On Tuesday, Joey Votto and the Reds agreed to historic contract extension which will pay Votto $251.5 million over the next twelve (!!) years. To put that in perspective, the 28-year-old first baseman will earn $20 million per year through 2024! What makes things even more interesting was Votto had two years remaining on his current contract. Clearly, the Reds and Votto have set a new bar for locking up franchise players.
Entering the 2012 season, the Yankees have a franchise player of their own who is two years away from free agency. Should Votto’s new contract entice the Yankees to lock up 29-year-old Robinson Cano?
To put the Votto deal in perspective, let’s consider a few things:
- In recent memory, only three player comparable to Votto (Miguel Cabrera, Ryan Howard, and (gulp) Travis Hafner) have received contract extensions two year before reaching free agency. Of the three, Cabrera received the most lucrative deal (8 years, $152 million, which covered ages 25-32). Essentially, the Tigers locked up Cabrera during his prime years and have been receiving premium production. This deal looks like an absolute bargain now. The same can’t be said for Howard and Hafner, who have dealt with their share of injuries.
- The Red Sox inked Adrian Gonzalez to a seven-year, $154 million deal last year which will cover ages 30-36. Just by playing in the American League, the Red Sox hedge themselves by having the luxury of designated hitter, should Gonzalez’s defensive skills decline in his later years. The Reds don’t have the same luxury with Votto.
As shown, the four players have provided their teams with relatively the same value in their Age 27-28 season. Teixeira has begun to watch his skills decline while the other players have yet to hit 30-years-old. Still, Adrian Gonzalez (a 5-6 Win player) provides an appropriate benchmark when considering Cano’s next contract.
Players typical reach peak production during their Age 26-30 seasons, which may hinder Cano’s leverage. Still, Cano will enter free agency as at least a five-win player. If we assume that each WAR value is the equivalent of $5 million and appropriately assume an inflation rate of four percent, we can reasonably calculate Cano’s annual value. Assuming that Cano’s skills begin to decline at Age 30, we can readily assume that he will be a 3.5 win player from his Age 30-37 season. Factoring in inflation and Cano can expect to generate an annual value around $19-$21 million per season. This valuation feels right, given that the Yankees will want him strictly as their second baseman and three-hole hitter. There’s no DH leverage in this situation.
Essentially, the Reds have hooked their success onto the bat of Joey Votto. By giving Votto such a massive extension, they need an average of four wins per year from him just to break even. That’s a whole lot of risk (and essentially no discount) for taking on such a large financial obligation. The Reds don’t have deep pockets like other teams do, so they need Votto to produce big for a very long time.
To answer the original question, the Yankees should not do what the Reds did. The Yankees have done a great job by extending the proverbial carrot in front of their players. In turn, their players have responded and been appropriately rewarded. Since Melky left the team, Cano has cleaned up his act and turned into a true professional. Big dollars await him. He just needs to keep producing and wait for the pot of gold in 2014.