Exhibit A on Why Player Options Are Bad
Over the off-season, the Pittsburgh Pirates set out to add to their starting rotation, and made a big push for free agent starter Jorge de la Rosa. It was reported that the Pirates made a competitive offer for him, although he went to Colorado, largely because he wanted to remain there, but also because they gave him a two year deal with a player option.
If you are unfamiliar with how a player option works, it’s probably because they are very rare. There are three types of options. There’s the traditional club option, where a player’s fate is decided by the club. Paul Maholm has a club option following the year. If the Pirates decide to exercise it, they pay $9.75 M for Maholm in 2012. If they decide to decline it, they only pay the $750 K buyout, and Maholm becomes a free agent. In either case, Maholm has no choice, and his fate is left up to the team.
A player option is the exact opposite. The player controls his fate. He chooses whether to accept the option, or accept the buyout. In either case, the team has to pay him appropriately. In De La Rosa’s case, he has an $11 M option in 2013, with a $1 M buyout. If he accepts, the Rockies will pay him $11 M. If he declines, the Rockies pay him $1 M and he becomes a free agent.
There was some debate over the off-season about whether the Pirates actually made a competitive offer. Price-wise, it was reported that they were in the same price range as Colorado as far as guaranteed money. However, the Pirates refused to offer a player option, noting that it never worked out well for the team. De La Rosa is now proving them right, as he just went down with Tommy John surgery.
What this means is that De La Rosa will miss the rest of the 2011 season, as well as the first part of the 2012 season. Assuming he can return in time for June 2012, the Rockies will get about one whole year from him between the 2011 and 2012 seasons, all while paying him $20.5 M over that time frame. This is where the player option comes in to play. De La Rosa will only have about four months during the 2012 season to improve his free agent value. In order to justify declining his option, he will need to prove that he’s worth much more than $11 M. Unless he comes back right away at 100% and has a huge finish to the season, it’s unlikely that he will be worth that $11 M salary in 2013.
On the flip side, let’s assume De La Rosa continued his impressive numbers this year, and never got injured. Let’s also assume he continued with his 3.34 ERA through the 2012 season. There would be no chance that he would accept the player option, as he could make more on the open market in that scenario.
So what did the Rockies get for their player option? They are basically paying De La Rosa $20.5 M for a year of pitching, with no guarantees that he will be 100% the final four months of the 2012 season. It’s also very likely that he will accept the 2013 option, which is priced higher than what his value would have been on the open market, assuming he doesn’t return with phenomenal numbers.
Now obviously the Pirates don’t miss De La Rosa. They ended up signing Kevin Correia, who has been great, just like the rest of the rotation. The point of this post isn’t to say the Pirates made the right call by not signing De La Rosa. I’m a big fan, and would have loved the signing. I was disappointed when they didn’t sign him. However, at the time other people were also disappointed, and it led them to suggest that the Pirates should have offered a player option. Assuming they could have gotten De La Rosa for the same price with a player option (and that’s unlikely, since he wanted to remain in Colorado), they would have paid the following:
-$1 M signing bonus
-$9.5 M for one and a half months of the 2011 season
-$10 M for possibly four months of the 2012 season (assuming DLR can return to the majors in one year)
-$11 M for his 2013 season, assuming he accepts the player option (this would have given them an $11 M option for 2014)
-The 61st overall pick in the 2011 draft
That would have been a huge handcuff for the Pirates. There’s no way De La Rosa makes up the value of his contract. The Pirates also would have lost their second round pick in this year’s draft. And had De La Rosa lived up to his deal, they would have still lost that pick, and he would have left following the 2012 season.
So call it a bullet dodged. Call it fate that the Pirates were passed up and settled for Kevin Correia, who has been very strong this year. The most important thing to note is that player options rarely work out in the team’s favor. Either the player doesn’t live up to his deal, and you’re stuck with him for another very expensive year, or the player does live up to his deal, and opts for free agency. You either get a good player for a short amount of time, or a disappointment for the long haul.