A Whole Lotta Zeros: When could we see the first billion dollar contract in sports?
Updated: Oct 4, 2021
Six is a sign of success, seven is a sign of greatness, eight is a sign of stardom. Yes, a lot is seemingly always made about the number of zeros in an athlete's contract, and for good reason. Nowadays, contracts are bigger than ever, and it's a trend seen in every league. In the MLB, Mike Trout recently shattered the league record for contract value with his 12 year, $426.5M contract; in the NBA, Giannis Antetokounmpo's 5 year $228.2M contract is also a league record; and in the NFL, Patrick Mahomes' 10 year $450M contract has become the largest in professional sports history. This leads to an interesting question:
Will we see a one billion dollar contract?
Far more than numbers is needed to unpack the answer to this question. There will be heavy dependence on general economic conditions, independent profitability in the various sports leagues into the future, and those pesky collective bargaining agreements, just to name a few. However, let us assume for the sake of the question that the four major sports leagues in the US (NBA, NFL, MLB, and NHL) will continue to operate as they do today, and that the economic trends present during the time periods within this dataset remain consistent . This leads us to our first problem, which league is most likely to dole out the billion dollars.
Cooking the Books: A brief look at the top contracts in sports
To start, I used Spotrac's contract database to gather the top 100 active contracts by total value in each of the four major sports leagues. The rationale here was that the best gauge for potential to pay a $1B contract are the values of current league's best players. I used the pandas library in Python to add start and end dates and filter by position. The result looks like this:
It's worth pointing out that AAV stands for Average Annual Value, the average salary payout per year of the contract.
Using these datasets, we can come up with a few interesting numbers. Firstly, graphs for average total value and average annual value for the 100 contracts.
So the MLB and the NBA are #1 and #2 in average for the total value of a contract, which is a good indicator of high payout potential.
But the NBA is a far and away #1 in terms of AAV. Unfortunately, this isn't as groundbreaking as it would appear. If you refer to the top 5 contracts in the NBA above, you'll notice that each contract is only 4 years in length. Franchises in the NBA are not allowed to sign players for more than 5 years at a time. Even the Supermax deals, which you can read about here, only allow for a player to be paid up to 35% of the team's salary cap. But what is that?
The Salary Cap
In 3 of the 4 leagues discussed, there exists a salary cap within the structure of the league. A measure to increase parity, each team is given an amount of money the total annual value of their main roster is not to exceed. In the NBA, it's $112.4M (there are contract exceptions that can allow a team to go marginally over), in the NFL the cap is $176M in 2021, though it will increase to $250M by 2024, and in the NHL the cap is currently set under $100M. What does this tell us? In the NHL's case, we are unlikely to ever see a $1B contract in the league. In the NBA, while the AAVs of their contracts are significantly higher on average than other leagues, it's entirely because they can only sign players to 5 years or less, and as such the AAV a $1B contract would require is all but impossible to expect.
The NFL, you can easily argue, is similarly eliminated from billion dollar contention by the salary cap. However, I believe the cap's large size relative to other leagues and dynamic nature, and the league's lack of contract length maximums, opens the door for the league to see a billion dollar contract. Look no further than the contract of the Chiefs QB Patrick Mahomes, who was given a whopping 10 year contract worth (with benefits) just over $500M. This absolutely towers over Texans QB Deshaun Watson's $156M contract, which is the second largest in the league. Mahomes' contract is an outlier for sure, but the first athlete to receive $1B is going to be an outlier as well.
You'll notice the MLB hasn't be mentioned yet. The MLB does not have a salary cap, instead opting for a luxury tax, which simply taxes a franchise on its payroll above a set amount (currently set at $210M in 2021). While this deters teams from overpaying, it is, in theory, less of a hindrance than the hard caps set by other leagues. But practically does it make a large difference? Let's see. Below is a graph that shows the number of contracts exceeding $200M per league.
Yes, it would appear it makes a very large difference. The MLB hands out high value contracts significantly more than any other league. This graph is the best indication that the MLB is the league most likely to give out a $1B contract, and as such I will focus on them as this post continues.
Rounding the Bases: Predicting a Billion in Baseball
Broadening the Scope
Now that we have chosen the MLB as our league of interest, we can begin by examining a larger set of data. Below is the head of the dataset for the top 667 contracts in MLB history, or every contract awarded with a value of greater than $20M.
