Pay the (Big) Man
Pay the (Big) Man
The Contract Extension for Yordan Alvarez Will Keep the Slugger in Houston Through 2029, but Reduces the Downside Risks for the FO.
The news was surprising as it was welcome. At 12:13 pm CDT yesterday, Jeff Passan tweeted that the “Yordan Álvarez and the Houston Astros are in agreement on a six-year, $115 million contract extension…Contract kicks in next season.”
Contract extensions are often signed during Spring Training, and players often set an unofficial deadline of Opening Day for contract negotiations as they prefer to avoid focusing on business during the season. So that an extension was signed in June was surprising.
But as unexpected as the news was, its meaning was clear. The Astros had agreed to a SIX year contract with one of the best pure hitters in major league baseball. The year-by-year details of the contract are discussed in this tweet from Bob Nightengale.
The contract essentially has two parts. The first part is for the the first three seasons of the deal (2023-2025) when Alvarez would have been eligible for arbitration. The Astros and Alvarez have agreed to bypass this process and to pay Alvarez $32 million over those three seasons. This gives the Astros front office cost certainty rather than having to wait for an arbitrator to decide Alvarez’s salary.
The second part is for years 2026 to 2028. Alvarez was eligible to be a free agent in those seasons, and the Astros are paying him $78 million over those three years to secure his services.
I’ll explore why I think this is a good deal for the Astros front office, first by discussing the upside provided by Yordan’s immense talent with the bat, the team’s payroll situation, and the potential downsides of this long-term deal.
Yordan’s Upside
I mean, if you watched the Astros most recent series with the A’s, you know the upside. Yordan can do things like this.
He can do things like this:
And we know from the ALCS last season, he can do that and a whole lot more.
Of course, those are just some crowning moments to the offensive prowess that Alvarez has shown since his major league debut in June of 2019. Since then, he has a slash line of ..287/.370/.576 for an OPS of .947. That’s 4th best among all major leaguers. His weighted runs created over that time period if 156, which is second best in baseball behind only Mike Trout.
Or to put it another way, Juan Soto is a very good hitter. But he’s not been as good as Alvarez. Aaron Judge, Fernando Tatis, Jr., George Springer, Bryce Harper, Freddie Freeman and Mookie Betts are all outstanding hitters, yet the trail Alvarez on the wRC+ leaderboard.
And Alvarez is actually improving his career numbers this season. He has a wRC+ of 172 this season. These numbers are scaled so that 100 is average. Thus Alvarez is 72% better than the average major leaguer this year.
One thing that has been notable about Alvarez in 2022 is his improved strike zone judgment. Alvarez’s rate of chasing pitches outside of the strike zone has declined to 21.4% from 26.2% last season and 28.6% in his 2019 rookie season. As a result, Alvarez is striking out less, with his K% declining to 17.6% after a 24.2% mark in 2021 and 25.5% in 2019. That’s at the 71st percentile among all major leaguers.
Alvarez has also increased his walk percentage from 8.4% in 2021 to 12.8% this season. He was below average last season (42nd percentile) but well above average in this category this year (87th percentile).
This, to me, is the the key to Alvarez’s success on offense—his swing judgment. The stereotype of the slugger is that of a wild swinger who feasts on mistakes but whiffs against good pitches (c.f. Joey Gallo, Chris Carter, Rob Deer, etc.). Alvarez is controlled in the batters box, with the ability to let pitches outside of the strike zone go. It is difficult for opposing pitchers to get him to swing and miss. And usually, when Alvarez swings, he makes contact. And when he makes contact…well, pitchers don’t like it. But Astro fans so.
So the upside of the deal is clear. Yordan Alvarez is really good at hitting baseballs, and he will do that in an Astros uniform for the next six seasons.
The Contract Value
The key to the contract is the $26 million a year portion that buys out three of Alvarez’s free agent seasons.
So how much is $26 million? In normal terms, it is a lot of money. But in a sport that is projected to have revenues of over $10 billion and for a franchise whose revenues are approaching $400 million, we need to assess it compared to other deals in major league baseball.
It is, even in baseball terms, a lot of money. According to Spotrac, a $26 million salary would be the 19th highest in MLB in the 2022 season.
MLB stars who make around $26 million a year include Freddie Freeman ($27 M), Bryce Harper ($26M), Zach Wheeler ($26M), and Justin Verlander ($25M). The highest baseball contracts pay players over $30 million a year (and over $40 million in the case of Max Scherzer). The group at $26 million includes players who could not reach that level for a variety of reasons: their age when they signed their deal (Freeman), a desire for a really long term contract (Harper) and injury concerns (Verlander). Jose Altuve makes $26 million a season, which reflects the leverage he and his agents gave up when they signed a long-term extension after his second season in the majors.
