The Jon Lester contract situation

[Bellhorn04]

The Red Sox charges the most for an average ticket price. They make loads of money. They have no problem upping payroll to the Yankee level of $200M.

 

But let's stop talking about that and more on Lester. Lester look at this as a free agent contract and what his peers are getting. His peers are getting handed hundreds million dollars deals. He has taken a discount already, why would he go through it again?

 

Expect the contract talks to begin at 5 year at an AAV of 20M.

 

5 @ 20 is the minimum. I'm afraid he may be asking for something more like the 6 @ 24 that Scherzer turned down.

[Bellhorn04]

http://www.forbes.com/pictures/mlm45fdgdd/3-boston-red-sox-5/

 

There it is in black and white. The Red Sox are #2 in revenue and #3 in franchise value.

[sk7326]

If you take Lester at his word, he is willing to take a discount. But what is a discount? A $16-$18M deal would be well, well below the market for a quality innings eating starter. I think the 25M AAV might be on the high side, but not by much. Actually, for that matter - I am pretty sure the price is not what is being haggled over. I suspect the two sides are in the same AAV ballpark. We know what the comps are, and we know that the Red Sox play in the deep end of the revenue and payroll pools, and we know the fans and media would (totally correctly) pillory them for pinching pennies. The question is years, both the number and the guarantee. I would not want to go 5 years on any pitcher. But if you have the resources the Sox have, and if you want to win an auction - it helps to assess the worst case result and see if you can live with it within the big picture. For me, Lester's worst case in the next 5 years basically ends up being 2014 Jake Peavy, perhaps a bit less. Is that player worth $24 million in the 2019 salary universe? Probably not - but it would not actually be that much of an overpay if Lester maintains his flawless mechanics and strong track record of durability. If the Red Sox could get 1000 innings of (on average) 2013 Regular Season Jon Lester production over 5 years, 24M AAV would actually be quite reasonable.

 

I think if there is a real sticking point, it is years - either years the Red Sox don't want to give, or years the Red Sox want to put options on. For me, if I were Cherington, something resembling the Ortiz extension in terms (but longer) would make sense. 4 years, 5th year a vesting option, 6th year a pure team option.

[Bellhorn04]

If you take Lester at his word, he is willing to take a discount. But what is a discount? A $16-$18M deal would be well, well below the market for a quality innings eating starter. I think the 25M AAV might be on the high side, but not by much. Actually, for that matter - I am pretty sure the price is not what is being haggled over. I suspect the two sides are in the same AAV ballpark. We know what the comps are, and we know that the Red Sox play in the deep end of the revenue and payroll pools, and we know the fans and media would (totally correctly) pillory them for pinching pennies. The question is years, both the number and the guarantee. I would not want to go 5 years on any pitcher. But if you have the resources the Sox have, and if you want to win an auction - it helps to assess the worst case result and see if you can live with it within the big picture. For me, Lester's worst case in the next 5 years basically ends up being 2014 Jake Peavy, perhaps a bit less. Is that player worth $24 million in the 2019 salary universe? Probably not - but it would not actually be that much of an overpay if Lester maintains his flawless mechanics and strong track record of durability. If the Red Sox could get 1000 innings of (on average) 2013 Regular Season Jon Lester production over 5 years, 24M AAV would actually be quite reasonable.

 

I think if there is a real sticking point, it is years - either years the Red Sox don't want to give, or years the Red Sox want to put options on. For me, if I were Cherington, something resembling the Ortiz extension in terms (but longer) would make sense. 4 years, 5th year a vesting option, 6th year a pure team option.

 

Excellent analysis. I don't think in his position Lester will accept less than 5 guaranteed years though.

[sk7326]

Excellent analysis. I don't think in his position Lester will accept less than 5 guaranteed years though.

 

If I were Lester, I wouldn't either. I tend to think the deal might coalesce around 5+1 option or something. I don't like giving 5 year deals to pitchers, but if I HAD to do it (and given how few true reliable 200 IP sorts there are, I am not naive) - Lester is the sort of guy I do it for. Never gets hurt, very consistent - maybe not a "#1" in that Kershaw or 2009 Sabbathia sort of way, but can certainly touch that peak here and there. To me, he is almost a lock for those 1000 aforementioned IP, and at a level that we can live with even as his decline phase starts. It'd be a hard decision if I were running the Pirates - but fortunately this is the Sawx we are dealing with.

[Palodios]

This has to happen. It just makes so much sense. Somewhere between 5/100 and 6/120 is a pretty acceptable compromise for both sides.

