Would Derek Jeter be underpaid at $10 million a year for the next three years? Could he be worth as much as $20 million a year over that time span. Does the Yankees' offer of $15 million per adequately cover both possible contingencies?
The answer is that it's hard to know for sure because Jeter is something of a wildcard. According to Fan Graphs, he was worth only about $10 million in 2010, after having been worth over $30 million in 2009, putting him in MVP territory. And these basically represent extreme values over his whole career.
In 2009, Jeter was uncharacteristically an asset on defense (relative to other shortstops). This was accompanied a banner offensive year, with a .334 batting average, and 18 home runs, close to career highs. In 2010, on the other hand, Jeter batted all of .270, after never having batted below .290 for a full year, and hit a career-low 10 homers. Plus his defense went downhill. Will the real Derek Jeter please stand up?
If Jeter (aged 36) were five years younger, one could write off the past year as an uncharcteristically bad year. But given his age, there is a real possibility that it represents "old age," and that his forwardgoing performance might only be "just above league average," as in 2010, rather than superstar. as in 2009.
The fact that the contract renewal comes at such an awkward time puts the Yankees in a "Catch 22" situation. Pay him too little, and he walks. Pay him too much, and he becomes a liability that prevents the Yankees from getting what they need, like starting pitching.
Would I be willing to hire Jeter a contract of $10 million a year for three years? My best guess is that he'll perform around that level in two out of the three years, and meaningfully exceed it in the third, making it a good deal. How about $20 million for each of those three years. I'd expect him to earn that in ONE of those years, but not all three. At $15 million per for three years, one would be in what I consider the twilight zone.
In that case, it's probably time to "think outside the box." Perhaps someone of Jeter's age bracket (basically over 35), shouldn't be given long fixed rate contracts, but rather "floating" compensation contracts tied to recent performance.
Here's what the Yankees might do with Jeter: Offer him a multi-year contract starting with $20 million (and the benefit of the debt) for ONE year, 2011.Then tie the subsequent years' compensation to a formula based on what he did the earlier year.
For instance, Jeter earns $20 million in 2012 only if he bats better than .300 and has an OPS of .850 or better. If he repeats his 2010 performance in 2011, he gets only $10 million in 2012. If his 2012 performance rises above this level, that is reflected in his 2013 pay.
Trying to capture Derek Jeter's value with a traditional fixed contract seems like trying to catch a "willow of the wisp." A floating contract could create a win-win situation for both sides.
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