The Orioles Have a Lot of Hard Payroll Decisions to Make

At first glance, it would seem like the O’s have a lot of long term flexibility in terms of payroll.  According to Cot’s Contracts, they are at $87M for 2017, $51.5M for 2018 and then all the way down to $30M in 2019.  That, however, is simply the amount of money we know is already committed, as these numbers necessarily do not factor in arbitration raises. In some ways, this is good: Not having a lot of money committed long term should allow for greater flexibility to sign extensions with current players or to go out and get free agents.

The flip side is that much of the team is only under control for two more seasons.  Here’s a list of current players who will not be under team control in 2019 as of today:

Adam Jones

Matt Wieters

Brad Brach

Zach Britton

Mark Trumbo

Yovani Gallardo

Chris Tillman

Hyun-Soo Kim

Dylan Bundy

Ryan Flaherty

JJ Hardy

Oh, and a guy you have maybe heard of.  He’s having a pretty good year.  Young shortstop, used to play third, punched a guy in the face a little while back…

The point here is not to say that the team will look different in 2019, because that’s obviously true for many teams.  The issue is that the entire core of the current team will not be guaranteed to be in Baltimore in just three seasons.  Even in 2018, the only players who are under team control from the above list are Manny Machado, Jones, and Britton.

So, what’s a road map for the team in terms of payroll going forward?  Everything should start and stop with Machado.  He’s the biggest and most important domino and the future of the franchise is largely based on whether the Orioles can retain him.  Let’s say, for the sake of this post, that the O’s can sign Machado to an extension after the 2016 season.  Let’s also say he gets something similar to what Jon Shepard proposed: 10 years, $400M, with an opt out after year 5.  Assuming there is some money deferred, I'd estimate Machado will be around a $35M per year payroll number.

Under this scenario, a Machado extension would raise the total committed payroll in 2017 to $122M, which does not include salaries for Tillman, Britton, Gausman, Brach, Caleb Joseph, or Jonathan Schoop.  Combined, those players made just over $16M in 2016.  That number could easily double in 2017.  If it does, the payroll would then be at a record high of $150M, and that does not include other, smaller arb raises, not to mention possibly re-signing someone like Trumbo, Wieters, Alvarez, etc.  If the O’s need to make moves in free agency, just inking a big Machado extension will easily push the club into the top 6 or 7 payrolls in baseball (potentially even top 5) with little to no improvement in terms of actual players. Perhaps Machado takes a reduced salary for the first year or two which will be made up in subsequent seasons, but even so, it is very difficult to imagine the O’s not running a $150M+ payroll in 2017 that may not even include their current starting catcher, RF, and DH.  

Things calm down a bit in 2018.  Ubaldo Jimenez’s deal will be off the books, as will Hardy’s and Gallardo’s (though it will require $4M total to buy them out, which is the most likely outcome).  That represents a savings of over $35M.  The problem there is that Tillman will be a free agent and will probably command a $15-20M commitment per season.  If he leaves in free agency, the rotation could be something like Gausman and... well, the rest is unclear.  It also means that the team would likely need a third baseman, a left fielder, a right fielder, and possibly a catcher.  That’s a lot of holes when you consider that, even with some big contracts coming off the books, the payroll will be around $100M (with the theoretical Machado extension) without any of those positions being filled.  This is also not taking into account potential extensions for guys like Gausman, Schoop, Bundy, etc.  

There are, of course, players that could plug these holes that are currently in the system. By 2018, Chance Sisco should be in line to make his debut. Perhaps Trey Mancini moves to the outfield or becomes a DH. DJ Stewart has had a slow start to his professional career, but as a former first round pick there's a chance he is ready to contribute in two seasons. Jomar Reyes will still only be 21 years old, but he is consistently ranked among the team's top prospects and could be in a position to move up to the big club. Pitchers like Cody Sedlock, Chris Lee, Tanner Scott, Hunter Harvey, and David Hess could be knocking on the door for the rotation as well. All of these players, however, come with the inherent risk and unpredictability of being prospects and they will almost certainly not all pan out. The O's will need to rely on their farm system to fill some of the holes on the big league roster for sure, but they will also need to go out of the organization as well.

