On extensions and Phil HughesBy
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.