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Roster Ramifications of a Hamels Extension

Posted by Eric Seidman, Fri, July 13, 2012 09:00 AM | Comments: 38
Payroll, Rumors, Signings

As Buster Olney reported yesterday, the Phillies are making one final push to negotiate an in-season extension with Cole Hamels before potentially shifting their focus towards trading the homegrown ace. Both sides have always been close on an annual salary around $24 million, but Hamels and his camp predictably wanted more guaranteed years on the deal.

Hamels is likely looking for a deal better than Matt Cain‘s, and comparable to what the Mets gave Johan Santana. While there is no formal deadline to work out the new deal, if the sides cannot reach an agreement by the weekend, expect Ruben Amaro to pick up the phone and more seriously field trade offers.

What the Phillies could potentially get back for Hamels has been a terrifically interesting subject — especially given his stated willingness to return even if traded during the season — but what hasn’t been discussed much is what happens if he does agree to an extension. After the initial celebratory phase, the front office would be left with a tricky situation to wade itself through. The Phillies would have four players making $20+ million both in actual dollars and the amount calculated for luxury tax purposes, which makes it tougher to fill out the roster with pieces necessary to legitimately compete without incurring the tax.

Signing Hamels would be wonderful, but it would also require the front office to act in a shrewd manner it hasn’t exactly shown itself capable of to date.

The Phils are making a sizable offer to the lefty ace.

First, let’s look at money on the books next year, and remember that the payroll calculated for the luxury tax is different than the player’s actual salaries next season. When calculating luxury tax payroll, the average annual value of the deal is what counts.

Both vesting and club options are excluded from the calculation, while player options are factored in. If a vesting option vests or a club option is exercised, the salary is treated like a one-year deal for the luxury tax. There is also the issue of timing: if an extension is worked out before a current deal expires, the contracts are consolidated.

Ryan Howard is a perfect example of said consolidation. He was signed to a 3 yr/$54 million contract, and then signed his monster 5 yr/$125 million contract. But because he signed the five-year pact before the initial deal expired, the luxury tax views his contract as 6 yrs/$143 million, for an average annual value of $23.8 million. While that is a bit of a discount relative to the 5 yr/$125 mil deal, it means the Phillies paid almost $6 million more for Howard when calculating luxury tax payroll last year.

With that little primer out of the way, we can get back to regularly scheduled programming. For luxury tax purposes, Howard comes in at $23.8 million. Roy Halladay is at $20 million. Cliff Lee is closer to $22 million. Let’s also assume that Hamels signs for an average annual value of $24 million. Through four players we’re at approximately $90 million, and the threshold is $178 million.

Chase Utley‘s deal adds another $12 million. Jonathan Papelbon‘s deal adds $12.5 million. The average annual value of Jimmy Rollins‘ deal is $11 million. That puts the Phillies at ~$125 million through just seven players. Hunter Pence figures to make $13 million next season in his last year of team control. Kyle Kendrick counts for $3.75 million.

Laynce Nix adds another $1.2 million. That adds up to ~$143 million through 10 players, and the Phillies would still need a starting third baseman (assuming Polanco’s option is declined), a starting center fielder (Shane isn’t returning), a starting left fielder and a starting catcher, before even filling out the bench, rotation and bullpen.

It’s hard to imagine the Phillies declining Chooch’s option, which solves the starting catcher issue and adds another $5 million to the calculation. But it’s also possible they work out an extension with him where he makes $9 million per year or something in that vicinity. Sticking with the $5 mil option, the Phillies would need 13 more players spread across three starting spots, several bullpen roles, and the bench, and would only have $29 million to work with unless they crossed the luxury tax threshold. That’s pretty dicey.

Antonio Bastardo and David Herndon enter their first years of arbitration eligibility. Bastardo would probably bump up to $1 million, while the Phils could non-tender Herndon if the need arose. That gives us 13 players at $149 million. Assuming both Domonic Brown and John Mayberry are on the team at the league minimum rate, we’re at 15 players and $150 million.

