Over the weekend, Ken Rosenthal reported that the company Fantex has agreed to pay Angels pitcher Andrew Heaney $3.34 million in exchange for 10 percent of his future baseball-related earnings, including salaries and endorsements. Fantex will then sell shares in Heaney to investors.
Fantex already has deals with several NFL players, including Vernon Davis, Alshon Jeffery and E.J. Manuel. Fantex's idea of giving players upfront commitments in exchange for future earnings will be an important trend to watch, because it has broad implications for the way baseball teams, and particularly teams like the Pirates, are run.
Star MLB players frequently sign below-market extensions before hitting free agency. Several Pirates players are signed to such extensions, but let's just focus on one: Andrew McCutchen. Before the 2012 season, he signed a six-year deal with an option, receiving a guarantee of $51.5 million. That contract is now among the best in baseball.
As a result of the deal, the Pirates control McCutchen through 2018. Had they not extended him, he would have been eligible for free agency following this season, after which he surely would have earned $200 million-plus on the free agent market as an MVP-type player still in his twenties. That means the Pirates probably would have traded him by now, and he'd be a month or two from signing that huge nine-figure contract with some deep-pocketed team, maybe the Yankees or Dodgers.
Let's take a second to note here that the Pirates are 86-56 and have a better record than either the Yankees or Dodgers do. That's due in large part to the fact that the Bucs have a 28-year-old Andrew McCutchen in their outfield, and the Yankees and Dodgers don't. McCutchen has been worth 5.6 fWAR, and he's paid way, way less than he's worth. That's a gigantic competitive advantage for the Pirates.
All of which is to say that pre-free-agency extensions are hugely important for teams like the Bucs. The Pirates recently had 20 losing seasons in a row. The Rays had 10 straight losing seasons. The Reds had nine straight losing seasons. The Royals had one winning season in 19 years. Those kinds of losing streaks simply don't happen anymore, and extensions are a big reason why.
There are lots of reasons why, of course -- one obvious one is that some of those teams are run far better than they used to be. Another is that young players are simply better than they once were -- younger players are probably now better prepared to perform immediately after joining the big leagues, and older players generally can't rely on PEDs to prolong their careers. Also, teams know much more than they used to about how to use defense to prevent runs, and younger players tend to be far better defenders than older players are. The Pirates generally can't, or won't, pay for older stars, but they can afford young, cost-controlled players. Today's game is dominated by young, cost-controlled players.
Still, pre-free-agency extensions are crucial. Not only are young, cost-controlled players helping small-payroll teams win, but teams have also figured out that those same young stars will sacrifice some of their future earnings in exchange for financial security. That helps teams keep those players through their late 20s or even early 30s. In the past, they would have hit free agency much earlier.
Before the 2014 season, the Pirates signed Starling Marte to a six-year deal that had two club options and guaranteed $31 million. If Marte hadn't signed the deal, he would have been eligible for free agency after 2018, following his age-29 season. With the deal, though, the Pirates can control Marte through his age-32 season. That's a huge difference. Marte's age-30 and age-31 seasons might end up being incredibly valuable, and the Pirates can control them for next to nothing.
Let's imagine Marte continues to play well through 2018. He would have been worth a ton on the free agent market, and a big-market team probably would have signed him. Instead, he'll likely be with the Pirates, and the free agent market in the 2018-19 offseason will be that much less interesting. The Yankees and Dodgers will have one fewer young, late-peak-type player to choose from, and the money they'll throw around will help them less.
Of course, all teams can benefit at least somewhat by judiciously signing their own stars to long-term deals. While teams might be getting bargains in the majority of these deals, however, players aren't irrational for signing them. Here's McCutchen explaining why.
"I'd do what I did. I made that decision for a reason," McCutchen said. "It's plenty of money. I'm not going to spend it all. It's more than enough. I'm going be here for some time. That's two things I don't worry about."
$51.5 million is a lot of money, and before the deal, McCutchen had made less than $4 million in his career -- he got a $1.9 million signing bonus when he was drafted, and then earned a bit over $1 million total while making the league minimum during his first three seasons. That is, clearly, also a pretty good chunk of change, but it doesn't guarantee nearly the level of financial security that $51.5 million does.
If you're thinking of how to set yourself and your family up for the long term, that first big contract is huge. If you've already got $50 million, how much more could you possibly need? (Or, at least, how much more would you think you could possibly need -- the abilities of some pro athletes to blow through gigantic amounts of money are well documented.) That first big contract sets you up for life and guards against uncertainty.
Which is where Andrew Heaney and Fantex come in. The $3.34 million Heaney will receive isn't anywhere near McCutchen's $51.5 million, obviously, but is does hedge against risk much in the way an extension does. Assuming the deal goes through, and including Heaney's draft signing bonus and big-league salaries, he'll have banked close to $7 million by the end of the year even though he hasn't even played a full season in the big leagues yet. So if he turns out to be great, and the Angels want to sign him long-term, that extra $3.34 million he's receiving will prevent him from negotiating from a position of desperation.
That means that, if other young stars were to sign similar deals, it would be tougher to get them to sign pre-free-agency extensions. Heaney is a pitcher, and not yet a star, and nowhere near eligible for arbitration, let alone free agency. He's risky. Before the 2012 season, McCutchen, a hitter, was already close to arbitration eligibility and had proven he could produce at a near-elite level. Imagine how much he could have gotten for 10 percent of his future earnings if Fantex had been around. I imagine it would have been at least $10 million, probably more. That possibility might have made him significantly less likely to sign a contract that delayed free agency. With that $10 million in the bank, he could have gone year-to-year, made a ton in arbitration, and then signed that gigantic contract elsewhere.
It's far from clear that these Fantex deals will become a trend. And, of course, at least some players already can and do take out insurance on themselves. but as a fan of the Pirates, I hope the Fantex and/or similar companies don't catch on. Early-career extensions have been kind to the Bucs, and I'd hate to have players find reasons not to sign them.