20 January 2011
It took some crossed fingers and a small amount of luck, but the Twins managed to bring back Carl Pavano without breaking the bank.
For $16.5 million over the next two years, the Twins signed one of the best starting pitchers on this years' free agent market. As a fan, I'm very pleased with this deal. It's far less than what I was expecting Pavano to receive, and I believe the right-hander can pitch well enough for the next two years.
Even though I'm pleased, the deal is ripe for the picking from a game theory perspective. What did the Twins know, and when did they know it? If Pavano knew what he knows now, would he have accepted arbitration after last year?
Let's explore this deal in a little more detail...
Minnesota and Pavano had been at odds all winter over a potential third year of guaranteed money, which the Twins didn't want to give the 35-year old with a checkered injury history. Pavano declined Minnesota's offer of arbitration last year (essentially a one-year, $11 million offer), hoping to find more money and years on the open market.
Did Pavano's gamble pay off? It's all a matter of perspective.
Similar pitchers got more money this year than Pavano, but the Italian right-hander was unable to ignore several debilitating factors. A rich history of injuries on his resume, Pavano was also given Type-A free agent status, meaning that any potential suitor would need to pony up a first-round pick in order to have an injury-prone pitcher on their staff. Pavano clearly underestimated the impact these two factors had on his negotiations this winter, falling well short of his three-year, $30 million goal.
To a typical pitcher with several years still in the arm, a one-year deal is almost always preferred to a two/three-year deal with the same average annual value. The opportunity to build your value and cash in during the next offseason far outweigh (at least in a monetary sense) the security of the multiple-year deal.
With baseball's constantly-rising salaries, a pitcher can expect a raise of at least $500,000 every year. And that's assuming he doesn't pitch better than he did the previous season.
But Pavano is no typical pitcher. At 35 years of age, it's not likely that he will be able to increase his value next year. Pavano has spent a combined total of 840 days on the disabled list over his 12-year career. To a pitcher like Pavano, guaranteed money is worth far more than a high-priced, one-year deal.
After signing this relatively meager deal with the Twins, one can't help but wonder whether Pavano would have rather accepted the arbitration offer last November if he knew what he knows now. A one-year, $11 million offer, or a two-year, $16.5 million offer? Almost all “normal” pitchers would take the former, because they have a very good chance of earning more than $5.5 million (the break-even point) the second year.
If we assume that Pavano knew what kind of contract he was to receive, we must believe that Pavano didn't think he could find a $5.5 million contract in 2012. But I'm convinced Pavano legitimately thought he could get a three-year, $30 million deal, and came limping back to the Twins when he realized his limited market.
Even so, it's a good deal for both sides. Minnesota gets a good and potentially great starting pitcher at a very reasonable price, and Pavano gets guaranteed employment with a team he enjoys playing for.
Whether or not Pavano can stay healthy for the next two years remains to be seen. But even if he spends some time on the disabled list, the Twins can take solace in the knowledge that they aren't paying Pavano anywhere near the amount he wanted.
Minnesota is taking a calculated risk in this deal, but the gamble they took last year has already paid off.
Pavano could have easily accepted the offer of salary arbitration last November, putting the Twins on the hook for around $11 million in 2011. Already in a payroll jam, Minnesota would have been put in a real financial fix.
Instead, the Twins can spread Pavano's contract over two years. At this price, Pavano doesn't even need to pitch well to provide value. He just needs to eat innings.
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