 

With the Red Sox losing Lackey's salary, Peavy's salary, and Dempster's salary in 2015, there is plenty of pitcher money on the table. Unless they take a huge gamble with guys like Scherzer or Shields at monster contracts, Lester is their play.

 

My guess is that the Red Sox wanted to see Lester's numbers to be around 2013 levels and not 2012 levels -- and they will pick this back up around the All-Star break.

[rjortiz]

The Yankee Yes network is worth $3 billion.

 

I also think you are getting carried away with this number. The Yankees will receive $90 million in 2014 from the YES Network in broadcasting rights. They are not the owners of the YES Network. They only have a 20% stake. 21st Century Fox owns the other 80%.

 

You are actually low on the valuation of the YES Network. $3 billion was based on the sale in 2012, when Newscorp had a 49% stake. They recently upped the stake to 80% based on a valuation of $3.8 billion. The Yankees probably receive around 20% of the profits. YES reported earnings (before taxes, interest, depreciation, and amortization) at $200 million in 2012. I don't know the accounting practices of the YES Network, but an additional $30-$40 million to the Yankees is probably pretty close. The equity stake is not subjected to revenue sharing, but I would guess they bring will around $100 million from their TV network in 2014. The Red Sox are probably not very far behind. I can't find the exact terms of the contract, but they have an annual rights fee of $60 million. They also have an 80% stake in NESN. I couldn't find the information on NESN's earnings, but I did see a mention of $60 million in cash flow in 2013. I would estimate they are in the $90-$100 million range. It could be higher depending what was really paid out to the Red Sox.

 

The gap could get wider as the Yankees get a 5% increase in annual rights fees until 2042, but I don't expect the way people watch TV will be remotely similar 28 years from now. The YES Network is overvalued, as are all regional sports networks.

Edited April 11, 2014 by rjortiz

[Palodios]

The offer to Lester was 70-80 million at 4 years. Uhoh.

[Spitball]

This is from MLB Trade Rumors:

 

Red Sox Offered Lester Deal Worth $70MM

 

By Charlie Wilmoth [April 12 at 3:56pm CST]

 

3:56pm: Lester says that he isn't ruling out the possibility that he will remain with the Red Sox, Gordon Edes of ESPN Boston tweets. "Why does it mean I'm out of Boston?" Lester says. "Things can definitely change.''

 

11:59am: The Red Sox' most recent extension offer to starting pitcher Jon Lester was for four years and between $70MM, Yahoo! Sports' Jeff Passan tweets, Ken Rosenthal of FOX Sports initially reported that the Red Sox had offered between $70MM and $80MM.

 

Lester is eligible for free agency after the season, and Rosenthal writes that sources tell him that Lester will not negotiate an extension again until the season is over. (The two sides ceased extension talks in late March, but it appeared then that they could continue talking during the season.)

 

Even an offer of $80MM would appear to be significantly below market for Lester -- Homer Bailey received six years and $105MM for the Reds, and Lester, who has a longer track record of success, would figure to make more on the open market. Rosenthal points out that the Red Sox' offer was below the $82.5MM John Lackey received from the team in 2009. The Red Sox have a "willingness to go higher" than their recent offer, Rosenthal writes, and they'll likely need to in order to sign Lester.

[rjortiz]

They wanted to give Lester $140 million, but they accidentally gave the other half to Luis Suarez.

[a700hitter]

The offer to Lester was 70-80 million at 4 years. Uhoh.

If we lose him to any team other than the Yankees or the Dodgers, that would be inexcusable.

[SoxSport]

The Yankee fans are yelping with joy on the tweets about Lester's "offer". They have come to know these kinds of numbers are chump change in Yankeeville. They fully expect a staff next year to include Lester, Scherzer, and whoever else wants $25 million per year.

 

Seriously, the media once again lumps the NY and LA markets with everybody else. Those two markets set the bar for them. Everybody else has to follow. That is a ticket to bankruptcy, for most other teams. They can't do that. Agents and players know that. Boras types are an exception. Note that if NY or LA don't want a Boras client, say Drew, they're in trouble at his prices.

 

In Lester's case, it's hard to see him anywhere but Boston. He's more like Pedroia than Ellsbury--Ells was always long gone for the money, as a Boras client. The per year figure I heard--maybe $18 mil or so, sound right. The years, however, needs to be greater than four.

[SoxSport]

I also think you are getting carried away with this number. The Yankees will receive $90 million in 2014 from the YES Network in broadcasting rights. They are not the owners of the YES Network. They only have a 20% stake. 21st Century Fox owns the other 80%.