Right now, the hypothetical rotation consists of Halladay, Lee, Hamels, Worley and Kendrick. The bullpen has Papelbon and Bastardo. If Brown and Mayberry platoon in left field, we still need a center fielder and third baseman and a bench other than whichever of those two doesn’t play. The Phillies could fill out the bullpen with four guys like Michael Schwimer, Justin De Fratus, Jake Diekman, Michael Stutes, Phillippe Aumont, Raul Valdes, Scott Elarton and other low-cost options and bump us up to 19 players and $152 million.

But then there are still two starting spots open, Worley’s $500K and whatever they decide to do with the bench. Realistically, we’re looking at 23 players and $157-$158 million before the 3B and CF spots are filled. On top of that, it’s key to remember that 1/30th of the employee benefit costs counts towards each teams luxury tax payroll. So it’s really more like $167-$168 million than $153 million.

The bottom line is that the Phillies will be very close to the threshold again if they re-sign Hamels. But re-signing him is perfectly justifiable, which means it makes plenty of sense to seek financial wiggle room elsewhere so that they can pursue solid performers at either, or both of, third base and center field. Or, wiggle room could come into play if the Phillies once again vie for contention and need to make deadline upgrades.

Fans have been clamoring for an infusion of youth for quite some time now. A contract extension with Hamels will ultimately force the Phillies to fill the roster with youngins if they want to keep everyone else around, or it will require them to think long and hard about which high-priced veterans could both free up money and net a decent prospect package.

Avatar of Eric Seidman

About Eric Seidman

Eric Seidman has written 64 articles on Phillies Nation.

Eric offers his unique analytical perspective to Phillies Nation and is a regular contributor on FanGraphs.com.

 
 
  • Posts: 0 Alex

    Lots of data and I am just going to assume it’s all correct. Great work Eric.

    Why has no one mentioned converting Galvis to 3B?

     
    • Posts: 146 Eric Seidman

      Avatar of Eric Seidman

      Alex — at this point, we don’t even know when Galvis will be back or how he’ll fare upon returning. His was a serious, potentially career-harming injury. And one major reason you wouldn’t want him at 3B is that his major asset is fielding, and while 3B is an important position, it typically requires less range than 2B or SS. By moving him to 3B what he does well wouldn’t be as important.

       
    • Posts: 0 Kevin

      Or Utley to 3B and keep Galvis at 2B. I think Galvis adds more value being at 2B as opposed to 3B. Would this make sense, Eric? nice article.

       
      • Posts: 0 Devin

        I believe that Utley was drafted as a SS and moved to 2B because he doesn’t have the arm for SS. If that’s the case, then he definitely doesn’t have the arm for 3B. And, if you’ve watched him play, even if that little parable isn’t true it’s pretty easy to guess that he doesn’t have the arm for 3B.

         
  • Posts: 0 Shloimy

    Guys you know what you could get for hamels if you trade him to the rangers. Jurickson Profar and another top prospect. I wouldnt even think of resigning hamels not an option. Eric you said it instead of 23 players 167 million its 22 143 mill and we could help the hitting.

     
    • Posts: 0 Don M

      Profar was just named the #1 prospect in baseball by Keith Law……. I’m not sure the Rangers would part ways with him for a rental palyer that would want to test the Free Agent market

      A few days ago- someone mentioned a report that the Rangers would part ways with . . . . Profar, 3b Mike Olt, OF David Murphy (already in MLB), and two others that I forget

      Upon hearing that, Jayson Stark said something like “I would trade Cole Hamels in a heartbeat for that package . . . . but I haven’t heard that package offered anywhere.”

      ……..
      Phillies will look to sign Hamels, if he doesn’t agree to terms – they’ll definitely shop him – and it looks like the Rangers are the best fit . . .but from what i’ve read it would be Mike Olt, and 2-3 lower prospects …not the crazy haul listed above

       
    • Posts: 1135 EricL

      Avatar of EricL

      There is zero chance you get Jurickson Profar for two months of Cole Hamels. Zero. Jon Daniels might actually punch Ruben in the face if he demanded such a haul. Profar + more is Looney Tunes territory.

