Reevaluating Johan Santana: part 2 of 2By
This is part 2 of my attempt to reevaluate Johan Santana and his desirability as a trade target for the Yankees this summer. Yesterday we looked at the nature of Santana’s injury, and saw some speculation on when he might be back to full strength. I also noted that his decline in performance from his Minnesota years may obscure the fact that he’s still a very valuable pitcher, provided that he’s healthy. Today we’re going to examine Santana’s contract and try to handicap what a trade might look like.
The dollar bills
When the Mets acquired Santana from Twins in February of 2008, they immediately inked him to a long-term extension which replaced the final year of his contract. His new contract is a 6 year deal worth $137.5 million with a club option of $25M for 2014 ($5M buyout).The contract is backloaded, a present from Omar to Sandy, meaning that the annual salaries increase as the deal progresses. It’s often said that Santana has 4 years and $80 million left on his contract. It’s not so simple.
In 2011, Santana will make $22.5M. In 2012 his salary escalates to $24M and then to $25.5M in the final year of the deal in 2013. As mentioned, the team has a $25M club option ($5M buyout) for 2014. It’s worth noting that this club option transforms into a player option if Santana reaches certain milestones, which you can read about here. To my best understanding, Santana would have to win the Cy Young in 2012 or 2013, or finish second or third in Cy Young voting in both 2012 and 2013, or be on the active roster for the final 30 days of the 2013 season while pitching 215 innings in 2013 or a combined 420 innings between 2012 and 2013. Got that? Suffice it to say, if Santana earns his player option for 2014 it will mean that his 2012 and 2013 seasons were productive and valuable for his club. We will operate on the assumption that he does not earn his option though, since this would represent the more cautious scenario for the acquiring team.
Assuming the option is declined, this means that Santana is due $77M between now and the end of the contract. However, it’s extremely unlikely that Santana is dealt any time soon, meaning that by the time he goes on the trade market in July or August of 2011, roughly half of his 2011 salary should be paid out. The Mets don’t provide a convenient contract amortization schedule for us, so we’ll ballpark it and say that Santana will be due $10M in 2011 by the time he hits the market. This reduces the total contractual obligation of the acquiring team to $67M.
Again though, it’s not so simple. Santana’s contract defers $5M of the payout annually, a true Mets specialty (see: Bonilla, Bobby). Santana receives $5M of his annual salary seven years after the season in which the salary is earned at 1.25% compound interest. Say what you want about Omar Minaya, and you can say plenty, but getting a player to defer roughly a quarter of his annual salary for minimal interest is a nice touch. If we assume that the Mets defer $5M of the contract at the beginning of the year, this would reduce Santana’s 2011 salary to $17.5M, meaning that the total remaining obligation in 2011 by the time he’s dealt would be roughly $8M. In 2012 the total salary obligation would be $19M and $20.5M in 2013. Depending on how you slice it (and it’s unclear whether the team treats the deferred compensation as a future liability with no bearing on current cash flow or amortizes it over the course of the year in which the salary is earned, I’m guessing the former), the acquiring team would be on the hook for roughly $47.5M during the life of the contract and then $5M in both 2019 and 2020. The common refrain that Santana is due $80M over 4 years is enough to make one blanch. However, when the club option and the deferred compensation are factored in, the total obligation is far more team-friendly.
It seems clear that the Mets won’t contend in 2011. The Braves and the Marlins have put together decent clubs, the Phillies are an evil four-headed monster, and the Nationals’ acquisition of Tom Gorzelanny essentially ensures them the divisional crown (I kid). The Mets’ focus ought to be on 2012 and beyond. They have a fair amount of money coming off the books after 2011 in Jose Reyes, Carlos Beltran, Oliver Perez and Francisco Rodriguez, but one has to imagine they’ll at least attempt to keep Reyes long-term.
The Mets may be looking to cut payroll now not only in recognition that their contention window is at least 2012, but also because of the team’s rather precarious situation. Yesterday Joel Sherman reported that the Wilpons may be interested in selling a non-controlling stake in the team in order to raise money. As Sherman noted, the obvious implication is that the Madoff scandal has handicapped them in a far more significant manner than they’ve let on. Indeed, part of the reason for seeking a strategic partner is the lawsuit attempting to recover money from the Madoff scheme. There was speculation yesterday that the trustee for the Madoff victims could be seeking as much as one billion dollars from Fred Wilpon. Wilpon’s statement admitted that the team desired to raise cash in response to this:
“To address the air of uncertainty created by this lawsuit, and to provide additional assurance that the New York Mets will continue to have the necessary resources to fully compete and win, we are looking at a number of potential options including the addition of one or more strategic partners”.
As Craig Calcaterra noted, though, it may not be possible for the Wilpons to keep a controlling stake in the team:
Even if these numbers are not accurate, however, the key point is clear: the Wilpons’ current financial situation is going to be directly impacted by how much the government is seeking in its clawback lawsuit. If it’s anything close to figure Hubbuch is reporting, they will have to sell way more than a minority share in the Mets. Indeed, they’ll likely have to sell the whole team.
Bringing it back to Santana, it may be the case that the Mets could seek to unload his expensive contract in 2011, both as a way of shoring up their annual cash flow and for preparation for 2012 and 2013. If so, the trade of Roy Oswalt from the Astros to the Phillies last summer may serve as a model. Last July the the Phillies sent J.A. Happ and two prospects to the Astros in exchange for Oswalt. Oswalt had $23M left on his contract and the Astros agreed to pick up nearly half of it, $11M. Oswalt did not demand that the Phillies pick up his 2012 option for $16M; instead, if either Oswalt or the Phillies decline his 2012 option, he will receive $2M.
The Mets could consider something similar, picking up some of Santana’s salary and receiving prospects from the acquiring team in return. If the Mets were unable or unwilling to pay Santana’s salary then the cost in prospects would certainly be less. Obviously there are a lot of moving parts, but the primary concern is Santana’s health. If he doesn’t return to full strength then this is all moot. If he does, though, then it wouldn’t be completely surprising to see them try to unload his contract late this summer. Should the Yankees kick the tires and consider Santana again? Would the Mets be willing to do an Oswalt-like deal for him? Just when you thought you were out, just when you thought the Yankees’ saga with Santana was finally over..they pull you back in.