 

You are actually low on the valuation of the YES Network. $3 billion was based on the sale in 2012, when Newscorp had a 49% stake. They recently upped the stake to 80% based on a valuation of $3.8 billion. The Yankees probably receive around 20% of the profits. YES reported earnings (before taxes, interest, depreciation, and amortization) at $200 million in 2012. I don't know the accounting practices of the YES Network, but an additional $30-$40 million to the Yankees is probably pretty close. The equity stake is not subjected to revenue sharing, but I would guess they bring will around $100 million from their TV network in 2014. The Red Sox are probably not very far behind. I can't find the exact terms of the contract, but they have an annual rights fee of $60 million. They also have an 80% stake in NESN. I couldn't find the information on NESN's earnings, but I did see a mention of $60 million in cash flow in 2013. I would estimate they are in the $90-$100 million range. It could be higher depending what was really paid out to the Red Sox.

 

The gap could get wider as the Yankees get a 5% increase in annual rights fees until 2042, but I don't expect the way people watch TV will be remotely similar 28 years from now. The YES Network is overvalued, as are all regional sports networks.

 

The NY market is way richer than the Boston market in terms of size and advertising dollars. It is the sports media center of the country. LA is now on the map because of the Fox sports west contract--made possible because the West TV market is expanding. Texas is, too. Take a look at the total luxury tax money the Yankees have paid since its inception. It dwarfs everybody else. They have been supporting the poor teams in baseball for years almost single handedly--keeping them afloat.

 

It's all about cable TV these days. They pretty much run sports. I don't live remotely close to NY, yet I have yes network, Texas Longhorns network, NCAAF network and ESPN--all in my package--just to get the league networks. I don't watch any of them, yet I'm paying for them (yup--I support the MF Yankees).

 

There is a sports TV bubble right now--it could all collapse if the politicians or the FCC changed the rules on cable packages. Lots of people pay ESPN 5 bucks and don't watch it. That's the crux of the problem. And why ballplayers make millions.

Edited April 12, 2014 by SoxSport

[Palodios]

Lester has commented on the 70 million offer, and basically says he could still make it back to Boston anyway. I bet if the Red Sox pump it to 100 million he'll take it -- but it sounds like they're being extremely cheap.

[Station 13]

The offer to Lester was 70-80 million at 4 years. Uhoh.

 

Why offer something they knew Lester would not even answer their calls?

[jacksonianmarch]

That's a "f*** You" offer. He's gone

[redsoxrules]

Lester wants to stay in Boston, like I keep saying, they'll sign him for less than you all think

[Spitball]

Times are changing. The qualifying offer changes the free agent game quite a bit, but that is really besides the point. The Sox don't want to pay Lester for his past performances when he is in his declining years. Just look at Papelbon's and Sabathia's declining velocities and performances.

 

I believe teams will soon (and should) start to look at long term contracts in terms of future and potential performance rather than past performance going into the declining years. I keep seeing Homer Bailey's six-year $105 million dollar contract being used as a comparison for Lester. The difference is that Bailey is three years younger, and Cincinnati must overpay to retain their best young players.

 

Boston just won a championship and has a strong farm system. The Cardinals played hardball with Albert Pujols and have benefited from that decision. The Sox need to move forward and trust the changes that are coming...and their farm system.

Edited April 13, 2014 by Spitball

[seabeachfred]

This has to happen. It just makes so much sense. Somewhere between 5/100 and 6/120 is a pretty acceptable compromise for both sides.

 

With the Red Sox losing Lackey's salary, Peavy's salary, and Dempster's salary in 2015, there is plenty of pitcher money on the table. Unless they take a huge gamble with guys like Scherzer or Shields at monster contracts, Lester is their play.

 

My guess is that the Red Sox wanted to see Lester's numbers to be around 2013 levels and not 2012 levels -- and they will pick this back up around the All-Star break.

 

I wouldn't count on it Palodios. Did you see the Red Sox's latest offer.......four years and $80 million? That's a f***ing insulting offer if there ever was one. What the hell could Cherington be thinking? And as Lester keeps pitching well the price will only keep going up. It looks to me like the Sox are screwing up again with their free agents. To me, unless something radical changes on the part of the front office Lester is as good as gone.

[BSN07]

Times are changing. The qualifying offer changes the free agent game quite a bit, but that is really besides the point. The Sox don't want to pay Lester for his past performances when he is in his declining years. Just look at Papelbon's and Sabathia's declining velocities and performances.

