Two Different Scenarios of a Mike Trout Extension

There has been plenty of conjecture on the timing and amount of Mike Trout’s next contract.  People gravitate towards round numbers and that’s why you often hear talk about ten years and $300 million.  I heard one pundit refer to 10/300 after his first season, and have heard several refer to these figures during this off season.  But is 10/300 even realistic?

The first step of his analysis is to look at the early years of a contract extension.  For a player that hasn’t even hit his arbitration years, we’ve seen discounting of the players pre-arbitration and arbitration years on their way to seven- or eight-year contracts.  So while the disbursement of money in a player’s early years might not be a one for one match with what they would be from the arbitration process, they’re generally close, if not a little smaller for some players.  The theory seems to go that the player trades off the potentially bigger payoff of arbitration awards, in return for secure, guaranteed and somewhat smaller annual contract value on a multi-year deal.

Mike Trout will break records, but not only on the playing field.  If he goes to arbitration, we’ll see amounts not seen for 1st, 2nd and 3rd-year arbitration-eligible players.  We can quibble about what those amounts will be but I’m guessing on the low end they might be $10 M/$15 M/$20 M, and on the high end $15/$20/$25.  Mike Trout has achieved so much in so little time that he might have quite a bit of leverage to earn a full payout of potential arbitration amounts, in the early years of a multi-year contract extension.

So the value of the early years of Mike’s next contract might look like this:

Year signed	1	2	3	4
2014	0.5	15	20	25
2015		15	20	25

Note: the table shows possible values of the early years of his contract.  Actual payments will probably be much different.  If he signs in 2014, then he will likely get much more than $500,000 in year 1.  Or there might be a bonus that gets spread across these early seasons.  I’m stipulating values here because I believe they’re easier to predict.

The rest gets easier, in one sense.  What is Mike Trout worth during his free-agent years, from the age of 26 to approximately 32.  Is he worth $30 million, $35? or even $40 million per year?  Remember, the Angels are buying out his peak seasons.  This is creme de la creme.  It’s similar to A-Rod from the age of 26-32 where he earned $25 million per year in 2001 dollars and was worth every penny.

Angels management might be a little worried about not signing Mike this year because those free-agent years could get really expensive if next season he puts up even more stupendous numbers.  But my question is, should they be worried?  That’s why I look at two different scenarios.  One, sign him this offseason.  The second, pay him minimum again this year and give him the big contract next offseason.

Year signed	1	2	3	4	5	6	7	8	9	10	11	Total
2014	0.5	15	20	25	35	35	35	35	35	35		270.5
2015		15	20	25	40	40	40	40	40	40	40	340

What you notice about scenario one, right off, is that $35 million per year seems like a lot of money.  But when you total it up over the seemingly magic number of big baseball contracts, ten years, it only totals to $270 million.  For Trout to be paid 10/300, the Angels would have to value his free agent years at $40 million per year.  Dave Cameron’s crowd sourcing project of predicting the salary of signing Trout to a single season came out to be around $40 million.  To guarantee $40 mill for 6 consecutive seasons which are four years off from occurring seems to be one helluva lot of risk for the Angels to assume at this point.

Especially because the Angels don’t necessarily need to be in a rush to assume that much risk.  So I’m making a prediction here.  If Mike Trout gets a ten-year contract extension this year, it will be for less than $300 million.  I think of $270 as being a sort of ceiling for him this year.  $220 to $250 million, might be much more realistic.

That leads us to scenario 2.  Sign him in 2015.  And let’s assume Trout puts up another monstrous season, one where the Angels will supposedly rue not securing the big fish to a long-term contract, the year before.  What are his free agent seasons valued at this point?  $40 million is still probably absurd but let’s follow this along and see where it goes.  The contract now is 10/$340.  But when you look at the average cost of Mike Trout across the years he remains an Angel, you get $27 million across ten seasons in the first scenario, and $30.9 million across 11 seasons in the second scenario.  So you’re paying a premium of $3.9 million per year for waiting one extra season before signing him.  But don’t forget, in return for waiting that extra year, you also tack on another year of Mike Trout goodness at the end of his contract.

When you consider the extra year, the real difference between the two scenarios is $3o to $35 million.  That’s not pocket change.  But consider this, the Angels have paid the Yankees $30+ million to take Vernon Wells off their hands for two years.

The other thing to consider here is if there is some natural market ceiling on annual salary for any player.  If so, Mike Trout might approach it.  Dave Cameron mentioned this possibility in the crowdsourcing piece.  If $40 million is just too high a number for any player to be valued at annually, then waiting til next off season could be the much better scenario if his free-agent seasons top off at $36 or $37 million.

If the Angels can get Mike Trout at say 10/240 this season, they should probably jump on it.  But if him and his agent aren’t budging off 10/270, or higher, it’s probably best to wait one more season.