Albert Pujols: The First $40-Million Man

It looks like the St. Louis Cardinals and Albert Pujols are looking to sign an extension that will keep him in St. Louis for life. Jon Heyman writes that Albert Pujols is looking for a contract similar to Alex Rodriguez‘s ten-year, $275 million deal that he signed with the Yankees in 2008. Heyman predicts that Pujols will be getting an eight-year, $240 million deal. I think these predictions are way off, on the low side.

When his new contract kicks in, four years will have passed since A-Rod signed his deal with the Yankees. When league revenues have been growing at a rate of 8-9 percent per year, salaries escalate quickly as the revenue growth rate compounds. In 2019, $27.5 million is going to seem like peanuts. I agree with Heyman that ten years is probably a bit much, but for an eight-year deal, I estimate Pujols is looking at a $350 million contract ($43.75 million per year). While that’s a big number to swallow, Pujols’s continued excellent performance and MLB’s growing revenue are going to push that number easily over the $30 per year million mark. And, I won’t be surprised if he ultimately ends up with a contract that averages over $40 million per year.

18 Responses “Albert Pujols: The First $40-Million Man”

  1. Mitch says:

    I would be shocked if he got a contract anywhere close to $40m per year. Since 2005, these are the Cardinals aggregate payroll numbers (via Cot’s):

    2005: $92.1m
    2006: $88.9m
    2007: $90.2m
    2008: $99.6m
    2009: $88.5m
    2010: $94.2m

    At those levels of payroll, Mr. Pujols would account for somewhere between 43% and 49% of the Cardinals entire budget. I find it incredibly difficult to believe that any team would commit such a huge percentage of their resources to one player.

  2. JC says:

    A team’s 2005 payroll is about as relevant to its 2019 payroll, as its 1991 payroll was to 2005. Baseball’s revenues are rising and this will translate to higher salaries for all players, not just Pujols.

  3. Mitch says:

    But that doesn’t mean he’ll get $40m in 2012, or even nominally over the life of the deal; the Cardinals have already committed $49m to just 7 players in 2012. Why should we expect their payroll to expand rapidly between now and then?

    Maybe he’ll get payments of $50 million in 2019, which at discount rate of 8% rate is $25m in 2010 dollars. Still, it’s a pretty aggressive assumption that MLB revenues will grow at 8% for the next decade, and that those will translate directly to increased payroll. After all, the Cardinals haven’t increased payroll in six seasons.

  4. Sky says:

    JC, you had Pujols at $21.5M in a “down” year in 2010. Would you mind sharing…

    1. How many runs above average you had him then? (I’ll guess 65-70 based on the B-Ref stats.)

    2. How many runs above average you project for 2011?

    3. How many runs above average you project for 2019, the last year of an eight-year deal?

  5. I would be surprised. Not because I don’t think he’s worth it, but because I don’t think the Cardinals are about to set that precedent.

  6. Ted says:

    In 2001, A-Rod signed a contract which paid him initially $21m and at the top $27m over 10 years. This was a huge contract at the time it was signed. Seven years later he signed a new monster deal which raised the top level of his salary to $32m or only $5m more then his previous contract’s top limit.

    Part of your argument is that Pujols will demand close to $40m because money will be cheaper in the future. This is obviously a true statement, however I don’t see the market moving that fast. The general trend in the market and revenues may technically call for a salary that high in relation to general baseball inflation, but other forces will not allow it to happen.

    The going rate for a top flight slugger right now is somewhere around 25-27.5M/year with A-Rod being the outlier at $32M. For the Cardinals to go above and beyond the current market price for a slugger, they would be setting a new much higher bar for every player in the league. Suddenly $30M a year wouldn’t be as high as it seems now. The cardinals will not be the trend setter. Even if the Cardinals could afford to pay Albert $40M/year they wouldn’t do it because every other team in baseball would hate them for it. It would completely distort the market for upper end players.

    The other consideration here is that top flight money does not follow the same growth patterns as lower to mid range salaries. 10 years from now $40M will not be the norm for a player, in fact there may still only be a few players making $30M at that point, if any. Seriously think about how many players currently make over $20M/year right now. Not that many, why? Because the market doesn’t want to force salaries up that high. The top of the level will rise much slower then the middle and therefore $27.5-30M/year in 8-10 years will still be very close to the top of the pay grade for players.

    If Pujol’s contract averages over $30M/year I would be very surprised.

  7. JC says:

    Revenue projections are based on historical revenue growth, I’m not making it up. If the Cardinals don’t pay what he is worth, then someone else will. Pujols knows this, and doesn’t appear to be willing to offer much of a discount.

    After making initial performance estimates I project dollar values into the future, based on aging and revenue growth. I project Pujols to be worth $29.5 million in 2011 and $57 million in 2019.

  8. Sky says:

    If you start with $29.5M in 2011 and grow it by 9% each year, you get $59M in 2019. That implies aging will barely touch Pujols, which doesn’t seem right. That’s why I asked earlier in the comments if you’d share your projections…

  9. Ted says:

    You didn’t respond to a single point I brought up though. I understand and completely believe you when you say what your numbers tell you about what Pujols should be “worth”, but what he is “worth” and what he will be paid is completely different.

