Barring a surprise Manny Machado or Bryce Harper signing, the Yankees are done with big offseason additions. They are not done with their major offseason business, however. The Yankees and staff ace Luis Severino have their arbitration hearing coming up tomorrow — it is literally the last arbitration hearing on the schedule this year — which will determine his 2019 salary. The Yankees offered $4.4M. Severino countered with $5.25M.
The players have fared well in arbitration this year. They’ve won six of the nine hearings to date and all three starting pitchers won their hearing. Here’s the list:
- Gerrit Cole: $13.5M over $11.425M
- Trevor Bauer: $13M over $11M
- Alex Wood: $9.65M over $8.7M
It seems to me the Yankees will have an easier time defending their number than Severino will his, but what do I know? Perhaps the starters going 3-0 in hearings this year (and teams winning more hearings overall) is a sign the tide is shifting and players and agents now have the upper hand. Then again, starters went 5-5 last year and players went 12-10 overall, so maybe it doesn’t mean anything.
Severino is a Super Two based on his service time, meaning he will go to arbitration four times instead of three. And because arbitration raises are based on the player’s previous year salary, the $850,000 difference between Severino’s number and the Yankees’ number this year represents a sum of money much larger than $850,000. It’ll carry over into future years and could equal upwards of $10M across his four arbitration years.
Let’s use Cole and Bauer as a template. Their average raises during their arbitration years is roughly 85%. Some years it was closer to 80%, other years it was closer to 90%. For the purposes of this exercise an 85% ballpark number will work. Applying an 85% raise to Severino during his four arbitration years gives us:
|Severino wins hearing||Yankees win hearing|
(Update: Like the idiot I am, I calculated the salaries with an 80% raise, not 85%. My bad. Let’s roll with it.)
See why that $850,000 this year is not just $850,000? There will be a lot on the line tomorrow. Moreso for Severino. An arbitration hearing win would potentially equal a life-changing windfall over next few years. The Yankees? Yeah, they want to save cash, but they wouldn’t even notice that $10M hit spread across four years. The extra $10M always means more to the player than the team.
Severino said yesterday he wishes he could’ve avoided arbitration — “I don’t think any player wants to be going through arbitration,” he said to Kristie Ackert — and, according to Jon Heyman, the two sides have discussed a long-term extension. They’re not said to be close to a deal and it should be noted they could agree to a long-term deal at any time, even after a hearing. They could rip up the arbitration ruling and work out a new deal.
Yesterday morning the Phillies avoided arbitration with their ace Aaron Nola prior to their arbitration hearing. They cut it close — Nola’s hearing was scheduled for yesterday afternoon — but they got a deal done. It’s a four-year contract worth $45M, plus a club option. The deal can max out at $56.75M. Here is the salary breakdown:
- 2019: $4M plus $2M signing bonus
- 2020: $8M
- 2021: $11.75M
- 2022: $15M
- 2023: $16M club option with $4.25M buyout
My quick and dirty math earlier showed Severino could make upwards of $52.2M during his four arbitration years, so, based on that, four years and $45M would be a pretty good deal for the Yankees. Severino would get a real nice guaranteed payday and, even if a fifth year option were exercised, he’d still hit free agency at age 29. The Yankees would get cost control over Severino’s arbitration years and a club option for a free agent year. A win-win? Eh, not quite.
Nola isn’t a perfect benchmark for Severino because Nola is not a Super Two. He was in his first of three years of arbitration-eligibility this winter. His contract buys out three arbitration years, one free agent year, and potentially a second free agent year. The same contract for Severino would buy out four arbitration years and potentially one free agent year. Long story short, being a Super Two means Severino has greater earning potential. The extra arbitration year is big.
It has been seven years since a starting pitcher signed an extension in his first year of arbitration-eligibility as a Super Two. The Nationals gave Gio Gonzalez five years and $42M with two option years back in 2012. That was an eternity ago in baseball years and the market has changed. Similar to Nola, Gio doesn’t really help us figure out an extension for Severino. There are no good contract benchmarks at Severino’s service time.
Severino is will earn at least $4.4M this coming season. That’s his worst case scenario. Nola’s worst case scenario was $4.5M (he filed $6.7M), so even though he took a lower 2019 base salary ($4M), the $2M signing bonus makes up for it on the front end. Starting there, perhaps this extension framework makes sense for the Yankees and Severino?
- 2019: $4M plus $1M signing bonus
- 2020: $6M
- 2021: $9M
- 2022: $13.5M
- 2023: $18M
- 2024: $20M club option with $3.5M buyout
That is five years and $55M guaranteed ($11M luxury tax hit) with a sixth year club option that could push the total value to $71.5M. It puts $5M in Severino’s pocket this year (including $1M right away), buys out his four arbitration years for $33.5M total (it’s a 50% raise each year), one free agent year for $18M, and it gives the Yankees control of a second free agent year. Severino gets a lower 2019 base salary, but the signing bonus puts his total earnings in year one at something close to his filing number.
My table above shows Severino could, in theory, pull down $52.2M over his four arbitration years even if he loses a hearing. Why settle for $33.5M across four arbitration years then? Because it’s $33.5M guaranteed. It’s $55M guaranteed, really, across the entire contract. If Severino gets hurt or his performance collapses, forget it, he’s not making $52.2M during his four arbitration years. He might not even make $33.5M in that case. That’s the entire point of an extension. The player gets the guaranteed money and the team gets a discount/cost certainty.
The Yankees have been stingy with extensions in recent years, especially with players who are years away from free agency, so it would take almost a complete reversal to lock up Severino now. I totally get why they might go year-to-year with him. Pitchers are always and forever injury risks, and these days that big free agent payday probably isn’t going to be there. The Yankees can reduce risk on their end by passing on an extension, which is what they’ve been doing a long time.
That all said, Severino’s salaries could blow up quick in arbitration. He doesn’t even have to get better. Remaining a 130 ERA+ guy who goes to the All-Star Game and strikes out 200-something batters each year will pay very well. If the Yankees are that worried about future payroll, this is the time to lock up Severino. The earlier he signs, the bigger the discount, and if the two sides can avoid tomorrow’s hearing in the process, then even better.