Adrian Gonzalez Extension: Why This Deal Is a Win for Boston Red Sox

Last week, the Boston Red Sox ended months of speculation by signing newly acquired first baseman Adrian Gonzalez to a seven-year, $154 million contract extension.

Even to the spendthrift Red Sox, this deal is a major risk—Gonzalez' new contract is the ninth-largest in MLB history.

And yet, there's no question that this is a fantastic move for Boston.

Over the last two years, Gonzalez made a name for himself as one of the best hitters in baseball as he grew into his power and honed his batting eye. In 2009-10, he mashed opposing pitchers to the tune of a .288/.400/.530 slashline to go along with 71 homers, 200 RBI, and 11.8 WAR—all while trapped in the most notorious pitchers’ park in the game. 

That’s why the Red Sox sent three of their best prospects—Casey Kelly, Anthony Rizzo and Reynomd Fuentes—to San Diego in order to bring Gonzalez to Fenway Park for the final year of his contract: now that he’s liberated from PETCO, Gonzalez’ ceiling may be the highest in the league. He sure looks good in the middle of Boston’s lineup. 

But the Red Sox didn’t trade three of their most promising youngsters for a one-year rent-a-star. From the beginning, the plan was to lock A-Gone up with a long-term deal that would keep him in Boston for years to come.

If we take a conservative estimate that Gonzalez is currently a 5.5-win player (he had just 5.3 WAR last year, but the move to Fenway will likely push him closer to the 6.5 WAR he posted in 2009), his production is worth roughly $27.5 million. If he can maintain that production through his age-31 season in 2013, that would mean A-Gone would be worth $55 million in the first two years of the extension. 

If we assume that Gonzalez follows a standard half-win-per-season aging curve, he will be worth 5.0 WAR in 2014, 4.5 WAR in 2015, etc. until falling to 3.0 WAR in 2018, the final year of the deal. Assuming that there is no inflation in the baseball marketplace and the $5 million/WAR figure remains constant, Gonzalez's production from 2014-18 would be worth $100 million. A conservative estimate for A-Gone’s future puts him at $155 million total from 2012-18—almost exactly the amount he will reportedly receive in that time frame. 

But of course, the price level almost definitely won’t remain static. If we keep the pessimistic estimation of Gonzalez’ talent level but assume a hearty 10 percent inflation rate in the free agent market, A-Gone would be over $244 million over the length of the proposed contract. Even with a more realistic inflation rate of five percent, the value of his production would come out at just under $195 million.

If we maintain the five-percent inflation but take a slightly more optimistic view of Gonzo’s current talent—say, 6.0 WAR a season—the value of his production jumps up to $217.3 million. And if you think the move to Fenway Park will allow him to take his game to new heights—7.0 WAR a year, perhaps?—he’s suddenly worth $262.2 million.

If we split the difference and say Gonzalez is a 6.5-WAR player now and will be until he’s 31, his contributions will be worth just under $240 million. But if he can make his prime last for an extra year while maintaining the same half-win loss afterwards—there are plenty of 32-year-olds who don’t act their age—that shoots up to $256.5 million. If he can keep it up until he’s 33, he’ll be worth north of $270 million, giving the Red Sox more than $100 million in surplus value.

Beyond that, keep in mind that the Red Sox are a big-market team with a huge payroll. They may worry about finances more than the New York Yankees, but it’s hard to imagine John Henry ever enforcing a strict budget limit. Boston can afford to pay a premium for elite talent.

But wait—there’s more! As a team that expects to compete every year (who knows whether they’ll still be good in 2018, but it’s hard to see Boston going into rebuilding mode anytime soon), a win is worth more to the Red Sox than it is to the average franchise. In a division where a team can win more than 90 games and finish in third place, this kind of production means a lot more than it would to, say, the Kansas City Royals.

If we say the Red Sox currently value wins at $6 million apiece instead of the standard $5 million, Gonzalez’ production would be worth over $300 million even if he starts declining at age 32. That’s almost a 100-percent return on investment for a team that has no problem shelling out big bucks for good players. 

There’s a tremendous amount of inherent risk in any deal of this magnitude—if Gonzalez throws out his back in June 2012, the Red Sox still have to pay him $154 million. But for a team that can easily afford a blockbuster contract and wants to lock up one of the game’s best players, this looks like an easy win. 

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