    There were 8 players playing last year with an average contract value of $20M or more. If Pujols in fact wants to get paid $40M dollars a year who is going to pay him? It’s currently prohibitively expensive for most teams to pay one player $20M/year, much less $40M. Realistically only maybe five teams could afford to pay Pujols that much money and still field a team, and only two teams can pay him $40M and field a competitive team (Yankees and Red Sox). This is why your projections may be correct in a vacuum but do not reflect reality.

    If I am wrong then so be it, but even at $120M payroll, Pujols would be 1/3 of it and I would be happy because that team would never have enough funds to field a world series winning team (ask the Rangers).

  10. JC says:

    Sky,

    The aging adjustments are listed by age in my book. I present the aging adjustments, I explain the method used to generate them (which I published in a journal), and I walk through an example applying them. It’s all there. If you are interested in this topic, read what I have already written. If you want to understand mm estimates, please buy the book or check out from the library. I don’t have time to walk you through the model.

  11. Mitch says:

    “Revenue projections are based on historical revenue growth, I’m not making it up.”

    I never said you were making them up, but can we realistically expect league revenues to grow at 8-10% annually for another decade? The past two decades have seen almost every team get a new stadium, the introduction of MLBAM and the MLB network. Are there any major revenue drivers like that on the horizon? Perhaps, but why should we expect baseball to take up a bigger and bigger share of our economy?

  12. MikeD says:

    I’m a Yankee fan, so I’m used to seeing some stratospheric contracts, but I rate the statistical chance of Pujols getting a $43 million-year contract somewhere between zero and none.

    JC is the expert on economics, so the idea of salaries increasing, and the best player in the game (that would be Pujols now) pushing the average-annual salary even higher makes sense. Yet MLB is its own closed universe, and while salaries will go up, there is no guarantee it will happen in an orderly and consistent manner. I guess that’s similar to the stock market. The stock market will go higher eventually, but there are times when years go by, sometimes an entire decade, where it doesn’t. Come to think of it, we just had that.

    A-Rod has been the standard now for what will be a decade as we enter 2011. His average annual salary of $25.2 per year was established in 2001, only to be exceeded by A-Rod again seven years later in 2008, with a minimal increase (considering the years and the player) up to $27.5, or a little than nine percent after seven years.

    What’s being proposed here is Pujols with one signature on a contract will exceed A-Rod’s annual-average by nearly 60%, and he’s going to do this while the economy is in a recession. It. Is. Not. Going. To. Happen.

    A-Rod’s two contracts are linked because of the opt-out clause that Boras brilliantly built in, so I view them as almost one in the same, creating a market around a very dynamic young player that we had never seen before and we haven’t since, although granted it’s only been a decade. Pujols will not have this same dynamic going for him. Not even close.

    A-Rod was able to push his salary to unheard of heights by bringing together the perfect storm of player and contract conditions. He was a media darling from one day when he was the #1 pick in the nation, and touted as perhaps the most talented player ever coming out of high school. A can’t miss. A likely future HOFer before he swung a bat in professional baseball. He did not disappoint, making the majors for a cup of coffee when he was only 18-years-old, sticking for good later the following season as a 19-year-old, and having one of the greatest seasons ever by a 20-year-old in 1996. And he did it as a short stop. In fact, he was the leader of the Holy Trinity of short stops that took baseball by storm in the 1990s, and expected to eclipse Honus Wagner as the greatest short stop ever. Projecting ahead, he was the biggest impact player in the game, even more so than Bonds because of the position he played. He became a free agent after his age-24 season. A player of his stature, age, caliber and position has never appeared on the open market. He was already great and he was just entering his peak and every team knew it. Last, he didn’t care where he played, he wanted the most money, and he had Scott Boras as his agent.

    Pujols will have almost none of this going for him. When his current contract is up, he will be a 32-year-old first baseman whose peak is almost assuredly behind him. That doesn’t mean he’s not the best hitter in the game, because he is, but he’s not going to project forward as getting better, but instead will be getting worse. He dropped 60 pts. in slugging this year, which could just be noise in the machine, or it could be the first sign he’s peaked. Last, the Cardinals (or any team) need to look no further than A-Rod, who since mid-2008 when his hip started bothering him has decreased as a hitter every year. He’s still productive, but not the hitter he was pre-surgery. Pujols has already given the Cardinals a scare (even if minor) with his elbow, so the prospect of a declining Pujols is not farfetched.

    Also working against him is market conditions. He could use the Yankees to help drive up his salary, even if he wants to stay in St. Louis, yet the Yankees will not be in the market. They have first base locked up with Teixeira for the next six years. And, as just mentioned, Pujols also seems to want to stay with the Cardinals.

    I would expect Pujols to age better as a hitter than A-Rod, even if A-Rod didn’t have the hip issue, but even Pujols is human, so a decline is coming. The Cardinals know this.

