When Will Bloated Baseball Contracts Finally Hit a Tipping Point?

Zachary D. Rymer@zachrymerMLB Lead WriterJune 24, 2013

Is it going to be all downhill for baseball contracts after Clayton Kershaw strikes it rich? Um...no...
Is it going to be all downhill for baseball contracts after Clayton Kershaw strikes it rich? Um...no...Harry How/Getty Images

Sooner or later, everything abides by Sir Isaac Newton's famous epiphany: What goes up must come down.

This rule will apply to contracts in Major League Baseball eventually. They can't keep spiraling upward forever.

But here's a spoiler: They're going to give it a shot. There will come a time when bloated baseball contracts level out and/or begin to deflate altogether, but said time likely isn't imminent.

As it is, that's not even the question these days. Never mind when contracts are going to start deflating. The matter at hand now is how high they can keep going.

The title of the richest man in baseball hasn't been passed on since Alex Rodriguez retained it with the 10-year, $275 million deal he signed with the New York Yankees in 2007. But he doesn't have the top of the mountain to himself like he used to, as Albert Pujols, Prince Fielder and Joey Votto have all signed contracts worth over $200 million within the last two years. Justin Verlander's extension could be worth $200 million in the long run.

Is there a $300 million man out there?

Oh, there just might be.

Los Angeles Dodgers southpaw Clayton Kershaw is up for an extension of his own, and every indication is that it's going to be a massive one. Ken Rosenthal of FoxSports.com recently reported that, not surprisingly, Kershaw's contract is expected to be the richest ever for a pitcher. At one point, he and the Dodgers supposedly did discuss the $300 million threshold.

Later this winter, Robinson Cano will likely be the next player to join baseball's $200 million fraternity. In the longer run, Jeff Passan of Yahoo! Sports pondered in December if Mike Trout could become baseball's first $300 million man if Kershaw doesn't earn that honor first. 

What's happening now is reminiscent of what went down in 2000 and 2001, two years that revolutionized baseball contracts.

Kevin Brown became the first $100 million man in baseball history when he signed his seven-year deal with the Dodgers in 1998, but others soon joined him. Per MLB Trade Rumors' transactions tracker and extension tracker, there were nine contracts handed out between 2000 and 2001 that were worth at least $75 million over at least five years.

Of those, seven were worth at least $100 million. In a very short amount of time, MLB went from having zero $100 million deals to having eight.

The trend failed to gain steam, however. Only one $100 million extension was handed out (to Albert Pujols) between 2002 and 2005, and Carlos Beltran's $119 million deal with the New York Mets in January 2005 was the first of its kind since Jason Giambi's $120 million deal with the Yankees in 2001.

Things are different now. The latest contract boom has already lasted longer than the one that took place in 2000 and 2001, and it has been more prolific. There have been 14 $100 million extensions handed out since 2010, to go along with nine $100 million free-agent contracts.

There have only been 41 $100 million contracts in MLB history, so there's your daily perspective: More than half of those have come in the last three or so years.

You should know by now why this is going on. The value of local TV contracts has skyrocketed, as several teams have already signed billion-dollar deals—Wendy Thurm of FanGraphs put together a helpful rundown—and that party should be receiving a few more guests in the near future.

According to Jeff Passan, the Philadelphia Phillies' next TV deal could make a run at the Dodgers' $7 billion deal. The Chicago Tribune reported in February that the Chicago Cubs were looking to renegotiate their TV deal. Mike Ozanian of Forbes wrote last October that the recent run of success of the Detroit Tigers should result in a big TV deal somewhere down the line.

These teams ought to do pretty well for themselves when the time comes to sign off on a new deal. If there's a catch to the local TV madness, it's that other clubs may not make out so well when they go looking for new deals.

After the Cleveland Indians struck a new TV deal in December, Maury Brown of BizofBaseball.com wrote that local TV deals appeared to be headed toward a glass ceiling. The massive piles of money needed to pay for the rights to baseball games come from subscribers. Brown warned that "when you get subscription fees going through the roof, the carriers of the content, and ultimately, consumers begin to make noise."

The upshot could be a petering out of big-money TV deals, and Grantland's Jonah Keri is probably right in thinking that small- and mid-market teams are going to be the ones that get screwed over the most. 

On the surface, that sounds like it could be a death knell for big-money contracts, as it stands to reason that contract values are bound to hit a ceiling if local TV deals are also bound to hit a ceiling. 

From a leaguewide perspective, however, I believe former Texas Rangers CEO Chuck Greenberg said it best.

"Everyone keeps saying it can't last forever, and it probably can't," Greenberg told Howard Bryant of ESPN.com. "But it is difficult to see what is going to cause the bubble to burst."

Indeed. Even if local TV deals hit a ceiling in the near future, there should still be plenty of money to go around.

For starters, there's the incoming national TV money. MLB has new deals in place with ESPN and with Fox and Turner Sports that kick in next year. They're worth roughly $50 million a year for each of MLB's 30 teams, and the contracts are good through 2021.

On top of that, clubs are going to be getting a share of the Dodgers' ginormous new TV contract. Bill Shaikin of the Los Angeles Times reported earlier this month that the Dodgers are expected to pay $2 billion in revenue sharing throughout the deal's 25-year lifespan. That amounts to an average of $80 million per year.

Then there's MLB Advanced Media, which is quietly providing a significant financial boost to all teams. Forbes reported earlier this year that MLBAM generated $650 million in revenue last year and is still growing. All 30 clubs own an equal share of MLBAM, so they all get a taste of the dollars it's raking in.

It's not an accident that there have been so many mega-rich contracts signed within the last few years. The deals reflect how money has been pouring into the league like crazy, and there's not going to be much letup in the near future, even if local TV deals hit a glass ceiling. There will still be money coming from elsewhere.

Per a report from Maury Brown last December, the rush of mega-contracts in 2000 and 2001 happened at a time when the league's revenue was on its way up. There was some leveling out in the years that followed, so in retrospect, it's no surprise that teams held off on handing out more mega-contracts.

Revenue is on the rise again, and Brown wrote that the league is on the verge of "the largest spike in revenue growth in MLB history." This spike should trickle down to the players, inevitably resulting in more bloated contracts.

Teams won't be forced to de-bloat contracts until the money flow starts to thin out. Maybe that'll happen when MLB is forced to settle for lesser deals when it comes time to negotiate new national TV contracts, and there's bound to come a time when MLBAM starts approaching its own glass ceiling.

But these are just kinda-sorta educated guesses. And even if these things are going to happen, they're going to happen later rather than sooner. The tipping point is out there somewhere, but it's probably still pretty far away.

In the meantime, many more bloated contracts will be signed. Of all the days when it's good to be an ultratalented ballplayer, these days are particularly good.


If you want to talk baseball, hit me up on Twitter.

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