       
  • Posts: 0 Justin

    You breakdown was very good. Thanks you.

    It looks like the Phillies have two options: get minor leaguers or very low priced 3B & CF OR they break through the luxury tax threshold.

    What’s the implication for going past the luxury tax threshold? There has to be as cost benefit analysis where the Phillies can see what the true cost of having bad 3B & CF are verse paying more salary and some luxury tax.

    I would love to see an article on this.

     
    • Posts: 146 Eric Seidman

      Avatar of Eric Seidman

      For first time offenders of crossing the luxury tax threshold, the tax is 17.5% of the amount you exceeded the threshold. So if the Phillies finished with a payroll of $183 million, they would be taxed on 17.5% * (183 mil – 178 mil), or $875K mil. It’s entirely likely that paying $875K in tax is worth springing for an impact CF or 3B.

       
      • Posts: 0 Justin

        Eric, Your article has the wheels turning so we started working the numbers too. A friend sent me the numbers from the CBA negotiated last year. The rates change beginning in 2013: First-time offenders: 17.5 percent; Second-time offenders: 30 percent; Third-time offenders: 40 percent; Four-time or more offenders: 50 percent (good luck Yankees!!)

        So it’s actually less next year. And I agree 1.125 mil extra for some decent players who will add value to the lineup is worth it. They will probably make that up in one night of playoff consession stand income.

         
      • Posts: 146 Eric Seidman

        Avatar of Eric Seidman

        Good call, Justin. So yeah, it’s really not that big of a deal. Now if they suddenly go up to $200 million it’s a different story, but if they’re at $183 million or something, it isn’t the end of the world.

         
  • Posts: 427 Publius

    Avatar of Publius

    This article assumes that Hamels’ salary will the be same every year. I really doubt that’s gonna happen precisely because of what this article alludes to. It seems more likely that Hamels’ deal will be significantly backloaded and makes somewhere in the neighborhood of $17-18mil next year and then goes up dramatically towards the end of the contract, when Lee and Halladay are both off the books.

     
    • Posts: 146 Eric Seidman

      Avatar of Eric Seidman

      Publius, as I stated in the article, for luxury tax purposes, the average annual value of the deal is what counts, not the yearly salary. So it doesn’t assume the salary is the same each year, it assumes an average annual value of $24 million.

       
      • Posts: 427 Publius

        Avatar of Publius

        And I learned something new today.

         
    • Posts: 146 Eric Seidman

      Avatar of Eric Seidman

      Glad I could help! I think a lot of times people think too much about the actual salary, when that’s not really important unless ownership has mandated an internal cap. The Phillies haven’t so what matters for them is salary relative to the luxury tax, which is calculated differently than just adding up what players make in Year X.

       
  • Posts: 0 Rob

    Great article Eric. One option I haven’t heard mentioned is the possibility of signing Hamels then trading Lee. I woould think Lee would still offer great value to a team such as the Rangers or Yankees and they would get him for the life of his contract and not a rental situation like Cole. They may be able to get a few nice prospects and have the financial flexibility to sign a 3 or 4 type pitcher AND the 3B and OF bats they will need.

     
    • Posts: 1135 EricL

      Avatar of EricL

      Lee has a partial no-trade clause so for most trade options you’d have to get his approval.

       
  • Posts: 0 Jake

    Quick answer- Trade Pence in the offseason for either 3b/OF and do the same with Vic before July 31. Saves you 13 million and honestly Pence’s production isn’t worth what he’s getting paid. In the off season you could prob. find a 5mil a year player with 90% of his production.

     
  • Posts: 1135 EricL

    Avatar of EricL

    Might it be a little premature to definitively state that Victorino (and potentially Polanco) won’t be back? Polanco is actually a fairly attractive option for a team that is going to be financially handcuffed (his option is very reasonable), who relies on pitching and good defense, and doesn’t have any real heir-apparent in the system.

    Victorino may actually be in the process of lowering his value to potential suitors to the point where it may make sense to re-sign him.

