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Breaking Down the Ackley Contract

Dustin AckleyI will warn you right from the get-go, this will be a very technical post. We're going to dig into the Collective Bargaining Agreement to understand exactly what the Mariners gave up when they gave Ackley a guaranteed major league deal. This will be a somewhat dense post, but I find baseball economics fascinating.

Dustin Ackley's contract is highly deceiving. It was originally reported that it's for $9.5 million. Then, it came out that it was $7.5 million with escalators. On top of all this, it is a major league deal. There is a bunch of technical language getting thrown around, and it's worth understanding. Digging in to Ackley's deal reveals that the M's hardly got a bargain, but also did some significant negotiating.

According to Jim Callis at Baseball America, here are the terms that Ackley agreed to:
  • $6 million signing bonus
  • MLB contract for 5 years (2009 - 2013)
  • $1.5 million in guaranteed in salaries
  • An additional $2.5 million is available based on how quickly Ackley reaches the majors
Let's start with the signing bonus. That's the easiest to understand. That's the money that is Dustin Ackley's once he signs his name. It's essentially a one-time lump sum. When it comes to the MLB draft and you hear a player "signs for 'x' amount of dollars," 99 times out of 100 that is the signing bonus. That's because draft picks are typically signed to minor league deals with a signing bonus.

Already, we can see why Ackley's deal is deceptive. Surely $6 million is well above MLB's recommended bonus for the second overall pick, but third pick overall Donovan Tate got a $6.25 million bonus.

The MLB contract is a big deal though. Tate did not get one, and few prospects get a guaranteed one straight out of the draft. To begin with, it requires the player to be added to the MLB 40-man roster. That means a team loses some roster flexibility while the player develops in the minor leagues. More importantly, from the player's perspective, it immediately puts them under the provisions of the Collective Bargaining Agreement.

What exactly does that mean?

It basically means a prospect is going to live the good life as they work towards the majors. Only players that have appeared in the majors, or are on a team's 40-man roster, are covered in the Collective Bargaining Agreement. All other players (the majority of minor-leaguers) are pretty much at the mercy of the franchise that controls them, until they are eligible for the rule 5 draft. Let's not get started on the Rule 5 draft here though.

Minor League Baseball's website says a minor leaguer makes at most $1,100 per month in their first season. After that, contracts are "up for negotiation."Assuming a player makes $1,100 a month for a six months (which is pushing it because a minor league season is more like five months), they will make $6,600. However, a player on his first major league contract, according to the CBA, must make a minimum of $32,500 in the minor leagues. So, to recap, a prospect not covered by the CBA gets $6,600 at most. A prospect covered by the CBA gets $32,500 at least. That's the difference a major league contract makes.

However, Ackley has it even better. He has a guaranteed $1.5 million in salaries for the duration of the contract, which averages out to $300,000 per year. That's well above the $32,500 minimum. However, it is also well below the $400,000 minimum major league salary. Hence, the $2.5 million "based on how fast Ackley makes it to the majors."

For this post's sake, let's assume that $2.5 million is spread evenly throughout the deal. That essentially makes it a $500,000 bonus per year for every year Ackley is in the majors. That would make his salary $800,000 per year for every year he is in the majors. That, of course is well above the $400,000 minimum.

Now it's time to throw out a hypothetical: What if Dustin Ackley had signed a more traditional contract? What if he had simply signed a minor league deal with a $6 million signing bonus?

We'll have to make some educated guesses. Let's say that Ackley spends all of 2010 in the minors, not even on the 40-man roster. Let's say he spends all of 2011 in the minors too, but on the 40-man roster. After that, we will assume he is in the majors, where he would earn the major league minimum through 2013. Even though at that point there will be a new CBA, we will assume the minimum salary stays at $400,000. In all likelihood, it will go up, but I'm trying to be as conservative as possible.

We'll say Ackley doesn't even play in 2009, and earns $5,000 in the minors in 2010. Then, he earns $32,500 in 2011. After that, he earns $400,000 for two seasons. That's five years (the same length as the deal he signed), and an additional $837,500 in salary paid to him. With the $6 million bonus, that's a total of $6,837,500.

Let's make a little more realistic estimate. Let's say Ackley spends all of 2010 in the minors, but is up in the majors halfway through 2011. Also, let's assume the minimum salary goes up to $425,000 for 2012 and beyond. Since Dustin is a top pick, let's say the M's give him $6,000 total in 2010. We also already know he will play in 2009, so let's give him $1,100. Then, he makes around $220,000 total splitting time between the minors and majors in 2011. The next two years, at $425,000 per year, Ackley makes $850,000 total. So, over 5 years, with the the $6 million bonus, Dustin Ackley makes a total of $7,077,100.

