Is the Mookie Betts deal fair?
Yes, we think so.
And by that, we mean there’s something for each side. For Betts, he gets financial security and one of the richest contracts ever awarded. For the Dodgers, they’re buying low on a superstar — in other words, if this deal wasn’t done in a pandemic, amid financial uncertainty, they probably would have had to pony up more.
So why do we think it’s fair? Here’s Mookie’s new median trade value estimate: Mookie Betts [18.6]
If that seems high, it’s mostly due to market value. On paper, there’s essentially no surplus. We estimate his new field value at 374.6, against a salary of 374.7 (reflecting this year’s proration), for a surplus of -0.1.
From the Dodgers’ perspective, though, the deal is even better. That’s because $115M of that salary is deferred. Because of the time value of money, it means they will only be paying out a bit over $306M in today’s dollars. However, there is a clause in the contract that states that if he is traded, that deferred money reverts to present-value money — in other words, the actual amounts would need to be paid out “as earned,” year over year. And since we focus on trade value here, that becomes the dominant point. So we have to use those numbers.
Now let’s break down how we got there.
But first a caveat: estimating the fairness of the deal involves estimating Betts’ performance projections 12 years beyond this one. And that’s fraught with uncertainty: anything can, and likely will, happen. No one can predict the future, especially that far out — not even the Dodgers’ crack analytics team.
So you run multiple simulations, and come up with a range of outcomes. If you’re the Dodgers, you then take the median outcome, measure it against the higher-risk range of outcomes, and determine your comfort level with how much you want to spend against those estimates.
Projection systems do the same thing. This Fangraphs piece includes a ZiPS projection for Betts for the next 12 years. Using that as a basis, and normalizing it to the model we use (which factors other major projection systems), applying standard aging curves for both performance and injury risk, we can get a best-guess estimate.
But we also have to account for the fact that the Dodgers signed Betts with the expectation that he will help them in multiple playoff runs. There is a high probability that they’ll make the playoffs every year in the foreseeable future, based on the sustainability of their success model — a strong major-league team, with future financial flexibility and a strong farm to keep replenishing it.
So that means we also have to add the probability of the “October bonus” to Betts’ performance side — effectively an additional month of field value each year.
Keep in mind that, for longer-term contracts, we also discount for contract risk, which is essentially the risk that comes with being stuck with a long-term lemon if things turn south.
As is common with long-term contracts, the salary is structured to give Betts raises over time. It goes up from $17.5M in the first two years, to $20M in 2023, to $25M in 2024, to $30M in 2028 (then down a bit to $27.5M in 2031); his $65M signing bonus is also spread out at $5M per year for most of the duration. It’s structured this way because athletes are human beings, who have families and lives and like to get paid consistently, with cost-of-living raises. (The way this deal is structured also helps lower the AAV, which in turn helps the Dodgers with luxury tax concerns, by the way.)
But that’s quite different from the performance side. In the beginning of the contract, when the athlete is in his prime, his field value tends to be high, far exceeding his salary. The surplus value is front-loaded. In the middle, it evens out. Then at the back end, as he slows down, things get ugly and the contract turns very negative. You see this now with guys like Miguel Cabrera, Albert Pujols and Robinson Cano. In Betts’ case, you’ll see it when he hits his late ‘30s, through the end of his contract at age 39.
Based on all that, his surplus is -0.1. That’s effectively zero. And that means his estimated performance over the long run matches his estimated salary. What we show as his median trade value is higher than that, due to market factors: superstars generally require an overpay if they’re traded.
But he’s unlikely to be traded. Although he doesn’t have an opt out or a no-trade clause, there is an effective NTC because after 2024, Betts will have 10/5 rights, having at that point been with LA for five years and in the league for 10. So he can veto any trade then.
In the meantime, Dodger fans will love watching Mookie in his prime. They’ll get the benefit of it now, pay the price for it later, and in the end it should roughly even out.