Negotiating Extensions Wrong?

[yankeefan1024]

I am doing something wrong with extension negotiation.

I've had this problem a couple years in a row, but I'll use my most recent example as an issue
I have a 29 year old Luis Severino who wanted a 10 year / 220 million extension
I offered a 7 year extension worth 24 a year instead of 22
He comes back asking for a 7 year extension worth 25 a year
Then I counter by offering a 7 year deal worth 27 a year
and he comes back by asking for a 7 year deal worth 28 a year

what gives?

[Fredrocker]

Sounds like your being outbid... or he is a greedy bastard...

edit: What it seems is his actions are how a free agent works not an extension...

[yankeefan1024]

Originally Posted by Fredrocker

Sounds like your being outbid... or he is a greedy bastard...

edit: What it seems is his actions are how a free agent works not an extension...

not sure how I can be outbid haha he's on my team currently and it's only may - he sent me a message asking to offer an extension at 22 a year for 10 years and now he's up to 28 mill . it's so weird

[WIUPIKE]

What is his greed and loyalty ratings?

[yankeefan1024]

Originally Posted by WIUPIKE

What is his greed and loyalty ratings?

I don't like going into the editor and don't have commish mode on, but in his personality traits, he doesn't have especially high or low greed/loyalty

[slugga27]

This isn't outrageous. In essence, he's saying that he'll sign for 7 years instead of 10, but it'll cost you an extra $21 million on that shorter-term deal.

[Fredrocker]

Originally Posted by yankeefan1024

not sure how I can be outbid haha he's on my team currently and it's only may - he sent me a message asking to offer an extension at 22 a year for 10 years and now he's up to 28 mill . it's so weird

Thats what I am saying he asked for an extension, but he is acting like a free agent acts... maybe somehow the wrong logic is being applied....

and yes it is weird... lol

[eas9898]

The issue is that every time you offer something they don't like, the player "punishes" you by asking for even more. I guess to discourage one from making incremental offers over and over until finding the lowest that a player will take.

The annoying thing is that it shouldn't always apply. A player will ask for 1yr/$1M, and you want to see if maybe he'd like more years, so you offer him 3yr/$3M, and he gets mad and then says 1yr/$1.2M.

[ALB123]

He said he wanted 7 years @ $25M/year total value $175M and you responded by offering him 7 years @ $27M/year total value $189M and he refused $14,000,000 more than what he asked for?

If that's true, were you offering him that contract with equal payments every year or did you backload it to try and keep payroll down right now?

[SirMichaelJordan]

Originally Posted by Fredrocker

Thats what I am saying he asked for an extension, but he is acting like a free agent acts... maybe somehow the wrong logic is being applied....

and yes it is weird... lol

Yeah, he asked to be extended for 10 years.

He’s now agreeing to 7 years but want more money since he’ll have no income for those lost 3 years.

It's also important to know what does the full contract look like. Did you offer him most of the 27 mil in the first few years?

[yankeefan1024]

Originally Posted by ALB123

He said he wanted 7 years @ $25M/year total value $175M and you responded by offering him 7 years @ $27M/year total value $189M and he refused $14,000,000 more than what he asked for?

If that's true, were you offering him that contract with equal payments every year or did you backload it to try and keep payroll down right now?

I did try and backload it a bit, yes, but still, the AAV was higher

[yankeefan1024]

Originally Posted by SirMichaelJordan

Yeah, he asked to be extended for 10 years.

He’s now agreeing to 7 years but want more money since he’ll have no income for those lost 3 years.

It's also important to know what does the full contract look like. Did you offer him most of the 27 mil in the first few years?

I started at like 18 million, and incrementally increased up to about 45 million in the final years

[CBeisbol]

Originally Posted by yankeefan1024

what gives?

As SirMJ alluded to,

It's not really the AAV you should be concerned with, it's the PV (present value).

If you're offering $45 million a year at the end of the contract, that's not as valuable as being offered the same AAV evenly distributed.

[jimmysthebestcop]

Originally Posted by CBeisbol

As SirMJ alluded to,

It's not really the AAV you should be concerned with, it's the PV (present value).

If you're offering $45 million a year at the end of the contract, that's not as valuable as being offered the same AAV evenly distributed.

Does that really matter not even talking ootp, baseball is 100% guarantee

Say 5 years 100 million. Does it matter how it's distributed. Player gets 100 million no matter what.

