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Felipe Rivero Won And Lost With His Recent Contract

Felipe Rivero is set for life. At what point does security outweigh risk?

Lost in all the wailing and gnashing of teeth last Monday during the Gerrit Cole trade was the news that Felipe Rivero signed a 4-year deal worth $22M in guaranteed money. The two sides also agreed to two $10M options for the 2022 and 2023 seasons. TPOP’s Alex Stumpf said it best when he wrote “It’s like they traded the car, but just bought gas.” The year-to-year is as follows:

  • $2M signing bonus
  • $2.5M in 2018
  • $4M in 2019
  • $5.25M in 2020
  • $7.25M in 2021
  • $10M team option in 2022 ($1M buyout)
  • $10M team option in 2023 ($0.5M buyout)

The guaranteed years cover his age-26 to age-29 seasons. And, amazingly, the options cover his age-30 and age-31 seasons, ending right before the Pirates magical age-32 cutoff that they seem to base all their contract decisions off of from past performance studies.

Felipe Rivero is now rich. He is guaranteed to have $22M in his bank account over the next four years, no matter how he does performance or health-wise. For just about every person, being handed $22M of guaranteed money is life-altering. When you sign as an unheralded 17-year old out of Venezuela that was only throwing 86 mph at the time, there’s not much signing bonus. Money was scarce for Rivero growing up, as well.

But there is an opportunity cost that Rivero lost when signing this deal, too. A couple of years ago, we developed an arbitration model calculator based on past arbitration awards. For a standard player, we found that the three arb years were were worth 25%/40%/60% of a player’s free agent market value. The data for Super Two arbitration players that get four bites at the apple was much less due to the scarcity of players, but we still calculated their years to be 20%/33%/50%/70% of free market value.

This past October, we estimated Felipe Rivero’s first arbitration award to be $3M, based on other Super Two closers and comparables. This was a number that was right in line with what Rivero was asking for in arbitration negotiations ($2.9M) before he signed this deal. The Pirates countered at $2.4M.

So let’s say that our $3M figure was reasonably correct. That means by the model, Rivero could have made the following amounts in arbitration if he continued to accumulate saves and stay healthy:

  • 2018 — $3M
  • 2019 — $5M
  • 2020 — $7.5M
  • 2021 — $10.5M

That’s $26M of potential salaries just by this rough model. Who knows if he could have reset the scale and received even more if his path of dominance continued.

How signing bonuses are officially given to a player is a little nebulous at times. I’m presuming that Rivero gets the full $2M immediately, rather than spread out of the four years. For accounting purposes, like on Cot’s Contracts for baseball, the bonuses are depreciated over the length of the deal. But if the Pirates gave him the full amount right now, they’re willing to overpay in Year 1 (hey, they have a lot of extra money laying around now) by $1.5M in order to save $6.25M in salary over the next three years.

The real kicker for Rivero is in the free agent years. The model estimated him to be worth $15M in the free market. Old friend Mark Melancon signed a deal with an AAV of $15.5 in his age-32 season. Rivero, with far better present stuff than Melancon ever possessed, just gave the Pirates the option to pay him $10M for his age-30 and 31 seasons. With inflation, it’s entirely possible that Rivero could have seen $20M AAV for those years. Even just using Melancon’s deal and the model, Rivero left potentially $10-11M more on the table. That’s a total of $14-15M that the Pirates saved if they see this deal all the way through to fruition.

And here’s the kicker. It really doesn’t matter to Felipe Rivero. Rather than worry if his elbow is going to explode from throwing 100+ mph heat or if his 2017 was some magical moment in time, he knows he’s set. If he gets both of the team options picked up, whether by the Pirates or whoever they inevitably trade him to, Felipe Rivero will have banked $41M. After a certain point, I would realize that $41M over a 6-year time period is more than I could ever reasonably spend and that my future generations were set for life. That’s not every athlete’s mentality and that’s OK, too.

Felipe Rivero chose certainty over the great unknown. He ‘lost’ upwards of $15M of potential money, but there’s no doubt that he ‘won’ in the big picture of things.

Nerd engineer by day, nerd writer at night. Kevin is the co-founder of The Point of Pittsburgh. He is the author of Creating Christ, a sci-fi novel available on Amazon.

2 Comments on Felipe Rivero Won And Lost With His Recent Contract

  1. It was a good deal for both sides. The Pirates because not only did it give them cost certainty, it made Rivero eminently more tradeable if the Pirates decide after this season to go the tear down and rebuild route. If this season turns out be an abysmal one, they will probably go for the full tear down. If this year is similar to 2016 and 2017 in winning percentage, they will probably stay the course and try to do the quick rebuild.

    Rivero, even without the extension, was there most tradeable commodity. Now he’s super-tradeable piece that would bring back a full handful of young major leaguers and prospects.

  2. betterthanchickwood // January 22, 2018 at 12:24 PM // Reply

    Yes let’s trade for quantity not quality once again.

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