When Contracts Go From Bad To Worse

Barry Zito of the San Francisco Giants pitches against the Los Angeles Dodgers during a Major League Baseball game at AT&T Park in San Francisco California. (Photo by Jed Jacobsohn/Getty Images)

Last week, just before the waiver trade deadline, the San Francisco Giants designated outfielder Aaron Rowand and infielder Miguel Tejada for assignment. Yesterday, having found no trade partners for either Rowand or Tejada, the Giants granted the two players their outright release. Teams releasing players isn't necessarily big news. Teams releasing players to whom they still owe many millions of dollars is. 

The Giants signed Rowand to a five-year/$60 million contract heading into the 2008 season. According to Baseball Prospectus' new Compensation section (formerly at Cot's Contracts), Rowand accounted for 10.5% of the Giants' payroll in 2008, 11.6% in 2009, 14% in 2010, and 11.5% in 2011. In his first three seasons, Rowand was the second-highest paid Giants player, behind only Barry Zito. (We'll get to him later.)  This season, Tim Lincecum supplanted Rowand in the two-spot, but Rowand slipped only to third. 

Rowand is no longer a Giant, but he will continue to be paid handsomely under his guaranteed five-year contract. For the remainder of the 2011 season and for the entirety of 2012, the Giants will pay Rowand $14 million; a bit less if Rowand signs with another team next season. The Giants had cut unproductive players before Rowand, but never with that much remaining on his contract. Yet on the day he designated Rowand for assignment, Giants General Manger Brian Sabean said ownership approved the move "without delay."   

Without delay.

That's a significant statement. It's not every day that a major league team decides to eat $14 million on a player contract.

How did the Giants get to this point?

When the Giants signed Rowand, he was coming off the best season of his career in which he posted a slash line of .309/.374/.515 with a wRC+ of 126 for the Phillies. He made the National League All-Star team and won a Gold Glove for his play in center field. The Giants were facing their first season without Barry Bonds on the roster since 1993 and looked to Rowand to replace at least some of Bonds' offensive firepower.

It didn't work out that way.  

In 2008 and 2009, Rowand averaged a .266/.329/.415 slash line and a wRC+ of 93, making him one of the least productive center fielders in the National League those two seasons. Early in the 2010 season, Rowand suffered fractured facial bones after being hit by a pitch in a game against the Dodgers and was replaced by Andres Torres. With Torres having the season of his career, Rowand never regained the starting center field job. In 105 games, Rowand batted .230/.271/.378 with a wRC+ of 73. When the Giants played the Atlanta Braves in the National League Division Series, Rowand wasn't on the roster, although he did play in both the National League Championship Series and the World Series.

Things went from bad to worse this year. With early-season injuries to outfielders Andres Torres and Cody Ross, Rowand logged significant time in center and left field and in the lead-off spot in the Giants batting order. Never the most patient batter, Rowand saw his BB% drop to 2.8, his K% increase to 23.9 and his power all but disappear. When Ross and Torres returned from injuries, Rowand was relegated to the bench. His final line for the Giants this season was .233/.274/.347 with a wRC+ of 65.  

In releasing Rowand, the Giants accepted that his contract was a sunk cost: a cost that had already been incurred and could not be recovered. The contract committed the Giants to paying Rowand the full $60 million whether he played every day, sat on the bench or left the team. Rowand wasn't performing and he was grumbling about his time on the bench. The Giants concluded they would be a better team without Rowand, regardless of the cost. So they cut their losses.

Back in 2002, Joe Sheehan, then with Baseball Prospectus, noted that major league teams were starting to recognize contracts with unproductive players as sunk costs. But the teams cited by Sheehan cut or waived utility players, not so-called marquee players with high-dollar/long-term contracts. 

Since 1998, Major League Baseball has seen its fair share of regrettable high-dollar/long-term contracts. In some cases, the player was injured and could not play for a significant portion of the contract: 

With Belle, Vaughn and Dreifort, the injuries were career-ending and their teams recovered a portion of the outstanding salary under disability insurance policies. With Hampton, Pavano and Schmidt, their teams were on the hook for the full contract.

But many other regrettable high-dollar/long-term contracts resulted from the player not performing on the field in the manner anticipated given the amount and length of the contract. To date, very few of these contracts have resulted in the team simply releasing the player while remaining on the hook for the contract. 