So, what’s the solution?  It’s honestly hard to see one with the current roster and payroll.  A Machado extension after 2016 (which seems like the most likely time for it to occur, if ever) will require a huge payroll jump in both the short and medium term if the Orioles want to keep the team together.  For a team that, prior to 2016, has traditionally been closer to the middle than the top of payroll rankings this would require a pretty significant shift in philosophy.  Depending on what happens the rest of this season, perhaps they simply throw caution to the wind and go all out for 2017 but the potential repercussions of that kind of approach could be drastic.

The alternative would be to sign Machado and simultaneously rebuild by trading guys like Britton, Tillman, Gallardo, O’Day, and maybe even Adam Jones to get younger and cheaper, and in so doing build around Machado, Davis and a new crop of prospects to go along with what they currently have in the minors.

Of course, the third and most treacherous path (one that many O’s fans don’t want to contemplate) is to trade Machado for a huge haul in prospects.  To me, though, that would only be viable if they also dealt the rest of their core players as well and went into a total rebuild.  Additionally, the longer they wait the less trade value Machado will have.  Teams will certainly line up to try and trade for Machado, but the price tag would necessarily go down the closer he is to free agency and one of the biggest contracts in history.  Essentially, the O’s need to make the decision on Machado by the end of this season in order to put a plan in place to either go for broke or to rebuild and re-tool.

To me, the most viable path forward for the team to remain competitive long term is to sign Machado and rebuild at the same time.  It seems unrealistic to assume that the O’s will spend $150M+ every year, and trying to keep the current team together will absolutely cost that much and is likely to cost more.  The front office has been surprisingly liberal (at times) regarding payroll issues, so perhaps this analysis is not giving enough credit to the idea that the Orioles will do whatever it takes to win a World Series.  It would not be entirely dissimilar to what the Tigers have done for the past five or so seasons, and with some clever contract structuring it might not have to be a long term disaster.  

In the end, the Orioles are going to have to make some very difficult decisions regarding the roster and payroll in the very near future.  I see this as a feather in the team’s cap.  Without spending on ridiculous free agent contracts they have built a team that has become so good that it is almost too expensive, but their success may be the impetus for pretty drastic roster changes.  Just another reason to win the World Series this year.

Manny Machado, the 500 Million Dollar Man

From 2019 until 2026, Machado should earn more each year than the nation of Tuvalu.

A couple offseason ago, the Orioles tried to buy out a couple years of free agency.  Terms were never divulged, but there was word that Manny would have had a few years bought out around 25 MM a piece.  The rumor was that it broke down because of a difference in the number of years being bought out.  The Orioles wanted more and Manny wanted less or at least be more fully compensated in exchange for being locked in for a longer term.  Over the past season and a half, the inability to come to terms looks poor in hindsight for the Orioles.

In the end, it may be cheaper to fund the development of a time machine and go back to 2013 to sign Manny long term, but lets assume that is not possible.  What is the general ballpark should we expect to sign Machado?  How much should the Orioles dedicate to a talent like him.  To answer this question I did what I did last winter, I used a number of variables to find players who were similar to Machado.  I then took that population and how they performed moving forward.

You might remember that the model largely underpredicted what players wound up seeing.  For example, I put together a comp model for Chris Davis.  It projected the following for him:

Year	Age	PA	HR	AVG	OBP	SLG	WAR	Value
2016	30	518	26	.263	.333	.482	2.2	15.4
2017	31	522	28	.265	.339	.498	2.5	18.4
2018	32	560	29	.271	.356	.501	3.2	24.7
2019	33	509	26	.261	.346	.481	2.4	19.4
2020	34	481	20	.248	.334	.438	1.5	12.8
2021	35	381	17	.243	.316	.438	0.9	8.0
2022	36	404	16	.237	.310	.418	0.6	5.6
2023	37	385	16	.222	.299	.405	0.2	2.0
2024	38	355	13	.211	.283	.379	-0.3	-3.1
2025	39	357	12	.200	.270	.356	-0.7	-7.6
Mean			203	.251	.333	.457	12.5	96

I also broke down the 25th, 50th, and 75th percentile WAR expectations for Davis.  The model had a seven year deal at 40/104/172.  With deferred money adjusting the value, we found that Davis signed for 7/145.  In other words, the model thinks the Davis deal has about a 33% chance to be worth his deal or better.  A quick review of or other modeling efforts and you will find that players generally agree somewhere between the 50th and 75th percentile, which makes sense.  The signing team should find the player slightly more valuable than what other teams would value the player.  This might give us some level of expectation when we look at Machado.