Alvarez has a different set of limits. He is slow and okay at best when playing defense. Alvarez has essentially been a DH since his debut, which limits his value as a player. From an annual value standpoint, Alvarez’s salary looks right at this point in time. He is signing at something close to market rate for his free agent years.
Payroll
The Astros payroll has gone down over the past two seasons after rising consistently from 2013 through 2020. But that two year dip will end next season. While the contracts of Michael Brantley and Yuli Gurriel will expire, four young regulars—Kyle Tucker, Cristian Javier, Jose Urquidy, and Alvarez—will enter the arbitration process for the first time, and Framber Valdez will go through arbitration for a second time. Each should get a salary increase, and that will eat up the savings from the Brantley and Gurriel contracts. Plus the front office will have to find a new first baseman and left fielder. The payroll will go up next season.
But the good news is that the front office should be able to absorb the increase for two reasons. First, baseball is a profitable business and an increase in the payroll will not keep Jim Crane from operating in the black in 2023 or from realizing outsized year-over-year gains whenever he or his heirs choose to sell the franchise.
And second, the luxury tax thresholds for MLB payrolls increased significantly in the latest CBA negotiations. The threshold will be $233 million next season. The Astros have, like many other teams, tended to treat this threshold as a de facto salary cap. But the increase means the front office has room to increase the payroll without making the boss man have to pay more in “taxes” to MLB. We have already seen this flexibility in the decision to sign to Ryan Pressly to an extension that will increase his salary from $8.75M in 2022 to $14M in 2023.
The front office now knows how much it will pay Alvarez next season ($7M), and, thus, has a little more certainty about what their 2023 payroll could be.
The Downside Risk
Long term deals come with greater risks than short term deals. We don’t know what will happen in the 2023 season, but our guesses are lot more educated about that season than they are for the 2029 season. So any long term deal comes with risk.
From the standpoint of the Astros front office, there are two areas of risk. The first is injury. Alvarez missed all but two games of the 2020 season with a injuries that required surgery on both knees. He has been healthy for the 2021 and 2022 seasons, but the injury risk for Alvarez is not small.
The second area of risk is that Alvarez will age poorly. Bill James had a philosophy that players had old player skills (power) or young player skills (speed and defense) and that those with young player skills would age better. One can think of obvious examples that disprove James’s philosophy, like Nelson Cruz. Or David Ortiz, who is a common comp to Alvarez. But the bigger point may be that there is great uncertainty to how all players will age.
Alvarez’s will turn 25 later this month, so much of the contract will be in his prime, which usually centers around age 27 for baseball players. But the contract will end after Alvarez’s 32nd birthday.
The good news is that 32 is not that old in baseball terms. If Alvarez ages like Cruz or Ortiz, he will be a good candidate to sign more free agent contracts into the 2030s. And the Astros can negotiate one of those contracts with Alvarez any time they wish.
And if Alvarez turns into a pumpkin before his 32nd birthday, the risk is not that great for the front office. This is essentially a 3-year deal. So if Alvarez ages poorly, suffers a big injury, or both, they are not on the hook for long. The short length of the free agent portion reduces the risk of this “long-term” contract.
In fact, it is hard for baseball franchises to lose when signing contract extensions with their players who are at the early stages of the arbitration process. Players have yet to make big money playing baseball and often come from middle class economic backgrounds. They hold little leverage over their employers and are aware that by not signing, they are bearing a great deal of long term risk.
Teams deal in bigger salary numbers all the time and can have a greater long-term perspective in these negotiations, increasing their leverage against the players. The Astros do not seem likely to regret this deal.
Will Alvarez? Despite these obstacles, I think he did well here. He signed a deal that pays him what look close to a fair market rate for his services in his free agent years. That being said, a healthy and productive Alvarez could do better than 3 years at $26 million a year when he enters free agency after the 2025 season. But I doubt that he would get more than a 5 year contract or more than something like $32 million a year.
He would make more money in that scenario, but he eliminates his risk of losing money from an injury or an early decline. It’s a tradeoff that eliminates Alvarez’s downside risk. And, as noted, it reduces the Astros downside risk.
From our perspective as fans, the news is very good. Yordan Alvarez is one of the handful of best hitters in baseball. He is likely to continue to be one of the best hitters in baseball, and through the 2029 season, he’ll be one of the best hitters in baseball on our favorite team.
Hey, I wonder what Josh Fields thought of this deal.