May 18, 2010

Contractual Matters

Werth The Funds

by Jeff Euston, Eric Seidman and Matt Swartz

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When the Philadelphia Phillies acquired Jayson Werth prior to the 2007 season, few seemed to notice. The former first-round pick had displayed all the makings of a solid performer, but injuries had kept Werth shelved for several seasons. In fact, it’s safe to say that a good portion of Phillies fans had never heard of Werth and thought the acquisition to be as meaningless as a Greg Golson-for-John Mayberry, Jr trade. Fast forward to the present and the impending departure of the All-Star has made a fan base rather nervous. Over the course of this article, the three of us will dissect the Phillies' financial situation now and into the future, the production components of the key players in this saga, and the economics of the matter, referring to what Werth will cost to retain and how the Phillies can pull it off.

Background

Philadelphia boasted the major league's fourth-highest Opening Day payroll at $139 million, an increase of more than 20 percent over 2009. The Phillies’ payroll jumped by one-third with the opening of Citizens Bank Park in 2004 and reached $100 million in their 2008 championship season. With a core of stars locked up with multi-year contracts, the Phillies are positioned well to continue to exploit their financial advantage while holding their spending below the $178-million luxury tax threshold for 2011.

As the 2010 season began, general manager Ruben Amaro had committed more money for 2011-13 than every team but the Yankees, spending more than $143 million on long-term deals last winter alone. Then he signed slugger Ryan Howard to a five-year, $125 million extension through 2016. Jamie Moyer’s $8-million salary comes off the books at the end of the season, but they still have more than $130 million committed to 15 players in 2011, which is the final season for the club’s long-term deals with Jimmy Rollins, Raul Ibanez, and Brad Lidge. Seven players are due $85 million for 2012, the final season for Joe Blanton, Shane Victorino, and Placido Polanco. And in 2013, the figure falls to $55 million for three players: Howard, Roy Halladay, and Chase Utley.

Production

Werth has had a rather interesting career, showing signs of being a five-tool player in the past, then becoming one with his performance the past three seasons. Including his 2010 statistics prior to Sunday night’s game, Werth has produced a .281/.380/.508 line in 422 games and 1,609 plate appearances with the Phillies. Over the same span, he has hit 71 doubles, 75 home runs, and stolen 49 bases, and that’s not even counting the legendary beard he grew in spring training.

Per research done for this year's annual, Werth was the only player in 2008-09 with both 60 or more home runs and at least 40 stolen bases. He also led the National League in pitches seen per plate appearance in both seasons, a title he is once again in the running for in 2010. Defensively, he not only boasts a strong arm but has been a darling of advanced defensive metrics. Put everything together and there is little not to love: the man reaches base, works the count, has oodles of raw power, is a smart and fast baserunner, and covers plenty of ground defensively.

His corner outfield colleague, Ibanez, while a major cause of the Phillies winning the National League East for the third straight year in 2009, represents a potential financial deterrent to re-signing Werth. Ibanez signed a three-year deal worth $31.5 million in the 2009-10 offseason, and 2011 marks the final year of that contract. On top of that, Ibanez was given a no-trade clause in his contract, making any scenario in which the Phillies ship him elsewhere to save money for Werth more difficult. Ibanez might require an extra stipend to waive his clause should the Phillies find a suitor willing to absorb some of his contract.

However, it isn’t as if Ibanez is chopped liver. While he is in no way a world beater, he can hold his own offensively, as evident by his .552 slugging percentage last year. Unfortunately, Ibanez has been a very different player since an injury suffered midway through the 2009 season. After returning from the disabled list last July, Ibanez has put together a modest .234/.330/.436 line in 425 trips to the plate. Realistically, that is the type of production that might be expected from top prospect Domonic Brown were he to be called up right now, or if reserve Ben Francisco were to be inserted into the lineup every day.

Granted, Ibanez is historically a much better hitter than his last 425 PAs suggest, but he is also 37 years old with his best days in the past. His presence also keeps the Phillies' lineup staggered to the left. Should Werth leave and be replaced by Brown, also a lefty, the Phillies would regularly play two switch-hitters in Rollins and Victorino and four lefties: Howard, Utley, Ibanez, and Brown. Suffice to say, there would be no true potent right-handed bat to stave off or help neutralize the Pedro Felicianos of the world in the later innings.

Brown isn’t regarded as a supreme power threat, but the tall lefty known for his doubles power and speed has taken a big stride forward in Double-A this year. Entering Sunday night’s action, Brown was sporting a gaudy .337/.402/.653 line for Reading with nine doubles, seven homers, and five stolen bases. Unquestionably the top prospect in the system, Brown is the heir apparent to someone, and will be a major-league regular next season in one position or the other. From a production standpoint, it is likely that Brown could produce similarly to Ibanez right now, while neither holds a candle to Werth. That being said, the ideal outfield of Werth-Victorino-Brown might not come to fruition given the finances.

