Do you like to gamble? The Seattle Mariners do. A lot. In fact, Seattle has chosen to introduce substantial risk into its relationship with Evan White this offseason, with little additional expected return. Given all of the action so far this offseason, you could be forgiven for paying little attention to this particular transaction back in November. But it’s an unusual type of deal that some analysts believe could become more common in future years, and it raises some thorny questions about financial risk management.

When I first read reports that some players were criticizing White — a 23-year-old first-base prospect who has never played above Double-A — for signing a long-term contract with the M’s, I was a little taken aback. My initial reaction to the deal had been the opposite: I couldn’t understand why the Mariners would lock themselves into paying a minimum of $24 million to a player who had never taken an at-bat in Triple-A, much less the majors, and who they would have had team control over through at least his age-29 or age-30 season (depending on when they call him up) in the absence of any long-term contract. If the Mariners simply played it year-by-year with White and he ends up being an above-average major leaguer — or even a star — they could expect to pay him somewhere in the range of $24 million through his six years of pre-arbitration and arbitration years. And if White ends up being a complete or near-complete bust (as is quite possible), the Mariners could have cut him loose while paying him a negligible sum.

And from White’s perspective, if he takes a cold, hard look at the numbers, the probability of him making less than $24 million in his career absent this contract is quite high. Some research indicates that the bust rate for hitters ranked in the bottom half of top 100 prospects and assigned an OFP of 55 on the scouting scale (as Baseball Prospectus did this offseason) is as high as 30-40%. If I’m Evan White, and I assess that there is a greater than, say, 1-in-4 chance that I end up making no more money in my baseball career, you don’t have to ask me twice to sign a contract that guarantees me somewhere between $24 and $55 million. I’m popping the champagne that night and paying for all of my friends to join me on a celebratory trip to Vegas. Read the rest of this entry »