Jan
15

On extensions and Phil Hughes

By

One of the reasons Rays fans were happy (read: smug) to see Matt Garza dealt to the Cubs last week was because they expected the money saved on Garza to go towards other pursuits.  One option bandied about was signing a right-handed bat like Manny Ramirez or Andruw Jones. Another was attempting to lock up some of their young talent, particularly David Price, to a long-term deal. It’s doubtful they expected that money to go to Kyle Farnsworth, but hey, that’s life.

Regardless, getting Price to agree to a club-friendly long-term deal would be another coup for a Rays management team who set the gold standard for long-term deals with Evan Longoria.  The Longoria deal is perhaps the most team-friendly contract in all of baseball: a six year, $17.5M contract with three club options of $7.5M, $11M and $11.5M.  In all likelihood they’ll control Longoria for nine years and pay him $44.5 million dollars.  If you buy into the UZR-component of fWAR, his production value exceeded the total cost of his contract at the end of the 2009 season, after only two years.

It seems as if there’s been a rash of these kinds of deals in recent years. Players who have gone this route recently include Troy Tulowitzki, Carlos Gonzalez, Justin Upton, Adam Lind, Ryan Braun, Adam Wainwright, Josh Johnson, Felix Hernandez and Justin Verlander.  Other players have elected to forgo the extension and attempt to reach free agency as quickly as possible.  These players, often clients of Scott Boras, assume the risk of going year to year in exchange for the potential of higher annual paydays. Prince Fielder is a good example of this. After making under a million a year in his first three years with the Brewers, he’s netted $7M and $11M in his past two years and is eligible for a higher payday in his final trip through arbitration again this offseason.

There are pretty simple cost/benefit calculations being made by both the player and the organization. When a player signs an extension, he hedges his risk and gets decent (by MLB standards) guaranteed money early in his career.  This ensures lifetime financial security in the event that the player is unable to net another big payday due to injury or decline in performance.  It also allows him to hit the free agent market while still in his prime. For instance, Justin Upton will enter the free agent market after the 2015 season as a 27 year old after having made $51.5 million.  It’s likely that he could have netted more going year to year in arbitration and then hitting free agency two years earlier, but that’s part of the tradeoff.

The organizations are performing a similar calculation. On one hand, the club can save money by avoiding the arbitration process, which can quickly escalate compensation levels from year to year.  The club also gets cost certainty, and is often able to gain control over some of the player’s free agent years.  For their part, the clubs are wagering that the players will by and large stay healthy and give expected levels of production.  This article from MLBTR explains the rationales even further.  The downside to these deals is that the player could get injured or decline, making the contract a burden.  Scott Kazmir was a tough case for the small-budget Tampa Bay Rays.  The anchor of the rotation for years, Kazmir received $3.785M in his first arbitration-eligible season.  Shortly into the 2008 season, the Rays signed him to a three year deal for $28.5M, buying out a year of free agency, with a club option of $13.5M for the final  year.  Yet one year later Kazmir had struggled with elbow problems and performed terribly.  The Rays decided to cut their losses and were lucky to get someone to take on his contract, unloading Kazmir to the Angels.  It was a misfire for Tampa.

The Yankees have a slightly bigger budget than Tampa, but they must at least be considering what they should do about their young, cost-controlled starter Phil Hughes.  Hughes has just over two years of MLB service time, and becomes eligible for arbitration for the first time this offseason.  The Yankees will control Hughes for just three more years, through the 2013 season, before he becomes a free agent.  Hughes pulled in a little under $500K in 2010, and should be due for a decent sized pay day in 2011.  His traditional stats, favored by arbitrators, were solid: 18-10 record with a 4.19 ERA in his first full season as a starter in the American League East.

Interestingly, the Boston Red Sox were in a similar situation two years ago.  Jon Lester had just completed his first full year as a starter in the major leagues, throwing 210.1 innings with a 3.21 ERA.  His strikeout rate (6.5 K/9) and walk rate (2.8 BB/9) were decent, leaving him with a respectable 2.30 K/BB ratio.  The Red Sox clearly anticipated that Lester’s season was a harbinger of things to come, no surprise given his talent and pedigree, and signed him to a 5 year, $30M extension with a $13M club option for 2014.  The contract is backloaded, paying Lester $1M in 2009, $3.75M in 2010, $5.75M in 2011, $7.625 in 2012 and $11.625 in 2013.  All told, the Red Sox will pay Lester $43M for his 6 years of service, two of which would have been free agent years.  Lester has been dominant in the two years since signing the contract, averaging a 3.14 FIP and a strikeout rate over 9.

By way of comparison, in Phil Hughes’ first full season as a starter he threw 176 innings of 4.19 ERA ball, with a 7.5 K/9, 3.0 BB/9 and a K/BB ratio of 2.50.  The ERA (and FIP) are higher than Lester’s, but the strikeout rate and K/BB ratio are better.  While no one expects Hughes to replicate Lester’s 2009 season this year, hopes are high that he can build on his performance.  So given what we know about performance and injury risk, should the Yankees extend Hughes now, should they extend him after the 2011 season or should they continue to go year-to-year until he reaches free agency?