Economics

After filling the rest of their roster with minimum-salary contracts to add on to the amount they have already promised veterans, the Phillies have already committed to spending at least $140 million next year, which would be particularly expensive if they do not make the playoffs this season. Despite underperforming thus far in 2010, the Braves have a solid young team that should be very good for several years, and the Nationals and Marlins are building on young talent as well; even the Mets have enough talent that they could pull together a competitive season. The Phillies should aim for that 90-win mark, because it is more expensive to field a $140 million runner-up than a $155 million playoff team. 

PECOTA’s projections of the lineup and rotation for next year forecasts around 87 wins. An 87-win team in the NL East may have a 35-percent chance of making the playoffs, but adding Werth back to the mix and trading Ibanez would make them a 90-win team that would probably have over a 50-percent chance of reaching the playoffs. The reason we add three wins for Werth is that, even though his projection is only 1.8 wins above Ibanez, the Phillies can probably remove some of the injury risk from Werth’s numbers if they know his medical records in detail. On the other hand, if they know Werth is more of an injury risk than actuarial projections might expect, they should cut bait after this year. 

Assuming they do want to retain him, the aforementioned issues with left-handedness give the Phillies a comparative advantage in receiving value from Werth’s projection, since he will frequently get to face left-handed relievers or will force opponents to leave right-handed relievers in to face the dangerous Ryan Howard, who is far superior against them than southpaws. This is an aspect of production or roster construction oft-overlooked.

Teams are willing to pay about $15 million for these three extra wins. Of course, the Phillies could chance the free-agent market and see if they can find those wins in the bullpen or the rotation. However, finding talent on the free-agent market is often a challenge, because so many of the players who are allowed to test the market are allowed to for a reason. In other words, getting those extra wins from guys you know is a far safer bet.

Of course, Werth is unlikely to sign for $15 million per year. His PECOTA projection for the 2011-15 seasons call for 15 wins, but his 2010 season looks likely to bump that projection up to about 17 wins. The cost of a win is currently about $5 million, but would probably rise to somewhere between $7 million-$8 million by 2015, so Werth could probably get about $109 million over five years if he were not offered arbitration. Since he will be offered arbitration, however, he is likely to get around $100 million for five years, as teams won't be willing to pay as much when they are also giving up draft picks as compensation, putting him somewhere between Matt Holliday and Jason Bay in contract value, but above both in average annual value. 

At a $20 million-per-season cost, and $15-million value for 2011, the Phillies and Werth would appear to be at a crossroads even if the Phillies would have a spot for him and value for his wins in the 2012-15 seasons. That the Phillies would still have a full outfield of Victorino, Brown, and Ibanez would seem to lower their desire to offer top dollar to Werth, as he adds less to the Phillies below what a team who might otherwise need to go for a replacement-level outfielder would be willing to pay.

Fortunately, the Phillies could save themselves some of that money by trading Ibanez. His cost can be calculated by adding the $31.5 million in his contract and a draft pick worth about $9 million for 2009-11. That means that he was expected to be worth about $13.5 million per season for those three years by the Phillies, but none of the other 29 teams. 

This value was undoubtedly expected to go down over those three seasons too, meaning that no one probably expected Ibanez to produce more than $9 million of value in 2011. His recent injury problems and early struggles in 2010 probably do not help. One would imagine that the Phillies probably would need to eat all but $6 million-$7 million of Ibanez’s deal. In other words, if Ibanez were to auction his 2011 services to the other 29 teams in the major leagues, it seems likely that he would get at least a $6-million offer. If the Phillies are willing to accept the fact that they will not get meaningful prospects in return, they could probably get away with sending $5.5 million with Ibanez to finish a trade. Saving $6 million on Ibanez’s salary and spending $15 million on Werth in 2011 means that they only have a net economic cost of $9 million for Werth while receiving a $15-million value. 

Conclusion

The ideal result for the Phillies would involve shedding themselves of Ibanez at the end of the season and replacing him with Brown, while locking Werth up to play right field for what would essentially amount to the rest of his career. A deal could likely be structured, if the Phillies were so inclined, that did not hinder their efforts to field as competitive a team as possible next year, while paying Werth handsomely for several years after that. For instance, the Phillies could conceivably offer Werth a five-year contract worth $99 million, paying $15 million in 2011 and $21 million in each of 2012-15. Or, perhaps they could entice Werth into accepting less money in 2011 with an easily achievable sixth-year option.

 Should our proposed deal come to fruition, the Phillies would be on the hook for $145 million for 16 players next season. In 2012, eight players would be owed $106 million, and in 2013, Utley, Howard, Werth, and Halladay would earn $76 million on their own. Put those GM hats on: Do you think this deal would work? Do you think someone else will swoop in and offer a boatload of money? Keep in mind Werth would be 36 years old at the end of our proposed deal. Where does he end up and for how much?  

Jeff Euston is an author of Baseball Prospectus. Follow @JeffEuston
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Eric Seidman is an author of Baseball Prospectus. 
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Matt Swartz is an author of Baseball Prospectus. 
Click here to see Matt's other articles. You can contact Matt by clicking here