Rays, Jake Odorizzi have mutual interest in contract extension

One of the benefits of the winter meetings is the proximity of agents and reporters. A lot of questions get asked, and sometimes there are great answers.

As such, one day removed from reporting the Rays could offer Jake Odorizzi to the Cubs in a trade, Marc Topkin reports the Rays and the pitcher have mutual interest in a contract extension.

#Rays have made multiyear offer to extend RHP Jake Odorizzi. Agent Jason Wood confirms mutual interest, working on counter offer.

— Marc Topkin (@TBTimes_Rays) December 7, 2015

Agent Jason Wood said #Rays made "very nice initial offer" to Odorizzi, there are "lots of reasons" for talks to go on.

— Marc Topkin (@TBTimes_Rays) December 7, 2015

Jake Odorizzi's rookie contract begins arbitration in 2017, making him a free agent for the 2020 season. A contract extension from the Rays would likely buy out his rookie contract, and include team options for some of the free agent years, as has been demonstrated in previous contract extensions signed by Chris Archer and Matt Moore.

Chris Archer, who exceeded rookie limits in 2013, signed a contract that guaranteed $25.5m through 2019, and included club options at $9m (with a $1.75m buyout) and $11m (with a $250k buyout). His contract guaranteed one year past his rookie deal.

Archer signed his deal one year after making the league minimum, while Matt Moore was even more aggressive in signing his contract to buyout his rookie deal with an extension. Moore's contract for five years guaranteed ~$14m and ends after 2016, but includes club options at $7m, $9m, and $10m, with decreasing buyouts foe successive options. Moore exceeded rookie limits in 2012, which makes his option year in 2017 his would-be final year of arbitration.

Odorrizi has already played two seasons at the league minimum, which makes his possible extension later in his career than Archer or Moore had signed, and therefore more money available per year.

For a salary comparison, we'll use Jeremy Hellickson, who did not sign a long-term contract after initial success with the Rays, and who agreed to amounts of $3.6 and $4.3 million for his first two years of arbitration eligibility.

Balancing Risk

The idea behind extending a player before he reaches arbitration is simple. It's all about limiting risk and shifting risk, and both sides get something out of it. Deals like this get done because generally baseball contracts are guaranteed, but the first six seasons of a players's major league career (the "rookie contract") are not. Let's look at the incentives from both sides.

For the pitcher:

• There is a risk of injury or other decline for all players, but for pitchers it's incredibly acute. Alex Cobb, Drew Smyly, and Matt Moore all missed time last season with injuries that thankfully don't appear to be career-ending but that easily could have been.
• Right now, Jake Odorizzi has made the major league minimum (around $500 K) for two seasons and he's set to make it for one more before he gets a raise. He's likely to get that raise to something above $3 million, but if he were to be injured badly, it would torpedo his chances of ever making that type of money.
• Taking a long-term contract eliminates this type of risk for the player. It may lower his expected earnings in the long run, but the first $15 million is far more impactful on a person's life than the second $15 million. On a longer deal, all Odorizzi would have to worry about is going out and pitching.

For the team:

• Teams are larger than individuals, and therefore can more easily shoulder the risk inherent in one guaranteed pitching contract.
• That frees them to chase value.
• Adding team options to the end of the deal builds back in the uncertainty that the non-guaranteed contract had, but recasts it on the positive side of the performance spectrum. That is to say that rather than being able to cut a player if he's injured or otherwise poor, and not worth his contract, the team is instead able to keep a player if he's healthy and good, allowing his performance to exceed the value of his contract.

To summarize all that, in offering a contract to Odorizzi, the Rays assume the risk, and with it gain a better overall expected value, and grab a piece of the possible upside of a healthy and productive pitcher in his prime.

Predicting the Offer

Here's a quick gander at what might constitute a fair offer. We've included estimates of what you could expect Odorizzi to make if he stays healthy but doesn't sign a long-term contract. The others are rough estimates based on what other Rays have signed in the past, but that's fine. The value of one win above replacement is now over $7 million, and the top free-agent pitchers are signing $30 million/year contracts, so any differences between the numbers here and the exact talks going on are relatively small.

All numbers are in millions of dollars.

Note that the Rays pay more than they would otherwise need to early in the contract, as well as guaranteeing the money, but that if Odor is successful, they make that money back and then some with the extra years when he would otherwise be given over $20 million on the free agent market.

This type of deal would be good for the Rays, and with Jake Odorizzi only one year away from arbitration, now is the last chance to get something like this done. It's not an exciting move, but locking down the talent already on the team can be just as important as bringing in new talent.