’ extension as well.  There’s little question that those 2 deals changed the calculus for free agent contracts since.  Pujols is far and away superior to each player and yet Howard signed for $25 M per season while Werth signed a stunning 7 year deal this offseason.  The Howard deal had to add a couple million per year and the Werth contract probably added 1-2 years at least to Pujols’ contract.

What if the team had been able to sign Pujols to an 8 year, $200 M contract following the 2009 season?  In that event, the team gains only $4.3 M in 2010 and $15 M in 2011.  That’s $18 M less than if the team had waited and signed the A-Rod deal.  However, by signing a $25 M contract rather than a $27.5 M contract, the team gains $2.5 M per season over the remaining 6 years – another $15 M.  Net gain…minus $3 M.  But signing him to only an 8 year deal, and doing it 2 full seasons earlier gets the team out of owing Pujols $27.5 M in 2018 and 2019.  Subtracting the value of Pujols’ 3.5 wins in 2018 and 2019 from the $27.5 M he would be paid saves the team approximately $32 M for a net gain of $30 M.

Look it over and see if there are any problems with what I’ve done.  This seems to indicate that the team would have only gained by signing Pujols after 2009 if they had been able to sign him to a shorter and slightly smaller deal.  By extending him at 8 years and $200 M prior to last season rather than extending him at the A-Rod deal after this season, the team would have gained about $30 M in surplus value.  If, however, Pujols was determined to get the A-Rod deal either way, the team would have likely gained nothing – or very little, anyway – by extending him prior to the 2010 season.  That surprises me.  I expected that waiting would have been a losing proposition regardless of the size of the deal but that doesn’t appear to be the case.

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Chuck Brownson

Though he grew up in Texas, Chuck inherited his Cardinal fan-dom from his father, a life-long Cards' fan. Still a Texas resident, Chuck teaches government and economics when bored by baseball's offseason. He is the proud father of a daughter and a son.

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One Response to “Were the Cards right to delay the Pujols negotiations?”

  1. This is stuff I couldn’t do, but recently intuited. Great piece. I continue to think they’ll find a way to get it done. Thanks.

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