Sunday, January 16, 2011

Reds Buy Out Votto's Arbitration Years

According to Mark Sheldon of, the Reds and Joey Votto have come to terms on a three year $38M contract extension.  As with all contracts, the deal will be finalized on Monday or Tuesday pending the outcome of his physical.

The contract length surprises me a bit.  Typically in deals like these, the team tries to buyout not only the remaining arbitration seasons, but also the player's first two or three years of free agency.  Votto's contract only covers his arbitration seasons, which means he'll still become a free agent after the 2013 season.  So what's the upside for the Reds in this situation?  Well, by signing him for three years now, they can control his annual salary.  If they were to allow him to go year-to-year via the arbitration process, he would stand to make significantly more money, especially if his performance remains at his 2009 and 2010 levels.  Drew Silva of Hardball Talk compared Votto's situation Ryan Howard's in 2008.

"Ryan Howard was awarded a record $10 million in his first arbitration case back in 2008 and Votto might have topped that if the process went to a hearing this offseason."
I think there's a lot of truth to that statement.   Let's just pretend for a moment that Votto matched Howard's $10M contract in his first year of arbitration.  This would have a huge effect on his contracts for the 2012 and 2013 season.  I don't think it's irrational to think that Votto could have made as much as $45-50M over the next three seasons if he'd chosen that route.  While $7-12M over three years might not sound like a lot of money in baseball terms, for a small market team like the Reds, it's huge.  If this is the case, the Reds received a pretty solid bargain with this contract. 

So what's the upside for Votto?  Well, first of all, he gets a pretty sweet contract that will provide him with the security he desires.  Secondly, he still gets to become a free agent at age-30, which means that he'll be in a great position to negotiate a massive contract.  Assuming the recent contract trends for top end free agents holds, Votto should have no problem pulling down a contract for at least six or seven years with an average annual salary of $20-25M.   Obviously, a contract of that magnitude would price the Reds out of being serious contenders to retain his services. 

What would have happened if Votto's contract was for six years instead of three?  Well, for starters, he would probably earn substantially less during his three "free agent years" than he would have under his current scenario.  Typically, deals that buy out free agent seasons, tend to be team friendly, not player friendly.  Second of all, he wouldn't have become a free agent until after he'd turned 33 years old.  Assuming he followed a typical aging pattern, Votto would likely have already started his decline by the time he reached free agency.  This would limit his ability to maximize his value both in terms of contract length and average annual salary.  He'd still probably get a nice contract, but it would likely only be for three or four years at a somewhat reduced salary.  The Reds would likely allow him to leave as a free agent, with some other team signing him to a contract that covered his declining years.   

Votto's new deal looks like a real winner from his end, and decent (albeit imperfect) one from the Reds point of view.  Votto is the reigning NL MVP.  In 2010, he posted a .439 wOBA, 37 home runs, 1.6 UZR, and 7.4 wins above the replacement level in 2010.

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