After a season ravaged by the coronavirus pandemic, amidst a precedent-setting, slow-moving free-agency period, against the backdrop of MLB revenues in sharp decline, with multiple clubs nakedly dumping payroll and a bitter CBA fight on the horizon, baseball could use a purely positive story.
Fernando Tatis Jr., the emphatic, electrifying, marketable 22-year-old budding superstar shortstop of the going-for-it San Diego Padres, is undeniably an excellent distraction from our current moment.
As mentioned by Jeff Passan this week, it appears that Tatis is open to a long-term contract extension, so I'll get right to it: Here's what to expect to transpire when these talks open, and how the two sides could come to an agreement.
It's pretty rare that one of the top young players in the game is interested in this route, in large part because baseball's salary structure gives clubs six-plus years of control so there's no pressing reason to push for an extension after two seasons. It's more common toward the back half of those six-plus years due to a combination of a player's desire to lock in a first big payday (especially if he didn't get a big payday when signing as an amateur) and wanting to stay with the same club, and the club looking to keep a productive player, often locking up most of his prime, 20-something seasons. We don't know the exact motivations and priorities of both sides, but can reasonably assume some of these are involved; priorities will be important to understand later in this process.
The biggest part of projecting any extension is looking at the comps, just as in real estate. There isn't a free market to bid against, but for those six-plus years, there's a set salary structure in place that is the framework to bid against. Tatis has a clear alternative to an extension in just letting those six years play out year by year, especially true here because the Padres didn't manipulate his service time to get another season. The tricky part is that Tatis has played only 143 regular-season games and the last three years of club control are decided by arbitration (more on that process and how the shortened 2020 season is a big unknown), based on his performance.
Recent arbitration comps
Mookie Betts set an arbitration record by earning $57.5 million through his three arb seasons ($10.5M, $20M and $27M, in 2018, 2019 and 2020) and you might think that Tatis would be on schedule to be in that ballpark -- but he probably won't be. Betts had played 298 games and posted 20.2 WAR before hitting arbitration. Because San Diego didn't wait to call Tatis up later in the 2019 season to delay his clock, combined with the COVID-shortened 2020 season, he has 6.5 WAR and 143 games under his belt with one year to go before his first arbitration salary. And while Tatis has been elite so far, he also has played less than one full season of games, so it is a little bullish to assume he'll just continue at this six-to-seven-wins-per-year pace like Betts did. Maybe Tatis is Mike Trout and sets even more records than Betts, but we're trying to deal with concrete comps, reality and what both sides will agree upon.
So, if we set Tatis' arbitration earnings expectation at about $50 million, we then have to discount that further because San Diego would be guaranteeing it to him. He'd get the $50 million, give or take, by accepting risk and playing it out each year to expectation, while the Padres are taking out the risk and guaranteeing it. So then we land at a baseline for his pre-free-agency years of just below $50 million.
Comparing that to other deals of this type, Alex Bregman got $42.5 million for his arb years (backing out the league minimum from his pre-arb year) and then there is Ronald Acuna Jr.'s recent deal of $55 million for his arb years. Tatis' situation differs from the Acuna contract for a couple of reasons, though. First, Acuna gave away his free-agency years at $17 million, which is about half what they probably should have been, so you have to assume the arbitration figures were boosted a bit to account for that. Also, his service time was manipulated by the Braves, so he would actually qualify for arbitration four times, which also boosts his potential earnings if he were to play it year to year.
On balance, by not manipulating Tatis' service time, the Padres got a couple of weeks of April 2019 performance at the cost of his 2025, age-26 season as a fourth arbitration year. That's the most basic version of what happened. If you go a step deeper, it also helped Tatis get to arbitration faster which, combined with the shortened 2020 season, would eat into his potential arbitration earnings since his counting stats wouldn't be as big as they would be otherwise. We don't know yet if treating Tatis fairly for what his talent indicated made him more likely to sign an extension, but that might also be a factor in the math of GM A.J. Preller's decision in April of 2019.
For the sake of a round number, I'll call $45 million the baseline for Tatis' arbitration years in an extension, but you could easily argue a bit higher or lower. There's a number of ways to structure that payout, and the 2021 season is a year in which he'd make the league minimum, but these extensions normally have a signing bonus or arb-like payment at the front of the deal in pre-arb seasons. Let's say 2021-2024 would pay out at $5 million, $7.5 million, $12.5 million and $20 million, which adds up to $45 million total.
