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Lincecum, Giants Strike a Deal

The Giants and star pitcher Tim Lincecum have agreed to a 2 year, $23 million deal. Reports say negotiating went down to the absolute final seconds. Apparently, the deal was struck in front of the doors of their impending arbitration hearing. Since they avoided the most interesting arbitration case of all-time, I'm glad the contract negotiations stayed dramatic down to the final seconds.

The deal is interesting. I didn't see one being struck, but kudos to whoever struck the three-year idea and went in a totally different direction. Lincecum will earn $8 million in 2010, and $13 million in 2011, with $1 million bonuses each year. Essentially, instead of arguing over what Lincecum is worth, the Giants will pay what they offered him this year, and then what Tim wanted (just a year later), along with a couple cherries on top (the bonuses). Considering this deal had to come together within the past 12 hours, I doubt it's much more complicated than that.

My initial reaction was disbelief. I didn't like this deal for Lincecum. I would have taken my chances in arbitration. Upon further review though, the deal is not a clear-cut win or loss for either side.

With the way arbitration works, players are pretty much guaranteed raises each successive year they hit it. The guiding principle behind arbitration is that it transitions players from the league minimum to their open market value.

So, if Lincecum had won his arbitration case today, he would have earned $13 million this year, and likely $14-15 million next year. Rumors are that he countered with 2 years, $27 million before agreeing to this deal, which would be right in line with what he probably would have earned the next 2 years with an arbitration victory. Clearly, for the Giants to agree to a deal, it would have to be for less than that.

If the Giants had won arbitration, Lincecum would have earned $8 million this year, and probably around $10 million the next year. They reportedly first offered 2 years, $21 million, so they finally were the side to flinch. Lincecum would not have earned that much with a Giants arbitration victory.

In essence, if the Giants had won arbitration, Lincecum would have got around $18 million the next 2 years, and if Lincecum had won he would have got around $28 million. Interestingly enough, $23 million is right in the middle of those two figures.

The structure of the deal is important too. At the end of this contract, Lincecum will still have two arbitration years left. At that point, it would still be surprising if he didn't get salary raises in the process, so it's significant that the second year of the deal is for $13 million. That is only a few million dollars off what he probably would have earned in 2011 if he had won arbitration this year, so this contract did not limit Lincecum's longer term earning potential in arbitration all that much.

Overall, Tim Lincecum obviously would have earned more money if he had gone to arbitration and won. However, he only gave up about a potential $5 million over the next few years, and maybe around $5 million more in his final two years of arbitration, for the security that the Giants would not win arbitration, which would have likely resulted in $20-25 million less over the next four years. From this perspective, the deal ultimately favors Tim Lincecum slightly.

I liked Lincecum's chances to win his arbitration case though. I'm not sure this deal would have been enough for me to not take my chances. It definitely would not have been enough without the $1 million bonuses each year. I'm guessing those were added as the two sides were right in front of the doors to their hearing.

Money isn't everything though. With how relatively reasonable Lincecum's offers were all along, I'm not sure he was ever that interested in milking arbitration for all it was worth. The completely new deal offered by the Giants in the final hours signals some urgency on their side too. Maybe when both sides saw those doors, they looked at each other and tacitly agreed that they weren't going in, no matter what.