Contract Evaluation: Chicago Cubs’ Starlin Castro

Starlin Castro is everything a struggling club needs when they enter a rebuilding effort.  He’s young, talented, and under team control for five more years (including this season).  Yet, to really capitalize on Castro’s worth, the Cubs, losers of 91 games last season, need to make sure they can lock him up for a long time without putting themselves in a financial bind.  We’re talking early contract extension.  But what exactly is Castro worth now in comparison with that he may cost in the future?

Next season will be Castro’s first arbitration eligible year.  This year, he’s making $567,000.  Castro does not have a lot of power which should save the Cubs some money in arbitration, but his defense and his ability to get on base consistently will play a major role in a large free agent contract should Castro reach that point.

So let’s use that as our jumping-off point.  Assuming Castro was hitting free agency after this season, what would he be worth on the open market?  Last year, Castro was worth 3.0 WAR.  This year, he’s already been worth 2.7 WAR.  Using conventional wisdom, Castro could be worth anywhere from $10-12 million per year on the open market if he were hitting free agency after this year.  But he’s not.  He’s merely heading into his first arbitration year.  The Cubs must weigh what they’ll pay in arbitration verse the opportunity cost of not signing Castro to a long-term deal.

The opportunity cost is the kicker.  If Castro continues his success, his likelihood of signing a team-friendly contract extension becomes increasingly unlikely.  The Cubs may get away with letting Castro hit arbitration next year where he would be able to command somewhere around $2-3 million.  It would be a nice little bump, but just the first of many as Castro would have three more arbitration years to follow.

Let’s assume Castro continues along his current path and get’s $2.5 million for the 2013 season through arbitration.  In 2014, he’ll probably be able to snag around $4.5 million.  By 2015, he would likely earn around $6 million.  And by his final arbitration year in 2016, Castro could be making around $7 million.  Add it all up, and the Cubs would pay Castro a grand total of $20 million for the 2013-2016 seasons.  But he’d still be a free agent after 2016.

How would things change if the Cubs were to extend Castro’s contract at the end of this season?  The first thing the contract extension would have to do is buy out Castro’s arbitration-eligible years.  The second thing the contract would need to do would be to buy out at least one year of free agency, but two years would be better.  Let’s focus on a contract that buys out all the arbitration years, buys out two free agency years, and includes a final team option that could make the contract buy out a total of three free agent years.

In the original estimated scenario in which the Cubs let Castro play out his arbitration-eligible years, he would be making on average $5 million a year.  The first place the Cubs would need to start is a contract extension that pays Castro at least $5 million a year, but to get the deal done, they’d likely need to go higher than that.  The guaranteed money and the fact that the contract would be so early in Castro’s career may allow the Cubs to get away with an extension that escalates each year but pays an average of $6.5 million per season.

The deal would need to be six years, $39 million with a team option worth $12 million for the 2019 season.  Here’s how the Cubs could back-load the contract:

2013 – $3 million
2014 – $5 million
2015 – $6 million
2016 – $7 million
2017 – $8 million
2018 – $10 million
2019 (team option) – $12 million

Is such a deal worth it to the Cubs, and would Castro be interested?  First, let’s assume Castro averages 2.5 WAR per season as he hits free agency.  Castro would be looking at a free agency deal that would pay him about $12.5 million per season.  So for the two free agency years the Cubs are buying out (2017 – $8 million, 2018 – $10 million), the team would be saving $7 million.  They’d be saving at least another $500k still if they exercise the 2019 team option.

For Castro the deal would make sense because he would be guaranteeing himself $39 million dollars no matter what happened to him.  Should he suffer a career-ending injury, he’d still get paid.  Should his production suddenly drop, he’d still get paid.  In addition, he’d be 22-year old multi-millionaire.

Such an extension seems to benefit both sides and would be in the Cubs best interest.  They would be getting the best years of Castro’s career without paying a premium like they did for Alfonso Soriano (and they didn’t even get Soriano’s best years).  Theo Epstein and Jed Hoyer are savvy in their understanding of these type of deals, and have probably already ran the numbers.  If they haven’t had serious conversations about Castro, they will.

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