The largest factor to consider is Hughes’ health.  Hughes has never thrown 200 innings in his entire career, and prior to the 2010 season had a reputation as being injury-prone.  He tore his hamstring in Texas in 2007, and then sprained his ankle rehabbing the hamstring tear.  The following year he injured his ribs and missed most of the season.  In 2009 he stayed healthy in the bullpen, and then followed that up with another healthy year in 2010.  The injury history isn’t great, but there was never a major shoulder or elbow injury for Hughes.  Another factor to consider is his performance.  Simply put, what do the Yankees expect him to become?  Is he going to take a huge step forward in 2011 like Lester did in 2009, improving his peripherals and expanding his pitch repetoire?  Or will he replicate his 2010 season?  Finally, how much will it cost the Yankees to wait on an extension?  Obviously a five year deal is going to be cheaper for the Yankees now than it would be if Hughes has a great year in 2011.  Is it worth it to wait?

All told it may be prudent to delay talks of an extension with Hughes until after the 2011 season.  He may go out and hurl 200 innings of sub-4.00 FIP ball with solid strikeout and walk rates this year.  It’s true that the price of an extension would be higher next winter, but the Yankees will have gained greater insight into what to expect from Hughes in the next half-decade.  Fortunately, increased price of an extension is hardly going to bust the budget for the Yankees, so they may be more interested in trading money for certainty.  Their money is a great asset, and it allows them a certain amount of patience that other clubs don’t have.  Yet just because they have this leeway doesn’t mean they should look past the potential benefit of an extension, and if Hughes blossoms in 2011 the Yankees should try to lock him up.  This will allow them to control his cost and keep him on the roster for longer, giving them more money available to put in the piggy bank with Justin Upton’s name on it.

Categories : Pitching
  • Tom Gaffney

    Would be absolutely shocked if the Yanks do this. It would go against their whole organizational strategy. One of the main advantages to being the Yankees is the ability to let guys play out their contracts before resigning them. This goes doubly for pitchers who can get injured so easily. I see roughly zero chance of the Yanks extending Phil before his time. Cash would never give up flexibility for a few million in possible savings.

    • http://kierstenschmidt.com Kiersten

      The signed Cano before he hit free agency. It’s a different case with young players in their arbitration years.

      • The Three Amigos

        Position players to pitchers makes a world of difference though.

    • twac00

      I actually think the Yankees should alter their organizational strategy on signing arb. and pre-arb. players to extensions. I think the prices for star players these days is getting ridiculous and while a few million may not feel like much to us fans, it can be the difference between signing and not signing a player. With that said, given the fact that the Yankees can generally afford to wait on these guys I wouldn’t sign risky players and whether we like it or not Phil Hughes still has some injury risk.

  • karl

    The Yanks rarely take advantage of these great opportunities. Sure there is risk, but in most cases it can be worth it lock up your top players, as the player has even more risk if they don’t sign. As long as Hughes is willing to take less to get his guarantees, which many but nut all players are willing to do. It’s just very hard/expensive to sign/acquire high caliber starters. If you wait Hughes becomes much less likely to sign, as if he plays well next year he’ll already have guaranteed his financial future (say $5MM in arb this year and say $7MM next + whatever he’s made and got as a #1 pick). This is the last chance to take advantage of his financial status and get a below market deal that works for both Yanks and Hughes.

    • Whozat

      For the yanks, it’s not a great opportunity, it’s taking on unneeded risk. With cano, they decided it made sense — position player, healthy, premium position. With a pitcher…it’s have to be someone of price’s caliber and age, I think.

      • http://twitter.com/stephen_mr Stephen Rhoads

        Not sure I follow what you mean about Price’s age. Are you saying you’d want Hughes to be as old as Price before you’d advocate for an extension for him?

        • whozat

          Price is like…10 months older than Hughes, so no. I meant that the Yanks are probably not going to take on the risk of extending a young pitcher unless it’s a case like Price: 24, already very successful, with really premium stuff — from the left side.

          I absolutely think Hughes will be a very good pitcher, if he stays healthy. But, it’s possible that his struggles to finish ABs don’t go away, it’s possible he gets hurt, it’s possible he doesn’t improve and stays what he is. If Price stays what he is, it’s a front-line starter, so the only real risk is injury.

  • Pasqua

    Simply put, the Yanks can afford to wait. If Hughes gets that much better, I’m sure the organization will be happy to pony-up more dollars in order to lock him in, be it earlier or later. As for now, the wait-and-see approach seems sound. And, after all, they DO have to pay Rafael Soriano.

  • Preston

    I’m not apposed to an extension for Hughes. But I’d wait another year. If he has another solid season than you still have the leverage to get a slight discount on some free agent years. You never know with pitchers. The Lester deal has worked out great, but I’m pretty sure we’re glad we didn’t extend Wang when we had the chance.

