Blue Jays, Risk Management, and the Art Of Delay

The Blue Jays have been criticized in the past for not moving more quickly on player extensions.  But is this “Tortoise Mind” a bad thing?

In the 2015-16 offseason, when Edwin and Jose were in their last years before free agency, many writers and fans were critical of Team Shapkins for not extending at least one of them.  “Pay the man” was the expression of the day (and “Rogers is cheap” the daily meme).

A year later, the complaints about not signing Jose to a $150m+ contract are <ahem> “less prominent”.  In this one instance, it appears that the Jays were right to wait.  But was this just luck, or does the (apparent) strategy of not rushing player decisions have merit as a general rule?

All about the risk

Consider the Bautista case.  In asking for 5/$150m-ish, Jose was asking to be paid on the basis that he could sustain his 2015 production levels indefinitely.  This effectively meant that the Jays would be assuming all the risks of a decline in performance.  By comparison, when Dave Cameron of fangraphs made a more risk-balanced estimate, he arrived at 4 years and $75 million.  A $17.5m AAV versus a $30m one, and with fewer years.

(A note to the risk nerds – I am using the ISO 31000 definition of risk in this article, which includes both downside and upside)

Toronto Blue Jays

So how does a team manage risk?

When a veteran player is approaching free agency, there is often a fundamental disconnect between the player’s agent’s perception of risk and the perception of the team.  The agent will stress the benefits to the player of exploring the free agent market, and the risk of missing out on a spectacular offer.  The team will instead focus on the risk of underperformance throughout the life of the contract, whether due to aging, injury or other factors.  Each side believes that they are bearing the greater risk.  This is why it is increasingly rare for veteran stars to sign lucrative extensions when they are nearing free agency (though it will be interesting to see if the 2016 experience of aging free agent sluggers changes this dynamic).

As an aside – a team can more frequently find a win-win risk scenario for younger players with lower lifetime earnings, who can be more willing to trade some years of team control for sums that guarantee them lifetime financial security.  Think Ricky Romero‘s 5/$30.1m, or Carlos Carrasco‘s 4/$22m, or Evan Longoria‘s 6/$17.5m.

So where does delay come in?

In almost every case, delay reduces the risk of a sub-optimal decision.  First, more time means more information available.  The league’s perception of Jose was very different in October than it was in March, and despite an overall excellent year, Edwin’s hitting showed some disturbing trends.  This information would not have been available if the Jays had rushed to a signing pre-2016.  Second, the delay gives time for other options and opportunities to present themselves – whether through trade or free agency, development of minor league assets, or re-evaluation of existing major league players.

A British writer put it this way:

Giving yourself the time to collect more information, to listen to more hunches, to allow more creative ideas to bubble up into your mind … if you deprive yourself of that, that’s not being smart, that’s being macho

Consider the 2016-17 off-season.  The Jays could have signed Sanchez to a mid-term deal – but with Boras as an agent it is unlikely that Sanchez would have given up free agent years, and he would have likely demanded top dollar for his arbitration years.  By waiting a year (or two, or three) the Jays can determine whether they are dealing with a Noah Syndergaard or a Ricky Romero.  They could have extended Marco Estrada – but his herniated disk is still an issue, and will likely force him to miss the WBC.  Waiting a few months to gauge his recovery will greatly increase the Jays’ confidence.  The same could be said about Francisco Liriano‘s concussion, Jason Grilli‘s age and Darwin Barney‘s resurgent defense.

Downside to delay

One counter-argument to delaying player extension decisions is that a team can sometimes use the uncertainty caused by an injury or decline in performance to negotiate a favourable deal.  This is because a team can sometimes afford to take financial risks that a player would rather not.  For example, one (deluded?) writer suggested that the Jays should extend Michael Saunders in 2015, even though he was injured, as Mikey might have accepted a lower AAV in exchange for financial security.  But this situation is highly … situational, and would not apply to the Jays’ current extension candidates.

A second counter-argument is that a team can sometimes extend a player who has had a breakout in performance at favourable terms, as there is uncertainty about whether the player can maintain that higher level.  The Jays’ signing of Bautista to a 5/$65m contract in 2011 after his breakout 2010 is an example of this situation (though so is Adam Lind‘s 4/$21m after his breakout 2009 season).  This is true, but this scenario is largely not applicable to veterans with a consistent history of overperformances like Bautista, Encarnacion or Liriano.

And finally, there is the fear that as a player gets closer to free agency his incentive to extend with his current team will decline.  This could be true of a younger player who has not yet broken out, but it is less applicable to a player like Edwin or Jose.  In their cases, given their strong performances in 2015 and prior years, it is difficult to imagine how they could have increased their value in 2016.  But, given their ages, it was easy to imagine how 2016 could decrease their value (with hindsight, particularly so in Jose’s case).

Next: Blue Jays’ Pete Walker doesn’t get enough credit

The Bottom Line

Extending a veteran player can be a positive move for both the team and the player himself if the contract terms reflect a fair sharing of the risk of that extension.  Where the player’s terms do not, the team can either try to negotiate a lower dollar rate (often difficult) or take steps to reduce the risk.  Delaying the decision to maximize the information available is often one of the best risk management techniques at a team’s disposal.