Gerrit Cole isn’t getting $300 million because he’ll be overpaid... it’s because MLB is making more money

Just yesterday, Stephen Strasburg shocked the baseball world by signing a seven-year, $245 million contract, which will leave him a rich, rich man once his deal, and its subsequent Nationals-like deferrals, is completed. In fact, his total earnings of $370 million will amount to just $36 million fewer than the total valuation of the franchise when he was drafted in 2009.

It was an open question as to whether teams are actually overvaluing pitchers, and that’s certainly even more relevant when teams are more hesitant than usual to sign free agent players, and especially more injury-prone pitchers. Rob Arthur of Baseball Prospectus offered the optimistic view of free agency, showing that teams have outlaid more than double the salary than they have at this point through the last two offseasons.

In one way, that’s a function of better free agents and slightly more turnover, which was hurt in the past because of early extensions; Craig Edwards at FanGraphs noted that the likes of Anthony Rizzo, Corey Kluber, Jose Quintana, and Andrelton Simmons all would have been free agents after 2018 had they had a normal arbitration process.

The loss of leverage was the main point of contention to eliminate the reserve clause entirely; with teams completely holding the rights of a player, it’s the most extreme example. With just one party, they get to unilaterally set prices.

Extensions are similar in that it’s one party, except versus a future pool of teams negotiating against a future player and pools of players. That level of ambiguity allows teams to somewhat reduce total expenditure by offering certainty at lower-than-market prices, while still being insured at the same time.

With pitching it’s even more stark. Of the top 15 pitching contracts, ranging from Strasburg’s mega-deal to Jacob deGrom’s $137.5 million deal, five of those, including Strasburg, are extensions. And of those, two notably used deferred money, meaning that the present value of both Strasburg’s deal and Max Scherzer’s $210 million contract are a fair bit lower than what we’d think.

This is all to preface that Gerrit Cole, premier free agent pitcher of the day, will likely break Strasburg’s record now that it’s set. The fact that I am a denizen of Yankees Twitter and considering the team is poised, sans Arte Moreno’s splurging, to sign him, it’s fair to wonder if his relative projected total of nine years and $325 million is a massive overpay like Yankees fans are already saying, or really just a reflection of what the market should be. That’s true, and it’s also an expression of just—flat-out—how much teams make as a whole.

League revenue has nearly doubled since CC Sabathia’s record deal in 2008; revenue was at $5.8 billion, and over a decade later it eclipsed $10 billion. That’s one barometer to show that double that isn’t really a poor deal; hell, Sabathia produced a World Championship and ~30 WAR during that deal, a fair deal no matter how you slice it.

The value, if adjusted for current league revenue, would have been a whopping $273 million, and that would likely still be an underpay given today’s climate given Sabathia was a full year younger than Cole, and put up about ten more WAR (though Cole has morphed into a different pitcher he was even three years ago).

One could do something similar for the rest of the deals—calculating the percentage of league revenue, and then figuring out what a 2018 (that’s all we have for revenue right now) deal would and should look like given the cash that is floating around in the game today.

Six deals by this metric would be larger than Strasburg’s current deal, making it about the same value as, say, Zack Greinke’s deal with the Diamondbacks that has turned out to be a solid one; by next year he should have 20 wins under his belt under that deal alone.

It’s also another caveat that Scherzer’s is deferred, and Clayton Kershaw, Justin Verlander, and Felix Hernandez were all extended; only Sabathia and David Price really tested the market in what we would consider unbridled free agency. If Kershaw, greatest pitcher alive at that time, got 3% of league revenue on an extension, it’s fair to say he would get 3.5% (or about $350 million) if he was a complete free agent, as the pitcher he was then, today.

If Cole were to receive about 3%, which would be higher than every player except for Kershaw, it would hit that sweet spot of $300 million. If he was becoming a free agent even a few years ago, his total even under that construct would amount to, unsurprisingly, Price’s record deal.

This is how you get takes bemoaning the rise of the very, very expensive player, a supposed bridge too far for many fans. While it’s true that baseball is more inaccessible, prices are largely decoupled from player salary, which again, has largely stagnated over the last few years as ticket prices still rise. Revenues meanwhile have doubled in a decade while the league has simultaneously made the case to Congress to cut minor league pay, as well as slash much of the actual-affordable minor leagues.

The money is all there, and it seems the only way to get a slice of that pie is through free agency as an elite player. Ideally much of that should go to the very bottom, and that should be the goal, but until there is a new CBA or new minor league player agitation, the status quo will remain. And as long as that holds, there is an inescapable reality that teams have nearly limitless funds to spend, and really only one place to disperse them.