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'bye Now, Pay Later

The millions owed by teams to players they no longer employ have become a key factor in game's economics

April 30, 2011|by David Wharton >>>

Standing at his locker shortly before the Angels' home opener against the Toronto Blue Jays, outfielder Vernon Wells had mixed emotions about facing the team that traded him away last winter.
It would be good to see old friends, but he also wanted to defeat them. And there was an added twist.
Wells was playing against a Toronto ballclub that was still covering part of his salary.
"It's obviously strange," he said.
Not in baseball, it isn't.
Call it "sunk costs" or "dead money" -- teams' still paying for athletes no longer on their rosters.
Juan Pierre, Andruw Jones and Manny Ramirez remain on this season's payroll for the Dodgers, though Ramirez is retired, Pierre is with the Chicago White Sox and Jones is with the New York Yankees.
The Angels took Wells only after Toronto agreed to contribute $5 million toward the remainder of his hefty contract. At the same time, the Angels have Gary Matthews Jr., who is out of the game, on their books for more than $11 million this season.

Sunk costs often trace back to a general manager paying tens of millions for a free agent, sometimes stretching those costs over many years, other times unloading him at a loss.

"A team believes the player is worth $10 million a year, then it turns out he's worth only $5 million," said J.C. Bradbury, a sports economist and author of "Hot Stove Economics: Understanding Baseball's Second Season." "A bad decision has been made."

But that's not always the case. Bradbury and others around the game suggest that some dead money is unavoidable. As Ned Colletti, general manager of the Dodgers, said: "It's inherent in the way we do business."

In a perfect world, teams would fill their rosters with young players developed through the farm system. Those players must wait two to three years before qualifying for salary arbitration and must log six seasons of major league service to become eligible for free agency.

In the real world, teams bolster their lineups with free agents, knowing the science of predicting future performance is imperfect. This year, a dozen teams around the majors are carrying sunk costs.

The New York Mets are paying four former players more than $20 million, according to media reports.

The Houston Astros are covering roughly half of the $22 million they owed pitcher Roy Oswalt when they traded him to the Philadelphia Phillies over the summer. The White Sox sent pitcher Scott Linebrink to the Atlanta Braves along with $1.5 million to offset the $5.5 million he will receive.

The numbers grow even more complicated for shortstop Yuniesky Betancourt, who has changed teams three times. According to the online site Cot's Baseball Contracts, the Seattle Mariners will pay about $1 million of his 2011 contract to the Kansas City Royals, who will forward about $2 million to his current team, the Milwaukee Brewers.

Supply and demand have much to do with sunk costs. As teams compete for a limited number of free agents, the cost and duration of contracts get driven upward.

"They're pursuing players who have been very successful," agent Scott Boras said. "The acquisition costs may be above the market [value]."

Wells got a seven-year, $126-million contract extension to stay in Toronto before the 2007 season and was later considered a disappointment. "Just because you make more money, that doesn't mean you automatically become a better ballplayer," he said.

Entering the 2007 season, the Dodgers had a dearth of outfielders and were looking at a market where free agents such as Alfonso Soriano and Carlos Lee figured to command $100 million or more.

"Sometimes you get in a situation where you really need a particular player to fill a gap and sometimes it's going to take an extra year or a couple million more on the contract to get him," Colletti said. "You end up doing something that isn't necessarily easy to do."

The team went after a less flashy Pierre, signing him for $44 million over five years. That same winter, the Angels gave a five-year, $50-million contract to Matthews, who had more power but a less proven track record.

Fast-forward a few years. The Angels -- who declined to comment for this story -- dumped Matthews at a loss after three seasons of poor hitting and reports linking him to performance-enhancing drugs.

The Dodgers, meanwhile, had gradually built an outfield of Manny Ramirez, Matt Kemp and Andre Ethier. They traded Pierre to the White Sox, eating much of his salary but freeing the remainder to use elsewhere.

"Teams will say, I really wish we had that money," said Bradbury, an associate professor at Kennesaw State University in Georgia. "They could use it for another player. Maybe it's coaching or a scouting academy."

Dead money on the payroll can stack up in other ways, including deferred payments. Players who sign immense contracts sometimes allow cash-strapped teams to stretch out the payments.

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