Some examples:

  • Chan Ho Park (RHP, Texas Rangers, 5-year/$65 million, 2002-2006). In 3.5 seasons with the Rangers, Park was 22-23 with a 5.79 ERA, a 1.610 WHIP, and 1.47 K/BB ratio. Midway through 2005, the Rangers traded Park to the San Diego Padres for Phil Nevin, but the Rangers paid the entirety of Park's salary for the rest of 2005 and all of 2006. 
  • Gary Matthews, Jr. (OF, Los Angeles Angels, 5-year/$50 million, 2007-2011). In 3 seasons with the Angels, Matthews batted .248/325/.383 with an average wRC+ of 87. He hit a total of 30 home runs. The Angels traded Matthews to the New York Mets before the 2010 season for relief pitcher Brian Stokes, but the Angels remained on the hook for nearly all of Matthews' remaining salary. That made it easy for the Mets to release Matthews halfway through the 2010 season. 
  • Alex Rios (OF, Toronto Blue Jays, 7-year/$69.9 million, 2008-2014). In 2008, Rios batted .291/.337/.461 with a wRC+ of 113 but his performance dropped off significantly in 2009 to .247/.296/.395. The Blue Jays placed Rios on waivers in August 2009. The Chicago White Sox claimed Rios and the Blue Jays let him go. Now the White Sox are responsible for the remainder of Rios' contract. In two-plus seasons, Rios has delivered a line of .249/.290/.385 for Chicago.
But the tide may be turning. Just before the 2011 season began, the New York Mets released infielder Luis Castillo and starter Oliver Perez, who had a combined $18 million remaining on their contracts. Perez alone was owed $12 million. The Chicago Cubs released starter Carlos Silva, whom they had acquired from the Seattle Mariners for the often-troubled Milton Bradley before the 2010 season and to whom the Cubs still owed $7.25 million. In May, the Mariners cut ties with Bradley, eating the remainder of the $12 million owed to him this season. In June, the Angels released starter Scott Kazmir with approximately $7 million remaining on his contract, plus $2.5 million to buy out Kazmir's option for 2012. And then the Giants released Rowand.

The trend is likely to continue but up to what dollar amount?  How much is too much for a team to eat in terms of dollars and years remaining on a contract?

It's a good question given the existing high-dollar/long-term contracts with players who are significantly under-performing. And not just under-performing compared to expectations, but under-performing compared to what a replacement level player would provide.  

The most notable example is Barry Zito (LHP, San Francisco Giants, 7-years/$126 million, 2007-2013). Signed to be an ace, Zito has been anything but. Through the first five years of his contract, Zito's posted a record of 43-61 with a 4.52 ERA, but that doesn't begin to tell the story.  While Zito has had short periods of success with the Giants, he hasn't put together even one successful season. With Tim Lincecum, Matt Cain, Madison Bumgarner and now Ryan Vogelsong, the Giants are set for next season with four-fifths of their rotation. The Giants still owe Zito $39 million on the contract, plus $7 million if they fail to pick up Zito's option for 2014 (which seems certain). Giants management has been non-committal when asked about Zito's role next season. As with Rowand, the Giants will have determine this winter whether they are a better team without Zito as the fifth starter.  

Others to keep an eye on:
  • A. J. Burnett (RHP, New York Yankees, 5-years/$82.5 million, 2009-2013). Burnett pitched well in his first season with the Yankees but the last two seasons have been very disappointing. In 2010 and thus far in 2011, Burnett is 19-26 with a 5.27 ERA, a 1.481 WHIP and a K/BB ratio of 1.88. He's uncorked 23 wild pitches this season, a career high. There's buzz around the Yankees as to whether Burnett will be a starter for the Yankees in the post-season or be used out of the bullpen or not at all. The Yankees owe Burnett $33 million for 2012 and 2013.
  • Vernon Wells (OF, Toronto Blue Jays/Los Angeles Angels, 7-year/$126 million, 2008-2014). The Blue Jays-Wells contract was significantly backloaded, providing for relatively modest payments in 2008 and 2009 but jumping to more than $15 million for 2010, $21 million for 2011 and $24 million for 2012-2014.  In 2008-2010, Wells batted .278/.328/.470 with an average wRC+ of 109. Before this season, the Blue Jays traded Wells to the Angels, a coup for the Blue Jays and a disaster for the Angels. So far this season, Wells is batting .218/.252/.396 with a wRC+ of 75.  That's the lowest batting average and on-base percentage of any qualified outfielder in the American League. And the Angels owe Wells close to $75 million through 2014.
  • Adam Dunn (DH, Chicago White Sox, 4-years/$56 million, 2011-2014). Over ten seasons in the National League with the Reds and the Nationals, Adam Dunn was one of the more consistent power hitters in the game. Dunn averaged .250/.381/.521 from 2001-2010 and hit 384 home runs. This season, Dunn's been the least productive hitter in the American League with a line of .161/.291/.285 with just 11 home runs.
For teams holding these contracts and considering whether to cut their losses, the question is: who is the alternative? If a better player is available to fill the role at a reasonable cost, the smart decision is to treat the under-performing player's contract as a sunk cost and move on. 

It will be very interesting to see what happens.

Wendy Thurm writes regularly about baseball and life at Hanging Sliders and on Twitter @hangingsliders.
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