    That all said, I’m just pointing out why he’s not getting $43 million a year. The conditions aren’t working for him as they did for A-Rod. Yet I do expect him to become the new annual-average-salary king, taking the gold crown from A-Rod for the first time since before 2001.

    And the Cardinals better pay up. If I was a Cardinal fan I would be pretty upset if my team had the greatest hitter in the game, a home-grown talent, and the means to pay him, and didn’t step up to the challenge. That means they’re going to be paying him about $30 million a year for eight years, but it won’t be $43 million, or anywhere near close to it. (It’s probably also in Pujols’ best interests to get this contract signed before 2011, because if the Red Sox trade for Adrian Gonzalez, as I think is likely, then that will remove both the Yankees and the Red Sox from the bidding process.)

    Apologies on the rambling note!

  13. JC says:

    A few years ago, I commented that I thought a salary growth rate 10 percent was unsustainable. However, historically, that’s the rate at which salaries have grown. That rate has slowed down recently with the economy, which I expect to recover during the term of the hypothetical contract. I don’t think it’s a given that Pujols will get $40 million per year, but I do think that he’ll easily surpass A-Rod’s contract and the $30 million mark.

  14. MikeD says:

    JC, totally agree. Pujols is going to set a new annual average. I’d imagine even if he personally would accept a little less, the Player’s Union will put great pressure on him to move the bar past A-Rod, since that will benefit all players. I’m guessing the Union wanted Mauer to test free agency, too, since he could have created a similar dynamic to what A-Rod did when he was 24. A great young hitter, seemingly HOF bound, with great production out of a key defensive position hitting the open market while at his peak. As much as Mauer got, he left tens of millions on the table considering the Yankees and the Red Sox were salivating at the prospect of adding him to their line-up, as both have aging catchers to replace.

    I can see salaries increasing again at a good clip once economic times improve, but since Pujols is expected to sign his new contract in less-than-great economic times, I don’t see an record-shattering deal, meaning a $40-million average. That will be some other player down the road. I do, however, see a him passing A-Rod and raising the bar.

    Last, over the past generation, salaries have increased thanks to many positive trends, including the growing wealth of Baby Boomers; free agency; new revenue sources for MLB, such as from MLB Advanced Media; the building of new parks, and the presence of a man named George M. Steinbrenner. Pretty much all the new parks have been built and I’m not sure the new revenue sources for MLB will increase at the same rate as they have recently. Baby Boomers are getting older and I’m not sure the following generation has quite the same passion for baseball as the Boomers. And while we still have free agency, I wonder if the luxury tax established a few years ago will hold back the rate at which payrolls increase. The Red Sox, the second biggest spender behind the Yankees, seem to be holding the line just below the luxury tax line. Only the Yankees have consistently blown passed it, yet even they have held their payroll around the $200 million mark since 2005, give or take a ten million swing in either direction. Even if they add Cliff Lee, indications are they’re not going to dramatically increase payroll, which they can accomplish be back loading some contracts, and then having Posada’s and Pettitte’s contracts come off the books after 2011. (Perhaps sooner for Pettitte.) The luxury tax threshold increases every year, upping to $178 million in 2011. It appears the percentage rate of the luxury tax is increasing faster than the Yankees increase in taxable payroll, meaning they’re inching closer together.

    I’m not suggesting the Yankees plan to drop below the luxury tax rate at any time in the near future, if ever, but we do have to acknowledge that the man who pushed the Yankees over the $200 million mark in 2005, George Steinbrenner, is no longer with us. His son Hal seems a bit more fiscally oriented and budget focused. He’ll spend money, a lot of it, but I don’t believe he’s going to do anything like his father did. The Yankee factor will always be there, but without the George factor, I wonder if that will cause the rate of MLB salary growth to slow.

  15. Dan says:

    I heard a quote from Pujols saying that he wants to spend the rest of his career in St. Louis. He’s also said numerous times that he measures his success by how many wins the team has. One of the classiest players in the league, and it’s not part of his M.O. to lobby for a bigger contract. He’ll play for less if it’s best for the team. And the fact that he wants to stay in St. Louis means that they won’t have much competition, and their price shouldn’t drive up too high. Also, the current labor agreements run out at the end of next year, so who knows, there might even be a salary cap of some sort. I guess all that I’m saying is that I don’t think the Cardinals are going to dish out $40 Million to a guy who isn’t aggressively asking for that much just because they feel like paying him. I think $25-30 Million is more realistic.

Trackbacks/Pingbacks

  1. […] Bradbury won’t be surprised if Albert Pujols lands a contract with an annual value of $40 million. I believe he has the total value right, but I’m guessing the Cardinals add years they […]

  2. […] This post was mentioned on Twitter by J.C. Bradbury and Andy Beard, Matt K.. Matt K. said: @MarlinManiac http://goo.gl/v7MgF […]

  3. […] -JC Bradbury thinks Abert Pujols’ extension could approach 40 mil per year, and his explanation helps explain why John Buck and Joakim Benoit got the contracts they did. The days of the 200 mil Yankee payroll will soon come to an end, it’s going to be upwards of 250+ in a few years at these prices. […]