Tabata Extension Is Low Risk, High Reward
My initial reaction to the Jose Tabata extension was surprise at how good of a deal it was for the Pittsburgh Pirates. The main part of the surprise came with the three option years that were included in the deal. In total, that gave the Pirates control of Tabata for up to eight years beyond the 2011 season. The guaranteed amount of $15 M over five years wasn’t as surprising, since two of those years are league minimum years. However, it was surprising that Tabata signed this early, as it is rare for players to sign extensions with less than two years of service time.
After thinking further about how the deal breaks down, it seems that this is a very team friendly deal. There’s low risk involved for the Pirates, and a high reward if Tabata improves over what we’ve seen in his first two seasons in the majors. Here is the breakdown of the deal.
Tabata gets a $500 K salary and a $1 M signing bonus. The salary is a raise of $72 K over his previous salary. In total, he gets a raise of $1.072 M this year, which helps off-set some of the spending down the line.
Tabata will make $750 K. He would have probably been around $450 K under a league minimum scale in a best case scenario. The difference here is also small, amounting to $300 K.
Tabata will make $1 M in what would have been his third and final league minimum year. Best case scenario, he would have seen around $500 K under a year to year timeline, although it would have probably been around $475 K. In either case, the Pirates spend half a million more, which isn’t a huge investment.
So far through his league minimum years, the Pirates have picked up about $1.872 M in additional salary with this extension. The deal basically amounts to a five year, $15 M extension after 2011. The Pirates would have normally paid around $950 K in 2012 and 2013. They will end up paying $2.75 M, not counting the 2011 salary. The individual salaries aren’t much in 2012 and 2013, but they allow the Pirates to eat almost a third of the contract, lessening the arbitration year totals.
This would have been Tabata’s first arbitration year. So far in his career, Tabata has played a little over a season’s worth of games, and has a combined 3.3 WAR. He had a 2.1 WAR in his half a season in 2010, and has a 1.2 WAR this year. In total, he’s hit for a .286/.349/.385 line in 752 plate appearances, with a 4.9 UZR/150 in left field (although he will probably play right field from here on out). There hasn’t been much power, but at the worst his speed makes him a good top of the order hitter with strong defense, which the Pirates seem to value highly.
The rule of thumb for arbitration is that players get 40% of their free agent value in year one, 60% in year two, and 80% in year three. The value is usually calculated by multiplying wins by a dollar amount. This past off-season, the dollar amount was $5 M per win on the free agent market. If we go with a conservative 2.0 WAR for Tabata, that makes his expected salaries as follows:
2014: $4 M
2015: $6 M
2016: $8 M
Keep in mind that a 2.0 WAR player is worth $10 M in production, so all three amounts would bring value. You could probably go conservative here and give Tabata a 25/50/75 scale, which removes $3 M from this three year period. Either way, you get much more than what the Pirates ended up giving Tabata.
In 2014, the Pirates are paying $3 M. That represents 30% of Tabata’s value as a 2.0 WAR player. In 2015 they’re giving him $4 M, which represents 40% of his value. In 2016 they’re giving him $4.5 M, which represents 45% of his value.
The thing to consider with this deal is that Tabata will be ages 25-27 during these three years. We’re basing his WAR off of what he did in ages 21-22. To suggest that Tabata is a finished product at ages 21 and 22 seems absurd. Even if Tabata at ages 25-27 plays exactly the same as he has from ages 21-22, he’s a value. If he improves his play, such as additional power, or a consistent .300+ average, he becomes a huge value during these arbitration years. I don’t think it is far fetched to assume Tabata will improve, since we’re talking about his prime years, and talking about improvements over what amounts to his first full season in the majors. Worst case, he doesn’t improve, and becomes a strong fourth outfielder with his pay scale being on the high end for what a fourth outfielder would make out of free agency. You have to take on some risk in these types of deals, but this risk seems low compared to the upside in value that we could see from Tabata.
Tabata can make up to $22.5 M in 2017-2019, which would have been his first three free agent years. That amounts to $7.5 M per year, which would be a huge value compared to what Tabata might receive on the free agent market in a three year deal at ages 28-30. In fact, if Tabata were to hit free agency at age 28, and he did show some of the improvements mentioned above (more power, better average), he probably would fetch a longer deal than three years, and at more than $7.5 M per year.
If Tabata doesn’t prove to be worth the option years, the Pirates have $250 K buyouts on each year. We don’t know the full details yet, but if Tabata’s option years are year to year, it gives the Pirates an out each year if Tabata fails to live up to his value.
Again, the risk here is low, as it amounts to $750 K if Tabata doesn’t live up to expectations. The reward is high, as it gives the Pirates what amounts to a three year, $22.5 M deal with Tabata, in place of what would have been his first three free agent years. When you consider that the years cover ages 28-30, which should be Tabata’s prime years, that deal potentially looks like a major value.
Tabata will average roughly $3 M per year over the next five years at the least. In order for the deal to have a big value, he needs to improve on the numbers we’ve seen so far. Again, his current production comes at ages 21 and 22. His big salary increases come at ages 25-27 (arbitration years) and 28-30 (option years). I don’t believe that Tabata has peaked at all. I could see him becoming anything from a strong leadoff hitter to a strong number three hitter, all depending on whether he adds some power to his game.
The deal definitely shows one thing. It shows that Tabata wants to be in Pittsburgh. This is a very team friendly deal. Players don’t usually give up eight years of control after just one season, and definitely not at this low price. Tabata even left his agents in order to get this deal finished, which showed how much he wanted to get the deal done. Ultimately, Tabata is probably the second or third priority for an extension, with Andrew McCutchen being number one, and Neil Walker being the other player. However, that shouldn’t affect the order that the players are extended. The fact that Tabata is under control for the next eight seasons is a great thing for the Pirates. We’ve heard that the team is close to Neil Walker as well. Ideally, Andrew McCutchen signs on after those two deals are completed. Not factoring in any other deals, the Tabata deal alone is a great low risk, high reward move for the Pirates, and it’s nice to see a player want to be in Pittsburgh this much.