In order to properly understand the predictive model output we'll get to in a little bit, it's important to discuss another crucial number. The Contract Above Average coefficient (or CAA). In short, the CAA is the measure given to a contract, as a multiplier against the other contracts of that year in our dataset. If the average contract in 2012 was $15M, and Hanley Ramirez signed a $25M that season, his CAA would be 1.67. For the purposes of this post, I'm only concerned with the CAA for the top contract in each season. For the past 4 seasons it looks like this:
The remaining work with the CAA involves weighting it based on the number of contracts per year out of the 667 total contracts, then summing the resulting weights. Again, the past 4 seasons below:
For clarity, the Proportion of Contracts for 2020 means that roughly 5% of the 667 contracts in the dataset were signed in the year 2020.
So, the CAA coefficient for the years 2017-2020 based on the dataset is .896. Working with this formula, the CAA for all years present in the top 667 MLB contracts is 3.4469. What does this tell us? More on that in a second. For now, let's talk about the prediction method itself.
Facebook's Core Data Science team developed the forecasting tool Prophet for use with Python (and R). This tool works fairly simply: you input a dataset made up of two columns, your dates (ds) and the values associated with those dates (y). After this, you tell Prophet if you expect linear or logarithmic growth (if logarithmic you provide a maximum value), and tell it how many periods (days, months, years) in advance you want to have predictions for. Prophet will then return a future dataset for you to use for your own purposes. Very cool.
With that in mind, I gave Prophet the signing years and values for all 667 contracts, and asked for it to show me the predicted average of contract value over the next 100 years. I set the growth to logarithmic, as I assume there is not endless possible growth to the maximum amount of money a professional athlete will be awarded at one time. The result is below.
What is all this saying? The black dots are each of the 667 contracts, the x-axis is the future year, the y-axis is the future predicted contract average (as a proportion of one billion), the dark blue line is the predicted average for a given year, and the light blue shading is room for variance over the same years.
Immediately, you may realize that at no point in the next 100 years does the predicted average for contract value even eclipse $800M, much less $1B. However, this is where the CAA comes in. With our CAA of 3.4469, we can divide $1B by our CAA to get $290,115,528.35. When the predicted average contract value equals that amount we can say, given the historical multiplier given to the top contract in the sport, that's when a $1B contract will be feasible. When is that exactly? To find that out, we can simply filter the future dataset provided by Prophet. The result is the year 2067. 2067 is, according to my estimate, the year in which the MLB is most likely to award the first-ever professional sport contract worth $1B.
Terms and Conditions Apply
In no uncertain terms, one billion dollars is an absolutely gargantuan amount of money. It is enough in the present day to effectively allow one's family to never work again, for several generations. It is so much money that for many, myself included, it is borderline incomprehensible. As such, it could be argued that with slightly lesser amounts of money still being an absurd sum, that no owner would ever want to shell out 11 whole zeros on one athlete. There's merit to this.
Let's assume the fabled contract's terms are simple: 10 year/$1B for an AAV of $100M. If that contract were that of the Royals' Whit Merrifield, the league leader in ABs in 2019, it would work itself out to $146,842.87 an at-bat. Let's suppose it belonged to Houston's Justin Verlander, who in 2019 led the league with 223IP. That math works out to $149,476.83 an out. Needless to say it would be very hard for a front office or an ownership group to justify these prices for a player.
However, in 2067 terms this may not be as unreasonable. If you assumed an inflation rate moving forward of just 2% (less than that of the last 25 years), Mike Trout's contract today would be worth just shy of $1.5B in 2067. Speaking of Mike Trout, that brings up the other point of consideration.
For scouts, a 20-80 grade is the best way to identify the 5 tools of a baseball player. You can read more about it here, it's very interesting stuff. To be the player who is awarded the first $1B contract, an athlete will have to come along unlike anything we've ever seen. Mike Trout is largely considered one of the greats, if not the single greatest baseball player to ever grace a diamond, and his contract reflects that. The type of player who will need to emerge in 2060s will certainly be one of the same air. Whether a pitcher with the tactical ability of Greg Maddux, the fastball of Aroldis Chapman, and the curveball of Sandy Koufax, or a batter with the power of Hank Aaron, the contact of Ichiro, and the discipline of Tony Gwynn, all with the fielding of Willie Mays, it will take a lot of talent to be awarded a billion dollars.
In essence, a billion dollar contract is going to take some time, some talent, and some serious cash. I think when it happens it will be one of the most influential moments in the history of sport. Once that domino falls, there's no telling the prices we could see moving forward.
If you're interested in any of the data used in this project, be sure to check out my GitHub. The entirety of this project was carried out with Python, using the seaborn, matplotlib, Prophet, and pandas libraries.