So who is in Machado's comp class?  Well, players like Machado are very rare in how well he has performed at such a young age.  I typically like to restrict player groups positionally, but this was not possible this time.  In other words, our projection group here is effectively the same group for Bryce Harper.  That might be problematic.  This group consists of Ken Griffey Jr., Mickey Mantle, Alex Rodriguez, Al Kaline, Andruw Jones, Eddie Mathews, Cesar Cedeno, Vada Pinson, Frank Robinson, Hank Aaron, Cal Ripken, Jr., Johnny Bench, Albert Pujols, and Orlando Cepeda.  That is a pretty wide net, but that is what you get who you try to find outstanding 23 year olds.

Year	Age	PA	HR	AVG	OBP	SLG	WAR	Value
2017	24	642	34	.297	.375	.539	7.4	51.8
2018	25	639	31	.296	.374	.531	7.1	52.2
2019	26	662	35	.292	.370	.533	7.3	56.3
2020	27	570	29	.285	.367	.531	6.2	50.2
2021	28	646	31	.282	.362	.507	6.4	54.5
2022	29	651	33	.291	.378	.526	7.3	65.2
2023	30	593	27	.278	.366	.496	5.8	54.4
2024	31	551	24	.277	.357	.484	4.9	48.3
2025	32	516	23	.271	.350	.485	4.4	45.5
2026	33	450	19	.270	.350	.461	3.6	39.1
Mean			285	.287	.368	.511	60.4	517.5

 One thing to notice is that 2017 and 2018 are arbitration years.  Using previous research on the Depot, we expect Manny to make 17.6 and 21.4 MM in arbitration of the next couple seasons.  This would reduce the mean expected 10 year deal to be 452.5 MM.  It should also be noted that the general assumption in the performance modeling is that Manny will be an average defense shortstop.  Given his performance this year at the position, we may be able to assume that he is worth another five to ten wins due to his glove.  That translates into an additional 40-100 MM, but for simplicity here we will simply assume average defense.

Below is the 25th, 50th, and 75th percentiles:

  

Year	Low	Mean	High
2017	5.6	7.4	9.2
2018	4.4	7.1	9.6
2019	5.4	7.3	9.3
2020	3.6	6.2	8.4
2021	4.1	6.4	8.7
2022	5	7.3	9.7
2023	3	5.8	8.5
2024	2.9	4.9	7
2025	2.2	4.4	6.5
2026	2.2	3.6	5.1

In contract to Davis, the expectation for Machado is that he will be a perennial All Star invite up to a perennial MVP candidate.  The total value worth for these scenarios are 286/453/637.  If we were to consider the Davis contract, then we might conclude the market value for Machado would be around 550 MM.  That is such a large jump on existing contracts that I hesitate saying he could see that money.  I think a more modest deal in the 450 MM range is more likely.  It remains to be seen whether the Orioles think they have the ability to shoulder a salary that may be roughly a quarter of their payroll in the near term.

A little further south, the Nationals face the same issue.  Due to positional differences, Bryce Harper's outlook is 231/404/596.  One could argue that the population better fits Harper though:

Player	bWAR	PA	AVG	OBP	SLG
Avg Comp	24.6	2661	0.299	0.365	0.522
Machado	21.1	2215	0.285	0.336	0.474
Harper	21.6	2355	0.285	0.387	0.519

It should be noted that both Machado and Harper will likely finish the year with a career bWAR of around 25.  Their batting metrics should also trend upward, but only as much as 350 PA or so can affect those values.  With that in mind, Harper barely slides into the upper range of the comp population with Machado in the bottom half.  As you can probably see, there is a lot of uncertainty with this model.  That said, you probably want numbers, so here you go with consideration to opt out value:

Opt Out	10 yrs
3	383
4	397
5	415
6	434
7	447
8	451
9	455
None	452

For both sides, it would not surprise me if the sweetspot is somewhere between a 10/400 (opt out after 4 yrs) to 10/440 (opt out after 6 yrs).

What a Chris Tillman Extension Would Look Like

After finally breaking through in 2012, Chris Tillman continued to excel and has been the Orioles’ ace for the past two years. And the fact that Wei-Yin Chen and Bud Norris can both become free agents after this year only increases Chris Tillman’s importance to this franchise. So, it should come as no surprise that Joel Sherman of the New York Post claims that the Orioles and Chris Tillman are trying to see if they can reach a long-term agreement. The only question is what a long-term extension for Tillman might look like and whether it makes sense for the club.