Now comes the more complicated part. Since we don't know exactly what Tatis' camp or the Padres' priorities are in this negotiation, I'll project out short, medium and long contract options, building on those arbitration years' salary.
The short deal
The short option is the simplest, as we'll do a version of Alex Bregman's recent extension with the Astros: a six-year deal that covers one pre-arb year, three arb years and two free-agent years, with no options tacked on. This is desirable for Tatis, as he would be hitting free agency going into his age-28 season in 2027 and could still be in line for a $300 million-plus deal at that point, along the lines of Bryce Harper (13 years, $330 million heading into age-26 season) or Manny Machado (10 years, $300 million at the same age). If Tatis' motivation can best be described as wanting that first big payday locked in now, wanting to stick with the Padres for this immediate window of contention, but also wanting to maximize lifetime earnings, this is his best option. San Diego would certainly like to have him locked up longer than this, but getting two free-agent years and an arbitration discount is still something that the Padres aren't entitled to right now.
If we price Tatis' two free-agent seasons at $35 million each, that comes out to a six-year, $115 million deal. Bregman's was for $100 million, with his two free-agent years at $28.5 million each. With the same amount of service, sitting in the exact same contractual position that Tatis is in right now, Bregman had played 361 games and posted 12.1 WAR, whereas Tatis is again at 143 games and 6.5 WAR. In Bregman's 2018 season leading up to this extension, he had 7.6 WAR, beating Tatis' career total. Normal salary inflation means an identical talent should beat Bregman's standard a few years later and it's not Tatis' fault that the 2020 season was shortened. He is undeniably a more dynamic talent than Bregman, so this $15 million gap feels about right.
The medium deal
The motivation for Tatis here would be for a bigger guarantee and longer stay in San Diego, with a little more of a discount on his potential earnings deeper in his 20s, but still with a shot to hit free agency again around 30 to get another payday. This feels like the ideal situation for most clubs in baseball right now, essentially getting all of Tatis' prime, then having no obligation into his decline in his 30s. Preller doesn't broadly fit into that sort of thinking in my mind; he seems to fit more into the keep-your-franchise-player-as-long-as-reasonably-possible, more traditional style of exec, but he'd surely be happy to get this kind of certainty around the franchise cornerstone.
This is also the kind of deal where those other contract mechanisms -- club/player/mutual options, opt-outs, deferrals and front/backloading -- come into play so that both sides get what they want, because the longer the deal, the more the two sides' priorities become at odds. I will assume that Tatis' camp would like to use this contractual option to set a precedent or two in terms of yearly salary or guarantee for an age or service-time class. The highest salary in baseball in 2025 (Tatis' first free-agent season) belongs to the Angels' Anthony Rendon at $38 million, with Mike Trout and Gerrit Cole just behind him. In return for giving the Padres more than two free-agent years in this extension, I could see Tatis' camp getting a post-arbitration yearly salary that would set a record (surely to be broken before he collects it in 2025), especially since the involvement of arbitration years means top-line average annual value (AAV) precedents and overall guarantee records aren't really attainable.
Paying just over $38 million for four free-agent years (through his age-29 season), would put an eight-year deal at just below $200 million. So we'll figure out a way to get a couple million more in there and settle on an eight-year, $200 million deal. That sets up Tatis to spend his entire 20s with the Padres, then hit the open market for his age-30 season.
First baseman Paul Goldschmidt signed a five-year, $130 million extension before the 2019 season at 32, a 30-year-old Anthony Rendon got $245 million as a free agent last winter, and a 28-year-old Nolan Arenado got $260 million guaranteed before the 2019 season. You get the idea: Hitting the market at roughly age 30 is still a gold mine for elite players. This medium deal could still lead to $500 million in career earnings if Tatis is a Hall of Fame-type player.
You could also easily extend this deal a few more years into Tatis' early 30s and hit the high-200 millions in total guarantee. That would then be a long enough deal where I would expect conversations about a mid-contract opt-out to create nonmonetary value for the player (as in Arenado's deal), or backloading the salaries around an opt-out to incentivize the player to opt in while also creating more payroll space to upgrade the team in the short term (like Giancarlo Stanton's deal was reported), or significant deferrals to inflate the top-line number the agent can beat his chest about while keeping the net present value of the deal to where the team can still afford it and spend on other players in the short term (like Betts' or Max Scherzer's deals).