Consider the same hypothetical career track from the last paragraph with Ackley's actual deal. We'll estimate the prorated amount of $300,000 per year for 2009 to be around $60,000. Spending all of 2010 in the minors gives him $300,000. Splitting time between the majors and minors in 2011 comes to $550,000. Finally, for the last couple years, Ackley makes $800,000 annually. With the signing bonus, that comes to a grand total of $8,510,000.

More terms on Ackley's deal are not known right now, and the odds are he probably earns more in the back end of the deal. That would drive up the the total money he earns. Still, the difference between Ackley's MLB contract and what he would have received otherwise is likely in the neighborhood of $1.5-2.5 million dollars. It's hardly a bargain for the Mariners, but a portion of the money agreed to in the contract is money that Ackley would have earned anyway without the guaranteed MLB deal. Also, that extra $1.5-$2.5 million is spread over five years, making it easy to absorb.

Dusting Ackley's deal did not happen in a vacuum though. Scott Boras said he was going for Mark Teixeira-type money. Teixeira, when he was drafted in 2001, also got a guaranteed MLB contract. Furthermore, Ackley was one of three 2009 draftees to receive a Major League contract, along with top pick Stephen Strasburg and ninth pick Jacob Turner. All these deals were negotiated by Boras. Here is a look at them side by side. Estimated values are in italic:

Bonus $4.5 mil $6 mil $7.5 mil $4.7 mil
Year 1N/A$200K$400KN/A
Year 2$250K$250K$2 mil$800K
Year 3$750K$500K$2.5 mil$900K
Year 4$1.5 mil$850K$3 mil$1.1 mil
Year 5$2.5 mil$1.1 milN/A$1.5 mil

The known terms of Turner's deal right now is that he makes anywhere between $800,000 to $2.15 million annually depending on how quickly he reaches the majors. There are also some options years, and a few opt out clauses I chose to neglect to keep this comparison somewhat simple. Furthermore, Turner's terms only start with the 2010 season (which is why year 1 in the table is marked "N/A"). For this comparison, I'm assuming Turner spends two and a half years in the minors. That's a very fast track for a high school pitcher like him, but he went to the Tigers, who brought up prep pick Rick Porcello after only one full season in the minors. I'm taking complete guesses on how Turner's contract escalates, in case you are wondering.

For Ackley's deal in the comparison, I decided to take guesses at how it might escalate (since it likely does). I assumed he makes the majors part way through the 2011 season. That's a full year ahead of Turner in this projection. My guesses on how Ackley's deal escalates are what cause the table's numbers to look different than my initial analysis, where I simply averaged total values over the length of the deal. You'll notice that the total in the table for Ackley comes to a little over $9 million, which is within range of my above analysis. The Year 1 total would be prorated, just as Strasburg's is.

Compared to other guaranteed MLB deals in draft history, Ackley's looks good. His total approaches Teixeira's, but the structure is noticeably different. The bonus is bigger, but this is also 2009 versus 2001. Inflation must be considered. Also, Ackley will only maximize his deal if he gets to the majors in a hurry - a provision that wasn't a part of Teixeira's initial deal, or Strasburg's for that matter.

By the way, any doubt that the Nationals want Strasburg in the majors on opening day 2010 at the latest should be gone. Just look at the deal he signed. Nobody is paid millions to develop in the minors. Boras knows that too. It's no mistake Strasburg's contract runs out after what will be presumably three full seasons in the majors. It preserves all of Stephen's arbitration years. In the end, Washington gave up all the years that they could have payed Strasburg the league minimum, and got no breaks in return. Talk about a player-friendly deal.

Strasburg is a special case though, at least in most people's eyes. What's more interesting is comparing Ackley's contract to Turner's. Dustin Ackley is a college position player, while Turner a high school pitcher. Clearly, Turner is a higher risk pick. He was also selected later than Dustin, albeit only four slots later. However, while Turner's bonus was smaller, he probably will have higher annual salaries than Ackley. That's remarkable, considering Turner will probably spend longer in the minors, and is a much higher risk to flame out.

In the end, Dustin Ackley got paid. He's a clear winner in the deal. Not only did he get a bonus way above slot recommendation, he got an MLB contract that will pay him above MLB minimum salaries to boot. Scott Boras represented him quite well.

The Mariners should be happy too though. Compared to the other MLB deals signed this year, Ackley's is the most conservative, even though he is the safest bet to pan out. Furthermore, Boras did not get a Teixeira deal, even though the money could be similar. Ackley will have to earn it though, because of the $2.5 million tied to when he makes the majors. That's a safeguard that wasn't in Teixeira's contract.

I'm not a fan of giving draft picks MLB contracts, but Ackley is worth it. The deal is reasonable. The M's had room on the roster right now. There is a decent chance Dustin would have forced his way on to the 40-man roster by as early as next year anyway. I'd still say Boras won these negotiations, but I'm not going to call the Mariners losers.