After years of scouting and months of speculation, the Yankees got their man and signed Masahiro Tanaka to a lucrative seven-year, $155 million contract. The Yankees will also pay Tanaka’s JPL team $20 million as a posting fee. I’ve modeled out a bunch of scenarios and his contract fell between my guess of six-years, $149 million and seven-years, $163 million. In my analysis, I did not quantify the value of an opt-out, which may have the tipping point in contract negotiations. Lost in the hoopla of the contract length and size is a clause that allows Tanaka to opt out after his fourth season and test free agency again at Age 29. As we’ve seen with other young aces, teams are more willing to include an opt-out clause in order to secure their services. We’ll walk through past contracts and review whether the Yankees were smart to include this incentive.

It’s no mystery that opt-out clauses have become a major bargaining tool for MLB teams. Over the past few years, we’ve seen numerous teams include it to retain players and sign free agents. Table 1 below displays that some of the game’s best pitchers under 30 years-old have received (and exercised) opt-out clauses.

Table 1: Opt-Out Clauses

Pitcher Signing Age Signing Year Opt-Out Age Years Contract
Masahiro Tanaka 25 2014 29 7 $155
Clayton Kershaw 26 2014 31 7 $215
CC Sabathia 28 2009 31 7 $161
Zack Greinke 29 2013 32 6 $147
AJ Burnett 29 2005 32 5 $55

Recently, both Clayton Kershaw and Masahiro Tanaka received opt out clauses that will allow them to earn a second big payday around Age 30. In the past, CC Sabathia and AJ Burnett both exercised their opt-out clauses for better deals. Many Yankee fans forget that CC Sabathia opted out of his contract after his third season in pinstripes. With only hours remaining before the deadline, the Yankees and Sabathia agreed to a one-year, $25 million extension to his current contract that will keep in pinstripes through 2016. Sabathia also received a vesting option worth $25 million, if he stays healthy, for 2017. In 2008, AJ Burnett opted out of his five-year deal with the Blue Jays and hit the open market. The Yankees pounced and signed him to a five-year, $85 million deal.

Despite dealing with injuries last season, Zack Greinke posted a 2.9 WAR. His previous four seasons? 4.8, 3.6, 4.8, and 9.1. I’m fully expecting Greinke to opt-out after the 2015 season. The same goes for Clayton Kershaw, who should far exceed value.

So where does that leave us with Tanaka? Well, let’s run a few scenarios to see where he hits (or exceeds) value. I’ll use the same model I’ve used in the past:

Table 2: Tanaka’s Contract Value

Contract Value (WAR)
Age Salary $/WAR   5.0 4.5 4.0 3.5
25 $22.1 $6.9 $34.5 $31.1 $27.6 $24.2
26 $22.1 $7.2 $32.6 $29.0 $25.4 $20.7
27 $22.1 $7.6 $30.4 $26.6 $22.8 $17.3
28 $22.1 $8.0 $28.0 $24.0 $20.0 $13.8
OPT-OUT $88.6     $125.5 $110.6 $95.7 $75.9
29 $22.1 $8.4 $24.0 $20.0 $16.0 $12.0
30 $22.1 $8.8 $20.0 $16.0 $12.0 $8.0
31 $22.1 $9.2 $16.0 $12.0 $8.0 $0.0
TOTAL $155.0     $185.4 $158.5 $131.7 $95.9

As shown, if Tanaka is a four-win pitcher this season or produces a WAR of 14.0 or better over the next four seasons, he’ll exceed value and will opt out of his contract. If Tanaka is better than a four-win pitcher, the Yankees will receive excess value.  We found some comps for each respective WAR Value in this article. When we think of a five-win pitcher, think Yu Darvish. 4.5 Win (James Shields, Doug Fister, Mat Latos), and Hiroki Kuroda was a four-win pitcher last season. We also factored in a slight decline in performance, year-over-year to account for potential injuries or performance issues.

Based on the scouting records we’ve read and from what I’ve seen, I fully expect Tanaka to exceed value over the first four years of the contract and opt-out. ESPN’s Keith Law is very high on Tanaka, thinking he’ll be an elite start on Day 1. Law notes:

Tanaka is still a very good pitcher when judged on his own merits, with a fastball in the low 90s that was trending up as 2013 went on, hitting 98 mph in a few outings late in the year. His best pitch is a splitter in the low to mid-80s with good bottom, a 60 on the 20-80 scouting scale, and his mid-80s slider will flash above-average to plus, as he’s improved that pitch substantially since I saw him before the WBC in 2009.

Many people will scrutinize this contract based on the number of years and contract value, but this contract is essentially a four-year, $88 million deal. Unless Tanaka totally flames out, he’ll opt out and hopefully resign with the Yankees. Resigning Tanaka to a multi-year deal at Age 29 remains to be seen, but I fully expect the Yankees to receive excess value in the first four years of his contract.

Let’s take a moment to acknowledge the Yankees and their desire to win. We’ve heard talk about the $189 million budget and the Dodgers for the entire off-season. However, the Yankees have spent $435 million on new players this off-season. This spending spree is reminiscent of the 2008 off-season when the team brought in CC SabathiaAJ Burnett, and Mark Teixeira. Ten months later, they were riding down the Canyon of Heroes, celebrating World Series Title #27. This Tanaka signing bolsters the rotation and vaults them right back into the playoffs. The Yankees still need to address the bullpen, but for now, let’s enjoy and welcome Tanaka to New York.