 

I believe teams will soon (and should) start to look at long term contracts in terms of future and potential performance rather than past performance going into the declining years. I keep seeing Homer Bailey's six-year $105 million dollar contract being used as a comparison for Lester. The difference is that Bailey is three years younger, and Cincinnati must overpay to retain their best young players.

 

Boston just won a championship and has a strong farm system. The Cardinals played hardball with Albert Pujols and have benefited from that decision. The Sox need to move forward and trust the changes that are coming...and their farm system.

 

Well put

[RedSoxNC84]

Times are changing. The qualifying offer changes the free agent game quite a bit, but that is really besides the point. The Sox don't want to pay Lester for his past performances when he is in his declining years. Just look at Papelbon's and Sabathia's declining velocities and performances.

 

I believe teams will soon (and should) start to look at long term contracts in terms of future and potential performance rather than past performance going into the declining years. I keep seeing Homer Bailey's six-year $105 million dollar contract being used as a comparison for Lester. The difference is that Bailey is three years younger, and Cincinnati must overpay to retain their best young players.

 

Boston just won a championship and has a strong farm system. The Cardinals played hardball with Albert Pujols and have benefited from that decision. The Sox need to move forward and trust the changes that are coming...and their farm system.

 

I'm not saying that they wouldn't benefit from letting Lester walk, but he's a guy I would think deserves the money he wants. He's a solid pitcher, great guy, and one of the faces of the franchise. Sure they would be paying for past performances, and he would be in declining years, but you have guys like Henry Owens coming up that could possibly be the future ace of the staff. Lester is a guy who would be a solid 2-4 pitcher even in his declining years. He's just good. Good pitching costs money, and granted he could make more money off the FA market, but the Sox would be stupid to let him go to FA and then try to re-sign him. They won't be able to. I think it's in both parties best interests to come to a compromise. The offer they gave him wasn't good enough, I honestly think they'll go higher. I'd actually be surprised if they didn't.

[rjortiz]

Times are changing. The qualifying offer changes the free agent game quite a bit, but that is really besides the point. The Sox don't want to pay Lester for his past performances when he is in his declining years. Just look at Papelbon's and Sabathia's declining velocities and performances.

 

I believe teams will soon (and should) start to look at long term contracts in terms of future and potential performance rather than past performance going into the declining years. I keep seeing Homer Bailey's six-year $105 million dollar contract being used as a comparison for Lester. The difference is that Bailey is three years younger, and Cincinnati must overpay to retain their best young players.

 

Boston just won a championship and has a strong farm system. The Cardinals played hardball with Albert Pujols and have benefited from that decision. The Sox need to move forward and trust the changes that are coming...and their farm system.

 

Completely unsubstantiated post. Why do people make things up? Did you even bother to verify if what you were thinking was true?

[rjortiz]

The NY market is way richer than the Boston market in terms of size and advertising dollars. It is the sports media center of the country. LA is now on the map because of the Fox sports west contract--made possible because the West TV market is expanding. Texas is, too. Take a look at the total luxury tax money the Yankees have paid since its inception. It dwarfs everybody else. They have been supporting the poor teams in baseball for years almost single handedly--keeping them afloat.

 

It's all about cable TV these days. They pretty much run sports. I don't live remotely close to NY, yet I have yes network, Texas Longhorns network, NCAAF network and ESPN--all in my package--just to get the league networks. I don't watch any of them, yet I'm paying for them (yup--I support the MF Yankees).

 

There is a sports TV bubble right now--it could all collapse if the politicians or the FCC changed the rules on cable packages. Lots of people pay ESPN 5 bucks and don't watch it. That's the crux of the problem. And why ballplayers make millions.

 

The foundation of your understanding about franchise value is crippled. Judging by your conclusions, I don't think you account for anything other than TV contract total before deciding which team has more value.

[Palodios]

Times are changing. The qualifying offer changes the free agent game quite a bit, but that is really besides the point. The Sox don't want to pay Lester for his past performances when he is in his declining years. Just look at Papelbon's and Sabathia's declining velocities and performances.

 

I believe teams will soon (and should) start to look at long term contracts in terms of future and potential performance rather than past performance going into the declining years. I keep seeing Homer Bailey's six-year $105 million dollar contract being used as a comparison for Lester. The difference is that Bailey is three years younger, and Cincinnati must overpay to retain their best young players.

 

Boston just won a championship and has a strong farm system. The Cardinals played hardball with Albert Pujols and have benefited from that decision. The Sox need to move forward and trust the changes that are coming...and their farm system.