I mention all of these things and what they accomplish for both sides because these types of deals can get very complicated, with owners' finances, corporate sponsorships, franchise valuations, taxes (they're high in California!) and work stoppage implications all coming into play on top of what both sides want and what they'd like the press releases to look like. In some cases, you could value an opt-out to be worth $20 million or more depending on how it's structured, so just be mindful of these various contractual levers both sides are looking to pull, especially in longer deals.
The long deal
Those levers become most important in this deal. If Tatis' motivation is to be a Padre for life with one contract, his agent would also like to get as big of a guarantee as possible, and with the club motivated to make both happen, this is where we'd land.
If we're playing the contract straight, I'd expect $20 million-25 million annual salaries through his age-35 season, because if they're any higher, you'd be paying Betts-level dollars for the free-agent years of a player who's essentially played one full season of Betts-level performance, and doing it all four years before any of it has to be done. He's younger than Betts and he could be better, but it's just a ridiculous risk to take for a team that will never have top-tier revenues and already has a couple of big deals on the books in Machado and Eric Hosmer.
To work around this and make both sides happy, the Padres could tack on $20 million salaries into Tatis' mid-to-late 30s and put an opt-out in the middle. In 2034, $20 million could well be a bench player's salary, but putting it as a guaranteed salary after a likely opt-out means Tatis very likely will opt out and not collect it, but it would contribute to a top-line, reported guarantee. Toss deferrals on top of those (delay payment of most of those later salaries for 15 or 20 years without interest) and you could juice the numbers further, maybe a $25 million nominal salary that is actually valued under $20 million.
In that scenario of 11 free-agent years, through Tatis' age-36 season, all at $25 million but heavily deferred, the top-line numbers would be 15 years, $320 million, with an actual value of maybe $50 million below that and a shot that nearly half of that is never collected. You could easily aim for Betts' $365 million guarantee (valued at just over $300 million after accounting for deferrals) as a benchmark and beat it, with a total net present value of around $300 million for essentially all of Tatis' career. Tatis' agency is MVP, which has negotiated long-term deals for Joey Votto (12 years, $251.5 million), Albert Pujols (10 years, $240 million) and teammate Manny Machado (10 years, $300 million), so you can't totally rule out something that covers 10-plus years, though all of those players had a much longer track record than Tatis.
The verdict
The super-long-term deal seems the least likely to me because it's arguably a bad idea for both sides. It might seem cool to get over $300 million guaranteed and never have to worry about your contract ever again after playing 143 regular-season games, but that option seems more for the sake of conversation than reality.
There's also enormous uncertainty about league and club revenues due to the pandemic as well as a new CBA coming next winter, and the Padres aren't a revenue powerhouse. Thirdly, the type of discount that Tatis would have to take on his age-35 season for these reasons is pretty steep, so why not take the nine figures in one of these other deals and bet on yourself still being good after age 30?
If Tatis wants to maximize career earnings but is set on an extension of some kind, the six-year, $115 million Bregman-type deal is a solid choice, and he'd hit the market again for his age-28 season with a shot to get $300 million-plus on the open market. The eight-year, $200 million option is enticing for the chance to hit benchmark numbers in total value and yearly salary while spending his 20s with a team that's going for it, and still having a shot to get another $200 million-plus in the open market after that.
The most desirable option for Tatis might be the Giancarlo Stanton deal, which he signed for 13 years, $325 million at age 25, with an opt-out in the middle so he could hit the market if that deal somehow underestimated his value, but still plenty of money if he fell below expectations. The problem is that Stanton had put up over 20 WAR and played over 600 games before he got that deal. The same agency (Wasserman) negotiated Arenado's eight-year, $260 million deal with an opt-out after the third year. These structures are desirable and tend to come when the player has more leverage via being closer to free agency. They're also reflective of a longer track record of performance.
Tatis could get numbers like that Stanton deal if he waited another year or two and kept up this pace, but by then he'd also be within a few years of free agency by simply playing it straight and could then test the open market at the same age as Harper and Machado with a real shot to beat their $300 million-plus free-agency figures. The Padres seem to really want his prime years, essentially all of his 20s, and it seems like they should be able to get those for roughly $200 million without accounting for deferrals and probably not needing an opt-out.
The differences between those two options could be decided by subtle variations in feelings of security and loyalty, so the incentives the Padres offer to push him toward one or the other might be most important in making the decision.