Generally speaking, the closer a pitcher is to arbitration the more money he’ll receive for his arbitration-eligible years. For example, Chris Archer is only expected to earn $13.75 million for his second, third, and fourth year of arbitration (I’m excluding his Super Two year in order to use three years of arbitration for everyone) while Jose Quintana is expected to earn over $18 million for his three years of arbitration.  This makes sense because pitchers do get hurt and the further away a pitcher is to being arbitration eligible the less likely he’ll actually get there. That means when comparing what Tillman might sign to other pitchers it’s important to keep service time in mind.

Fortunately, earlier this year both Lance Lynn and Wade Miley signed extensions. Like Tillman, both starters had just become arbitration eligible and will become free agents after three years. Lance Lynn signed a three-year, $22 million dollar contract while Wade Miley signed a three-year, $19.25 million dollar contract with a $12 million dollar club option for a fourth year. 

Chris Tillman has a worse FIP and lower WAR since 2011 than the other two. However, he’s had a similar ERA and about as many wins as the other two pitchers with considerably fewer losses. Many people argue that Chris Tillman is able to outperform his FIP due to his ability to hold runners as well as pitch differently when men are on base. If you believe that his FIP doesn’t tell the full story then one can argue that he’s nearly as good as Lynn and even better than Miley especially given that Tillman pitched in the AL East. It certainly helps Tillman’s case that he’s shown significant improvement lately while Miley has begun to regress. Given that Tillman and the Orioles agreed that Tillman should earn $4.35 million this year, it certainly seems that the Orioles believe that he’s better than his FIP. He's certainly being paid like it.

I think most people would agree that Lance Lynn has been better than Tillman both over their entire careers and in 2014. Therefore, I doubt that Tillman could earn as much as Lynn will over the next three years. But I do think it’s possible to argue that Tillman has been better than Wade Miley. If so, this suggests that Tillman should earn about $20 million for his three years of arbitration and that a potential deal could consist of his three years of arbitration as well as a possible club option for about $12.5 to $13 million dollars. 

What if the Orioles decide that a three-year extension that primarily covers Tillman’s arbitration years simply isn’t good enough? The Orioles may feel that such an extension might save them a few million dollars but simply isn’t worth the risk unless they can sign a deal that keeps Tillman under control for a few extra free agent years. How might a longer deal look?

It’s important to note that Chris Tillman will turn 27 years old at the beginning of the 2015 season which means he won’t be eligible for free agency until he’s 30 even if he doesn’t sign away any of his free agent years. It also means he probably won’t be interested in a long-term extension that considerably delays when he can become a free agent. James Shields became a free agent this year at 33 and found it hard to find a suitable contract because teams were nervous about his age. It makes sense that Chris Tillman wouldn’t want to put himself into the same position and therefore would probably be unwilling to sign a deal any longer than four guaranteed years with one club option.

That may determine the length but how much money should he receive? Julio Teheran received $16.6 million for his three arbitration years plus $11 million for one free agent year and a club option for $12 million. Chris Sale earned $18.6 million for his three arbitration years plus $12 million for one free agent year and club options for $12.5 and $13.5 million. Gio Gonzalez received $18 million for his three arbitration years plus $23 million for two free agent years and a club option for $12 million. Based on those numbers, it would be reasonable to expect Tillman to earn about $20 million for his three arbitration years, $12.5 million for a free agent year and $13.5 million for a club option. It's important to realize that the other deals listed happened in previous years and therefore we should expect some inflation.

 

If history is any guide, I would expect an extension for Tillman to range for anywhere between three years and $20 million to four years and $32.5 million with a club option for $13.5 million. 

Tillman has been the Orioles’ ace for the past two years. Since the Orioles probably aren’t going to be signing any top free agent starters in the near future, it makes sense to try to keep their homegrown products for as long as possible without paying full price. So, I think that any extension would require Tillman to give the Orioles an extra year of control. 

I wouldn't recommend a three-year extension that doesn't cover any free agent years because I think that would at most save the Orioles a few million. Such an extension has limited benefits and therefore isn't really worth the risk. If the Orioles are going to extend Tillman then they need to gain a year or two of control. That's why if Tillman would be willing to sign a contract that contains a free agent year as well as give the Orioles a club option then I think I’d have to recommend it. Otherwise, I'd pass.