Friday, February 12, 2010

Timmy in ArbitrationLand: Long-Term Contract Soon?

Great news yesterday from the Chronicle's John Shea: the Giants and Lincecum are negotiating towards a long-term contract that gives him big money and the Giants cost certainty. Reportedly, the Giants have offered a three-year, $37M contract that would pay Lincecum $9.5M in 2010, $12.5M in 2011, and $15M in 2012, which Lincecum's agents countered with one north of $40M.

Giants Thoughts

Typical, just like for the draft bonuses, it often takes the pressure of the deadline - in this case, the hearing - to get both sides moving.

That is not a huge difference between them. The article said that it is believed that the agent asked for a first year salary of $13M, but if that is true, then the counter-offer from the agent could only be a almost flat salary structure, say, $13M, $14M, $15.5M for $42.5M total.

I chose that figure because when they say "north of $40M", that to me implies that it is in the low $40M, roughly $40-45M but more than less. Else they could have chosen "close to $50M" instead if it was over $45M. Thus, the difference to me is between $3M and $7M.

That is roughly only $1-2M difference on a annual basis because it is a three year contract. A difference like that can be negotiated relatively quickly I believe, and thus I think that the arbitration hearing will not be held and instead there will be an announcement of a long-term deal signed.

Looking at the amounts the Giants offered, given the 40%/60%/80% rule that sabers use to approximate what a player might get in their three years of arbitration, and assuming a Super-2 is around 30%, their offer roughly values Lincecum around $25-30M per season, which seems around right. Tack on a few more millions, and that would put Lincecum right around $30M, which seems fair to me.

That makes a lot of sense. Neither side wants to do the arbitration hearing and Lincecum appears to love being a Giant. And putting the team under the arbitration thumb would make planning hard, which means the Giants would have to hold back each year on acquiring players for fear that Lincecum might break the bank. That would make it harder for Lincecum to get wins, and for the Giants to get wins, which neither side wants.

Lastly, I wonder if there is a vesting option for his final arbitration year, much like how Lowry and Cain had those on their contracts, and for what amount. If the valuation is around $30M, that option would have to be around $24M then (at 80%).

A shorter deal like this makes more sense for both sides. The Giants do not want to be saddled with a contract that could cripple the team if Lincecum goes down for whatever reason. Lincecum's agent is salivating for Tim's free agent years. And presumably, the Giants would be open to signing Tim to an extension deal in a couple of years to try to keep him into his free agent years, and that works for both sides too, as Tim is so young that even with another extension, he would still be around 30 when he free agents after that. And remember, Zito's contract ends when Lincecum becomes a free agent, so a lot of money would be freed up at that time and the Giants could even go even longer than a year or two in that extension, depending on how much Tim loves being a Giant.

Other News

Also noted was that Todd Wellemeyer received a minor league contract and an invitation to spring training, with the view that he would be competing for the long relief role. But he had last been a starter, so he would probably be providing depth to the starting rotation in case anybody needs to be replaced. It is one of those split deals where if he makes the majors, he would get $1M with performance bonuses that could add another $500K.

3 comments:

  1. News just blogged by Baggarly that the Giants have agreed on a contract for 2 years and $23M, pending a physical: http://blogs.mercurynews.com/extrabaggs/2010/02/12/giants-tim-lincecum-agree-on-multiyear-deal/#more-2522

    Baggarly speculates that the Giants might have been told by industry people that they might lose, so they upped the offer.

    I would note that negotiations work in mysterious ways, but that rule 1 is never start your bid off with your final offer. You start low, but not so low to insult, play around with numbers with the other side, then start moving towards what you think the other side is willing to live with as the deadline nears. As I noted, you see this all the time with signing draft picks.

    And the Giants historically have tried to avoid arbitration if possible. Very few of their cases have ever gone to a hearing.

    In any case: YEAH! We have The Kid under contract for the next two years, and the Giants can work on extending that next year.

    ReplyDelete
  2. I was checking Biz of Baseball and the comments there say that it has been reported that the contract is for $8M for his first year, $13M for his second, plus $2M signing bonus, $1M paid per year.

    That is comparable with the 3 year deal where he would have gotten $9.5M and then $12.5M.

    The benefit of going only two years is that his second year is now set at $14M, not the $12.5M in the 3-year deal, and if he goes to arbitration then (or negotiate with the Giants then) he would have a higher base to negotiate from.

    So the Giants win by keeping Lincecum's salary below Howard's record, but sets a new pitcher's record, and Lincecum wins by boosting his base salary greatly in his second year that will pay off in the remaining two arbitration years, whether he goes to hearing or get another deal from the Giants.

    This is as I was saying in numerous sites around, that by arbitration history, Lincecum could have ended up losing his case, it was not a slam dunk win for him, because the figure is not suppose to be near what we think he is worth, it should be see as a discounted percentage because of the way the arbitration process works.

    While Howard only has "one" MVP and Lincecum two Cy Youngs, many people value hitters over starting pitchers because they play every game while pitchers go every 5 games, so that is one strong reason why Howard would be paid more.

    In addition, in MVP voting, both years of Lincecum's Cy Youngs had him way down the list of MVP votes, showing that the industry values MVP awards much more greatly than Cy Young performances. Howard was #1 and #5, and Lincecum was so low that he only got 9-10 votes whereas the winner (Pujols) had around 400 votes.

    Also, as I noted in another post, the standard is that first year arbitration guys get 40% of market value. Santana will make the most in 2010, at $23M and 40% of that is $10.2M. With Lincecum only a super-two, he should get a lower percentage. At 35%, he would get $8.05M, and at 30%, he would get $6.9M.

    So while most of us would have given Lincecum more, these are valid reasons why the arbitrators could have chosen the Giants $8M figure instead.

    I would also add that I said that $9M was more in line with what to give Lincecum and that is what he ended up with. If only I could put that luck into the lottery! :^)

    ReplyDelete
  3. I posted these thoughts on El Lefty Malo's great website and thought I should put them here too:

    Given all the talk about how much the Giants already have committed to payroll in 2010, I think there won't be any more acquisitions. Plus there is the crowded 40-man roster situation, the next cut would hurt, talent-wise.

    Also, I think the Giants usually keep some money in reserve for deals mid-season to acquire vets with salary. I think Timmy's deal funds that reserve plus perhaps free them to also pursue big name free agent prospects in the Latin American market (plus they got back $1.3M for that guy who had his contract revoked).

    They might also hopefully start to do what the Yankees and Red Sox do in signing guys who want more money and fell because of that since they do not have an early first round pick this year for the first time in a number of years. They need to keep the flow of good prospects going for another year or two, at minimum, to maximize their chances in the next 3-5 years of winning the World Series.

    It is all about keeping up the pressure to make the playoffs, then watch our rotation pay off there, like the D-gers in the 60's, or even the Cards in the 60's, just remembered that with Gibson, they made a number of World Series too.

    Of course, it is much harder today, with all the rounds of playoffs and lack of a significant home advantage, unlike the NFL or NBA.

    Still, I think having a rotation of pitchers who can collectively have a DOM% over 50% is a great advantage to have in short series. And we have that for the most part, and especially if Bumgarner is the 5th starter.

    ReplyDelete

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