“People call me all the time and say, ‘Man, your players aren’t signed yet.’ Well, it doesn’t really matter what time dinner is when you’re the steak.”
- Scott Boras, as quoted by ESPN’s Jerry Crasnick on January 13, 2013
Baseball player agent Scott Boras is known for both his brazen comments and his 30-year track record of securing record-breaking megadeals.
He’s negotiated contracts for the likes of Greg Maddux, Kevin Brown, Barry Bonds, Alex Rodriguez, and Prince Fielder. A catalyst in transforming MLB’s economic landscape, he’s inspired multiple rule changes as a result of pushing the boundaries and leveraging loopholes in the CBA and Major League Rules. Despite such an impressive track record, Boras interestingly has two high profile clients without a contract.
With about a month to pitchers and catchers reporting, Michael Bourn and Kyle Lohse stand out amongst this offseason’s unemployed free agents. Some are asking if Boras has misread the market in a manner that will force his players into either taking one year pillow contracts to re-establish their value, or longer-term deals with lower dollar values than was thought when free agency opened three months ago. This speculation prompted the above rejoinder from Boras, essentially doubling down on his ability to get a big payday for his players.
This is not the first time that Boras clients have remained unsigned very late into the offseason. Almost exactly one year ago, Fielder was unsigned until Boras seemingly pulled a rabbit out of his hat and found him a blockbuster nine-year deal worth $214-million from Detroit. Within the last ten days he found a two-year, $28-million deal for Rafael Soriano despite speculation that his market was so poor as to prompt Boras to try and convince the Yankees to take him back after opting out of his contract.
More times than not, Boras has found a client a big January payday, but there have also been instances where he failed to find teams willing to pay up for prominent players. In 2010, Adrian Beltre settled for a one-year deal with Boston before signing a $80-million deal with Texas in the following offseason, and last offseason Edwin Jackson failed to find the five-year deal Boras was looking for, ending up on a one-year deal. So why would an agent let his clients remain unsigned for so long? And does this auger well for Lohse and Bourn, or are Boras’ detractors right that he may have outmanoeuvred this offseason?
Soriano is one of Boras’ marquee clients to have signed, inking the aforementioned $28-million over two years with a vesting option for a third year at $14-million. Pretty decent money for a 33-year old reliever. However, $14-million is deferred until 2018-2015, reducing the real value. It’s actually more like getting $23-million if it were paid over the next two years. To become a free agent Soriano opted out of his contract which would have paid him $14-million for 2013, which had a $1.5-million buyout that he received.
Compared to the $12.5 million net option, his deal with Washington is really only an extra year at $10.5-million with the vesting option. Further, the Yankees tendered him a qualifying offer after that, meaning he could have played for around $13.5-million in 2013. His new contract gives him just $9.5-million for next season- hardly the deal Soriano could have, had the qualifying offer been accepted. In other words, it’s more like dinner was a good hamburger than a prime steak. While Adam LaRoche sought a three year deal, Boras was not able to find any takers and LaRoche was forced to re-sign for only two years. So far, it hasn’t been a banner winter for Boras.
This is the first offseason under a new collective agreement that made several changes which directly and indirectly impact free agent values. Since the advent of free agency in the 1970s, there has been a system to compensate teams losing their free agents by awarding them draft picks. Teams signing elite free agents (Type A) forfeited their first round picks to the player’s former team, who also got an additional “sandwich” pick at the end of the first round. Losing lesser free agents (Type B) generated a sandwich pick, but did not cost the signing team any picks. The eventual result was that shrewd teams could fairly easily accumulate these selections, and the number of them ballooned. In 2011 there were over 25 and in 2012 there were 20. The new system eliminated this and ensured teams losing free agents could still get compensation, but they’d have to offer a one-year contract at the average of the top 100 salaries. Critically, teams losing free agents who rejected their qualifying offer still get a sandwich pick, and teams signing those players still lose their first round pick. But that first round pick simply disappears, meaning no net picks are created.
This change was coupled with several others. Previously, teams could spend an unlimited amount on draftees. Even if a team lost their first round pick, they could look to draft players later on who slipped for various reasons, and offer them whatever it took to sign them (this also gave players incentive to make large demands). Additionally, a team could spend as it pleased on international players not subject to the draft. In short, there were plenty of ways to add prospect talent if a team was willing to spend cash. The new agreement created spending caps in both arenas, and draft caps were tied to which picks a team had. These changes make it much harder to add impact talent without a high draft selection, which would tend to increase the value of draft picks.
Fundamentally, a compensation regime for free agents will drive a wedge between the value that teams give up to sign a free agent, and the value received by a free agent. For example, if a team values a player’s production at $30-million over three years but would also have to give up a draft pick that they value at $5-million, then they will only be willing to pay the player up to $25-million. Otherwise the total costs exceed the total benefits.
