Incentives and Risk: How Kenta Maeda Could Change MLB

Could Maeda change the way MLB teams negotiate contracts? Courtesy: Yahoo Sports

The Los Angeles Dodgers struck out on re-signing Zack Greinke, allowing the 32-year-old to take his NL-leading 1.66 ERA and 0.84 WHIP to the division-rival Arizona Diamondbacks, who locked up Greinke’s golden locks with a massive six-year, $206.5 million deal. The Dodgers added some rotation depth by taking a risk on Scott Kazmir, whose career rebound hit a snag when he hit a wall in September, going 0-2 with a 6.93 ERA and 1.74 WHIP over his final five starts and 24.2 innings; however, the 3.10 ERA and 1.20 WHIP over 183 innings over the 2015 season may have spoken louder to the Dodger brass than his collapse in Houston. Then, the Dodgers added Japanese, right-handed sensation Kenta Maeda, who signed an eight-year, $25 million deal, which was loaded with incentives, leading to a possible $100 million-plus deal.

Maeda, who had a 2.39 ERA and 1.05 WHIP over eight seasons and 1,509.2 innings in Japan, was given an incentive-laden deal due to some issues that came up with his physical. While the Dodgers still paid the $20 million fee to negotiate with, and eventually land, the 27-year-old, the elbow issues that scared Los Angeles into this type of offer may have been worrisome to other teams, as well.

This deal speaks to Maeda’s willingness to prove himself, but it also could speak volumes for teams and players in the future. The “Prove-It” contract has been around for quite some time, as the good ol’ “never-met-a-bad-one-year-contract” folks will approve of. It’s why the Indians giving Kazmir a look for much less than the three-year, $48 million that the Dodgers paid was so brilliant back in 2013. But there is brilliance on both sides of this contract.

For the player, you are guaranteeing yourself much less than the market value; however, if you are healthy and productive year after year, you are handsomely rewarded. Additionally, for those who are locking up years of arbitration, there is no risk of being non-tendered due to an injury, as your team would have to release you and eat the remaining guaranteed seasons if they didn’t want to maintain your spot on the 40-man roster.

Would Trout have taken an incentive-based deal? Courtesy: Sports on Earth
Would Trout have taken an incentive-based deal?
Courtesy: Sports on Earth

For example, if Mike Trout was offered a ten-year, $75 million deal after his first season with incentive multipliers for various Triple Crown stats that could have made the deal worth up to $140 to $150 million, wouldn’t he have taken it? Imagine a 20-year-old who could guarantee himself $7.5 million over the next ten seasons, while protecting himself in case of a Grady Sizemore or Tony Conigliaro type of catastrophic, injury-related collapse…

Sure, the guaranteed money is what makes the Major League Baseball contract so welcoming to the player and so damning to the teams, but, in today’s financial market, isn’t $7.5 million chump change? Teams are willing to give lesser players $14.8 million per year on one-year deals as qualifying offers to land an additional draft pick.

Incentives could end of suffering of teams and fans over declining players with long-term deals.
Incentives could end of suffering of teams and fans over declining players with long-term deals.

The teams, while taking the financial risk, also protect themselves from paying someone, like Ryan Howard, huge annual salaries when they aren’t producing at the levels necessary to be worthy of such a deal. Yes, teams are content with getting a WAR of 28 from the first three seasons of a Mike Trout-type of player for roughly $1.8 million dollars in salary, but wouldn’t it be nice to know that you could have that player into his prime on agreed to incentives into his early 30s? Imagine if the Braves had given Jason Heyward, who just received $184 million over eight years from the Cubs, a deal similar to this. During his productive seasons, he would have earned more money, while the arbitration period wouldn’t have been able to look at one or two very good seasons to say that he was worthy of such significant raises to price him out of the team’s future.

With the top players in the league earning more than $30 million per season, there is certainly a reason for the Player’s Union to avoid this type of commitment. There isn’t a reason for the top players to earn $20 million with incentives when they could guarantee $30 million per year, right? This would give teams and owners too much power; however, there are positive risks involved on both sides.

Can Maeda’s contract change the way that teams negotiate contracts? I think it may be better for the game to reward players for production in this way, while not forcing fans of the Phillies to watch Ryan Howard collapse for $25 million per season and strangle the financial side of the franchise for years to come. With so much money available through television contracts and MLB Advanced Media, maybe it is time for the league, the owners, and its players to find new, creative ways to utilize it…without a salary cap.

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2 thoughts on “Incentives and Risk: How Kenta Maeda Could Change MLB

  1. In the event of a Sizemore collapse, the injury clauses would kick in at the lower base salary and they would be worse off. These kind of contracts are what collapsed Lehman brothers and AIG. It’s more than risk, it’s proper valuation of risk.

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    1. What if there weren’t injury clauses, though? The incentives are for production, but there are guarantees that don’t allow for opt-outs on either side, as Maeda’s doesn’t have an opt-out clause, either. You, sir, are a risk genius.

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