One of the principles of business is you never overpay for quality; it’s the high cost of mediocrity that you soon regret. Sports business is no different.
That’s why we should prepare ourselves for what may be the largest contract ever awarded a pitcher in Major League Baseball history. The recipient of that honor will be Cliff Lee of the Texas Rangers. If the ultimate goal for a MLB team is to win the World Series, it’s obvious the best way to accomplish that is to have Lee in your rotation.
Lee has been a member of two different playoff teams in each of the past two years and all he’s done is lead them both to the World Series. Although Lee’s team, the Phillies, lost to the Yankees last year and we don’t know yet how the Rangers will fare against the Giants, we do know Lee’s line: Seven victories in eight playoff starts with a gaudy 1.26 ERA. Those numbers are historic.
Sabermetricians are fond of arguing – in some cases successfully – that wins can be an overrated stat. That may be true over the course of a season, but in the playoffs, wins are the only stat that matters. Lee has proven to be one of the most successful big-game pitchers of all-time and he is about to be paid accordingly. The largest contract, in both total and average salary, ever awarded a pitcher is the seven-year, $161 million deal the Yankees bestowed on C. C. Sabathia in 2008. By any standard of measurement, Sabathia has been worth the investment. The same can’t be said of Barry Zito and his seven-year, $126 million contract from the Giants. Ditto for Mike Hampton and his 8-year, $121 million contract with the Rockies. At 32, Lee is four years older than Sabathia was when he signed with the Yankees, so it’s unlikely he will match Sabathia in contract years. But Lee is almost certain to exceed Sabathia in average annual salary.
We know of at least two clubs that are prepared to open the vault for Lee, the Rangers and the Yankees. Rangers’ principal owner Chuck Greenberg told the New York Daily News in reference to the expected bidding war with the Yankees over Lee, “We aren’t going into this with a pea-shooter.” He’s right. The Dallas metropolitan area is the largest single-team market in MLB and has been a sleeping giant for years. Until the Greenberg-Nolan Ryan group purchased the team out of the bankrupt estate of Tom Hicks last August, in business parlance the Rangers have been an under-performing asset. Those days are gone.
The Rangers recently signed an extension of their TV deal with Fox that some reports peg at $1.6 billion over 20 years, beginning after the 2014 season. That’s $80 million per year, or four times what the team is estimated to be earning now. The Greenberg-Ryan group includes a number of local heavyweights who are well-connected in the Dallas community. And they’re unlikely to over-leverage their assets to the extent that brought down Hicks’ deck of cards.
With a young, exciting team, above average pitching, and a well-stocked Minor League system, the Rangers should be competitive in the AL West Division for years to come, which will translate to increased revenue. Having Lee in their rotation will solidify them as a legitimate World Series contender for the foreseeable future.
There are other teams besides the Yankees and the Rangers who will kick the tires on Lee. But a number of clubs who can afford to pay the ante will pass because even with Lee in their rotation, they won’t have the horses to make the playoffs.
Lee over a 162-game season doesn’t have the same impact as he does in a five or seven game series. As Pittsburgh Pirates General Manager Branch Rickey famously replied to Ralph Kiner when the slugger protested a pay cut after the 1952 season in which he led the NL in home runs but the team finished with the worst record in MLB, “We can finish last without you.”
With Scott Boras as his agent, Lee is unlikely to leave any money on the table. It’s not difficult to visualize a 6-year contract at an average of $25-30 million per year. After all, you never overpay for quality.
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