Another important factor to consider is that the size of this wedge is essentially fixed, regardless of the size of the contract. What this means is that players signing smaller contracts get hurt proportionately more than players singing larger contracts. If a player would get a $200-million contract without compensation attached, then $5-million is only 2.5% of the total value; whereas if a player would be getting a $30-million contract without compensation attached, then $5-million is a significant 17% of that value. This would certainly have come into play with the demand for the services of Soriano and LaRoche, since they settled for contracts in the $25 to $30 million range. Even for players like Lohse and Bourn who are probably on the $50 to $100-million range, the compensation is still a hit of 5 to 10%.
Undoubtedly, the new collective agreement increases the value of the draft picks, and so the wedge that it has created is larger. Previous estimates of the value of a first round pick based on historical averages were around $5-million, whereas sandwich picks were valued around $2 to $3-million. Moreover, if a team loses a pick, they cannot easily replace it via sandwich picks as they previously could.
Now is this responsible for diminishing the value of Boras’ free agents? It should affect the value certainly, and maybe teams now value picks at $7-million or $10-million rather than $5-million. But for a player like Michael Bourn who is seeking a contract exceeding $100-million, that change in value that it represents is quite small. Maybe it means instead of getting $100-million, he only gets $95-million. But in the end, it’s a marginal effect that should reduce the size of player contracts by the change in the value of the pick, not utterly destroy their value. One possibility is that a bunch of teams are acting irrationally and vastly overvaluing their draft picks, thereby causing a collapse in demand. This type of market inefficiency is especially possible when the rules governing a market shift, and it takes time for the parties to get a handle on the new rules. If this were the case, it would tough to pin on Boras, as it’s really more about the circumstances.
Let’s turn to examining Boras’ strategy. Why does Boras have so many players who go unsigned into January? It’s about leveraging supply and demand fundamentals. If come January there is one premium free agent at a position, and multiple (high revenue or contending) teams need to fill a hole, it’s a very favourable situation for the player and agent. The flip side, of course, is that you can end up with more players than teams looking to make upgrades, in which case it’s a very poor hand to play. Therefore, in order to execute this strategy, it’s critical to properly gauge the market ahead of time from both the demand and supply sides, in terms of players that are available via free agency, but who also may come available through trade. It’s a precarious balance that sits on a razor’s edge, and can be altered by events beyond the agent’s control. An element working in Boras’ favour with this strategy is that if a rival makes significant upgrades, it can have a domino effect that causes another team to re-evaluate and pursue a significant upgrade. Finally, the downside for the player is somewhat limited, in that if he’s forced into a one year deal, it’s still going to be at a reasonable salary, and then the player can take another shot the next year.
How does the supply/demand picture look for Boras’ clients this offseason? For starters, the economic backdrop was generally favourable, driven by large local and national TV revenue increases. Some big market teams like the Dodgers and Red Sox clearly had dollars to spend. Others like the Yankees, Phillies and Tigers appeared tapped out. The free agent crop lacked elite star power beyond Zack Greinke, but behind him there was significant depth, which potentially created a glut supply of reasonably substitutable players. In terms of the closer market, Soriano was fairly unique As for the CF market for Bourn, a number of competitive teams had needs: Washington, Philadelphia, Atlanta, and potentially San Francisco and Texas. Available free agents other than Bourn included B.J. Upton, Josh Hamilton and Angel Pagan. On its face, it appeared to be a reasonably favourable seller’s market. However, Washington and Philadelphia both acquired centrefielders from Minnesota, which altered the situation. At this point, Texas and Philadelphia could still look to upgrade, but may be tapped out. It’s quite conceivable that Boras simply misjudged the CF market.
Lohse’s situation is somewhat more complex. For starting pitchers, there are 150 jobs across MLB, so the market is not as segmented as for position players. There will always be teams that want more pitching, and so ascertaining the precise balance between supply and demand is less critical. The demand for Lohse’s services may have been misjudged.
At 34, he’s past his expected prime and while he’s put together two very good seasons, prior to that he was more of an inning eater at the backend of a rotation. Speculation prior to free agency was that he might command a hefty $60 to $75-million contract4. If that’s the range that was being thrown out to interested teams, it may have caused them to completely disengage and look elsewhere, thereby inadvertently limiting Lohse’s market.
So has Boras lost his touch? In the end, only time will tell whether he’s able to once again confound his skeptics and find big deals for Bourn and Lohse. All he needs is for one team or one owner to get a little desperate with Spring Training around the corner, blink, and pull the trigger on a big offer. If that fails to materialize and he is forced into short term or discount deals, we might conclude that Boras misread the supply and demand fundamentals in this year’s market. This would certainly represent a rare occurrence for the high profile agent, but one that is hardly unprecedented.
As tempting as it is to herald the fall of a giant, just as it’s imprudent to write off a player after one down year, Boras merits the benefit of the doubt until it’s clear that there’s a trend and not a few blips. As the old baseball saying goes, all one has to do is wait ’til next year for redemption.
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