[yankeefan1024]

Originally Posted by jimmysthebestcop

Does that really matter not even talking ootp, baseball is 100% guarantee

Say 5 years 100 million. Does it matter how it's distributed. Player gets 100 million no matter what.

yeah, but, in financial terms, a $1 today is worth more than a $1 tomorrow, because of various factors, such as inflation, ability to invest, and re-invest money and earnings today, etc.

[yankeefan1024]

Originally Posted by CBeisbol

As SirMJ alluded to,

It's not really the AAV you should be concerned with, it's the PV (present value).

If you're offering $45 million a year at the end of the contract, that's not as valuable as being offered the same AAV evenly distributed.

word thanks man

[CBeisbol]

Originally Posted by jimmysthebestcop

Does that really matter not even talking ootp, baseball is 100% guarantee

Say 5 years 100 million. Does it matter how it's distributed. Player gets 100 million no matter what.

Yes.

It makes a HUGE difference

People should know this not just for OOTP but for their own lives.

Let's take 3 extreme examples
Deal 1) 4 years at $1 million each year, and the 5th year at $96 million.
Deal 2) 5 years at $20 million
Deal 3) $96 million in year one and $1 million each year after

One of these should immediately jump out at you as the one you would want to receive.

We can calculate the present value (PV)
Assuming a 10% discount rate

Deal 1) $20 million average value, $100 million total value. $69 million PV
Deal 2) $20 million average value, $100 million total value, $83 million PV
Deal 3) $20 million average value, $100 million total value, $99 million PV

There's a $30 million difference between Deal 1 and Deal 3

Yes, that matters.


Now, why let's look at YF's example
Take the 7 year $27 million AV offer.
That contract pays $189 million total dollars no matter what.

If it's evenly distributed at $27 million a year, and using the same 10% discount rate as above, that $189 million is worth $138 million in PV

If it's distributed using these guidelines

Originally Posted by yankeefan1024

I started at like 18 million, and incrementally increased up to about 45 million in the final years

It can be worth as "little" as $125 million.

So, same average value.
Same total value.
$13 million less in present value.

Yes, it matters

[Biggio509]

Originally Posted by Fredrocker

Sounds like your being outbid... or he is a greedy bastard...

edit: What it seems is his actions are how a free agent works not an extension...

Unless he is set on testing free agency. Sometimes these demands drop after no one is offering what he wants. Sometimes they get signed by others for the demand.

If it is a free agent to be I will try my luck on the free agent market. If he is arbitration eligible we are going to arbitration. I don't find I get guys locked up often during or before arbitration a lot. Some guys just want a 1 year deal and hope for more later.

[Biggio509]

Originally Posted by CBeisbol

As SirMJ alluded to,

It's not really the AAV you should be concerned with, it's the PV (present value).

If you're offering $45 million a year at the end of the contract, that's not as valuable as being offered the same AAV evenly distributed.

Maybe from the players view. From my view it is how the budget looks going outward. The contracts are often set lower earlier because of your budget constraint and get bigger later when there is a high chance of injury or decline. So the lower present value of potential gain from the back loaded money is a bigger risk to me. To me it really depends on a quick and dirty look at how payroll will look in the future and if I have a huge prospect of a young player I might want to make one of my 2 marquis guys if I am a small market team. For huge market teams it is a little easier to risk. I just have gotten burned and had to trade or cut players because I was 20 million over payroll after arbitration and contracts increasing. I have gotten better at it but the memory of it makes me cautious.

If you look at a DCF the club has all the risk and the player is guaranteed. So the discount to the player is lower than to the club. Also the DCF for the club is potential profit from the player. While that might be the same in a backloaded contract and the higher costs are discounted to be less the risk gets higher the further in the future that the revenue generated by the player will fall. So a longer contract means higher discount to the club because of higher risk the player will not produce and add less to profit.

The math isn't straight forward from the GM's perspective if it is truly a higher popularity player might he put butts in the seats just because he is Babe Ruth. So for Milwaukee the risk was lower. I still believe even though Clemens was still good, Drayton McLane didn't care how well he pitched if people just came out to Enron/Astros Field/Minute Maid to watch him play just because it was the rocket. I don't know if in the game a Roger Clemens or a Babe Ruth on a crappy team makes up for the contract. I don't know it did in real life either.

[Fredrocker]

Originally Posted by yankeefan1024

I offered a 7 year extension worth 24 a year instead of 22
He comes back asking for a 7 year extension worth 25 a year
Then I counter by offering a 7 year deal worth 27 a year
and he comes back by asking for a 7 year deal worth 28 a year

I wish we could see what the player would do if in the 7 years 27 a year offer .. We just meet his demand ... would he have taken it or countered...


BTW lots of good stuff in this thread I am learning a lot...