    • http://twitter.com/stephen_mr Stephen Rhoads

      That’s where I come down on it too, tentatively.

    • twac00

      Wang was an extreme ground ball pitcher who relied on his defense and didn’t strike people out. The fact is, and I wanted this, the Yankees should’ve traded Wang after the ’07 season. Who knows maybe the Twins would’ve preferred Wang to Hughes in the Santana deal. Wang was certainly better than the crap they got from the Mets.

  • Diony

    Longest RAB article ever.

  • JDDZip

    http://sports.espn.go.com/new-.....id=6020636

    a little bit off topic but I thought this was very interesting if you guys haven’t read it yet

    • Xstar7

      Even a great bullpen doesn’t make up for a bad rotation. It helps though.

  • Betsy

    I wouldn’t extend Phil at all until he shows he’s got more than 2 pitches. I’m fairly skeptical about him because his curve is bad and he shows no inclination to use his change (I think he has the makings of a good one, but I’m still beyond puzzled at the fact that he spent all off-season and ST working on it and then didn’t use it in the regular season). He had a 5 ERA in the 2nd half and got waxed in the post-season aside from the game against a toasted Twins team. I think Phil has to do more for the Yankees to commit to him.

    • GBOOF

      did u just say hughes’s curve is bad?? when hes right its a better 12-6 curve than aj’s….sometimes the comments on this site scare me..

    • Shaun

      The problem is that he can’t locate the curve consistently on the edges of the strike zone (It doesn’t flatten out often, and it comes in at a good velocity) but I agree he needs more confidence in the CU

  • Poopy Pants

    I can’t imagine Hughes wearing hair extensions. It just doesn’t seem like his vibe. LOL! LOL!

    • twac00

      It would go against the Yankees “no long hair” rule anyway.

  • steve (different one)

    I would wait until next year. There were plenty of loud voices criticizing the yanks for not locking up wang.

    As for carlos gonzalez, not sure what the rockies saved with that contract…

  • http://twitter.com/themanchine Bruno (The Manchine)

    <It’s true that the price of an extension would be higher next winter, but the Yankees will have gained greater insight into what to expect from Hughes in the next half-decade.

    This.

    giving them more money available to put in the piggy bank with Justin Upton’s name on it.

    Best part of the article IMO.

    • http://twitter.com/themanchine Bruno (The Manchine)

      HTML fail!

  • OldYanksFan

    Actually, to offer a contract or not is not a YES/NO question, as much as: As what contract amount, based on historical health/production results of past players, is a contract in the Yankees favor.

    For example, lets say:
    Phil is a league average pitcher over the next 6 years.
    Based on that, lets guess he makes:
    $1m / 1st arb year
    $2m / 2nd arb year
    $4m / 3rd arb year
    $8m/yr then as a FA.
    So, over 6 years, he might make 1+2+4+8+8+8 = $31m.

    Now, I made up those numbers, but certainly a history of past pitchers who were league average could give us a good idea of the arb salaries, and the current FA market a good idea of the FA salaries.

    So, using the above example,
    signing Phil to a 6/$28m contract doesn’t look great.
    signing Phil to a 6/$18m contract looks pretty good.

    Based on a history of past Pitchers health, you could come up with a ‘health factor’ to help qualify the odds.

    What I’m saying is the question for the Yankee should NOT be whether to offer Phil a contract of not, but what contract value puts the odds in their favor.

    It would be very easy to model this, and run it with different variables, ie:
    If he becomes an Ace next year and maintains that level, what is he likely to cost over the next 6 years. What if he becomes an Ace in 2 years? In 3 years?

    What if he becomes a #2 next year and maintains that level, what is he likely to cost over the next 6 years. What if he becomes a #2 in 2 years? In 3 years?

    And so on. You could run it for various levels of quality, including NO quality, if he is badly injured or falls off a cliff.

    It’s a numbers game and still a guessing game. But my guess is younger players, especially if the have a number of arb years ahead, may be likely to sign for less then they are worth. It’s not only a bird-in-the-hand philosophy, but is also ‘hard to imagine’, such as for Longoria, that he could actually be worth $20m/yr in a shiort while.

    • Total Dominication

      Phil Hughes is not a league average pitcher, not by a long shot. And he projects to get even better.

      • JAG

        That’s kinda what I thought when i saw those numbers. Hughes is better than a league average pitcher, and the Yankees had better hope he remains so, otherwise an extension isn’t really worth the money. However, even if a league average pitcher would make 6/$31M, I still don’t see how 6/$28M would be bad. You’d be getting Hughes at a less than league average rate when he’s an above average pitcher. Plus, even if he is only league average, you’re STILL getting him at a below-market rate. To be frank, if he equals this year’s performance going forward, getting him for less than $10M per year is a pretty good deal, and if he improves its an absolute steal.

        That said, I’m still not entirely confident that an extension is a good idea at this point since Hughes still has some room to improve and I’d like to see that improvement (particularly in the area of durability) before we go ahead and lock him up for years to come.

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