 

There is a big difference in paying a guy to 37 than to 42. The Red Sox will have money to spend and Lester is the best fit of any free agent. Unless they want to sign their entire farm system to long term deals, they can fit Lester into their budget.

[Bellhorn04]

The Yankees will be a tad interested.

[Spudboy]

To me, It is interesting that many of the people who were shocked that Ellsbury signed with the Yankees for 7 / 152 now advocate for the Sox to spend in a similar fashion to retain Lester.

 

I realize that pitching is the name of the game and that Lester is very valuable.

 

But is he worth more than Ellsbury? Lester plays about 30-33 games each year. Ellsbury plays about 120-145 games a year. In every game he plays he threatens to make a game changing impact. How is it that Ellsbury is worth less to the Sox and to Sox fans?

 

Yes, I realize that players who's primary attribute is speed tent to have the decline in their athleticism affect their contribution as they age. But then so do pitchers.

 

I think that Lester is gone and that the Sox will be less inclined to attach themselves to any player for the outrageous $ and years going forth. The trend to long term deals at exorbitant money is a bad business model.

 

I believe the Sox know this and will go another way.

 

Next.

[Palodios]

But is he worth more than Ellsbury? Lester plays about 30-33 games each year. Ellsbury plays about 120-145 games a year. In every game he plays he threatens to make a game changing impact. How is it that Ellsbury is worth less to the Sox and to Sox fans?

 

Yes, I realize that players who's primary attribute is speed tent to have the decline in their athleticism affect their contribution as they age. But then so do pitchers.

 

I do not think Lester is comparable to Ellsbury. Lester wants to be here and is willing to talk about a long term extension before free agency, while Ellsbury clearly wanted the biggest offer, and needed to hear all of those offers before deciding. Lester has performed consistently, and he has been healthy -- Ellsbury has not. The Red Sox believed they had a viable replacement in Bradley, while you really cannot replace a guy like Lester. If the Red Sox signed Ellsbury after 2013, they would not have had flexibility to make other signings. In 2014, there will be plenty of payroll available for Lester.

 

 

100 million for Lester is much more reasonable for all those factors than Ellsbury at 150.

[Spudboy]

You have your opinion and I have mine.

 

Lester may want to stay ( and I hope that he does stay ).

 

The Sox may offer more. I just don't see them going more than 5 years or much over 18 mil /year.

 

You are right. They are not comparable. Ellsbury is worth more now.

[Spitball]

There is a big difference in paying a guy to 37 than to 42. The Red Sox will have money to spend and Lester is the best fit of any free agent. Unless they want to sign their entire farm system to long term deals, they can fit Lester into their budget.

 

I want the Sox to resign Lester...but at a reasonable price and years. Whether paying for past performance or paying for future expectations, we are looking at calculated gambles. Pedroia and Ortiz signed reasonable extensions. Napoli was brought back at a reasonable two-year deal. I would be more than happy to see Lester signed to a reasonable extended deal, but I just hope they don't sign him to contract that pays him $20 million per season for his declining years.

 

Bill James uses 27 years-old as an age in which a typical player reaches his peak. This number is not an iron-clad guaranteed age but a typical age. Lester's K/9 rate has declined for ages 28 and 29, but his other numbers are fairly consistent. I hope he is resigned, but I hope it his not for too much nor for too long.

[sk7326]

To me, It is interesting that many of the people who were shocked that Ellsbury signed with the Yankees for 7 / 152 now advocate for the Sox to spend in a similar fashion to retain Lester.

 

I realize that pitching is the name of the game and that Lester is very valuable.

 

But is he worth more than Ellsbury? Lester plays about 30-33 games each year. Ellsbury plays about 120-145 games a year. In every game he plays he threatens to make a game changing impact. How is it that Ellsbury is worth less to the Sox and to Sox fans?

 

Yes, I realize that players who's primary attribute is speed tent to have the decline in their athleticism affect their contribution as they age. But then so do pitchers.

 

I think that Lester is gone and that the Sox will be less inclined to attach themselves to any player for the outrageous $ and years going forth. The trend to long term deals at exorbitant money is a bad business model.

 

I believe the Sox know this and will go another way.

 

Next.

 

The 33 games vs 145 argument is silly, and neglects how much more direct the pitcher's impact is during the innings he pitches. I don't think the Lester decision is cut and dried, but the industry is paying for durability - and Lester has that. The offer the Sox made, if the numbers are accurate, won't get it done. Lester has said the right things - so we'll see what happens.