    Personally, I’d rather they trade Pence for some young 3B/OF type pieces and, if need be, replace him with a guy like Bourn in the off-season, but the words I’ve spilled on Hunter Pence could already fill the Marianas Trench, so I’ll just stop there.

     
  • Posts: 0 TheDipsy

    Yes. I like the article, also. Here’s a thought:

    1. You could actually keep Polanco at third for probably 1y/2-2.5m.
    2. Sign Vic to a 1y/6m
    3. Sign Bourn.
    4. Trade Pence
    5. Look to trade Jimmy and eat about 8m of salary.
    6. Take some of the assets you get from Pence and Rollins and grab Headley.

    CF – Bourne
    3B – Headley
    LF – Utley
    1B – Howard
    C – Chooch
    RF – Vic
    2B – Polanco
    SS – Galvis

    That should fit. And they can even field a little.

    TherDipsy

     
    • Posts: 0 George

      A few problems here: Victorino would never agree to 1yr/$6M. There has to be someone given up to get Headley (the Padres aren’t going to let him go cheap), Bourn will cost just as much if not more than Pence (teams covet lead-off hitters who can field and steal tons of bases, and Galvis, if he’s actually ready, is probably only a slight defensive upgrade and a large offensive downgrade from Rollins, and nothing says Utley or Headley will be able to “field a little” in left field. Headley, maybe (I don’t know if he’s had outfield experience); but Utley has never played there and might not take to it at all.

       
  • Posts: 0 TheDipsy

    Actually, Headley can go to LF, Polanco back to 3B and Ut can stay at second. But he will have to move to the OF at some point I believe.

    The Dipsy

     
    • Posts: 0 TID

      And you’re leaving out Rollins’ 10-and-5 rights. Jimmy’s not going anywhere unless Jimmy wants to.

       
  • Posts: 0 George

    One question: If a Hamels extension is added to his current contract and the overall average declines because of that, doesn’t that push his current average pay up? That would put the Phils over the LT threshold THIS YEAR, which may not be such a good idea with next year’s possible overage. 17.5% is one thing. 30% is something else entirely.

    Maybe they should wait until the off-season to ink a deal.

     
    • Posts: 146 Eric Seidman

      Avatar of Eric Seidman

      George – yes it would, because the luxury tax payroll is calculated both before and after the season. I was operating under the impression that the Phils could do something like what the Red Sox and Adrian Gonzalez did – agree to the deal but don’t announce it until later, so that way it doesn’t impact 2012.

       
      • Posts: 0 George

        Eric, that’s what I figured. It makes things even dicier than people probably think. Other moves could be made, but other moves just might prove impossible if no one wants some of the Phils’ lesser players. The only players who might work would be Victorino or Pence. Blanton won’t, because any team that actually might want to pick him up (how many of those are there?) would want a boatload of salary relief. He’d maybe clear $2-3M from the payroll; probably not enough.

        Pence would be my choice. He makes more than Victorino, and at least Vic can field.

         
    • Posts: 1135 EricL

      Avatar of EricL

      The other option in such a scenario would be to move someone like Victorino or Pence or Blanton, which would clear room under this year’s luxury tax.

       
      • Posts: 146 Eric Seidman

        Avatar of Eric Seidman

        Exactly. I personally agree with you that Pence is the best bet to get dealt since he is still performing well and has another year of control — albeit one that will cost about $12-$13 mil. And while I’m more for evaluating trades on their merit at the time of the deal, moving Pence this year would make that deal even worse, since the Phils would only have him for the equivalent of 1 yr, not 2.5.

         
      • Posts: 1135 EricL

        Avatar of EricL

        Sunk costs. What the Phillies paid for him, at this point, is irrelevant with respect to future moves. Plus if he happened to bring some kind of young prospects then you have to add their value into the picture, in addition to the added value of being able to keep Hamels by keeping payroll flexibility.

        That’s generally why I like to just look at trades on their individual merits, because everything is so interconnected that you can continually connect each move to another one or one not made, and have an endless string of X player’s trade returned Y player which allowed you to sign Z player, etc.

         
      • Posts: 146 Eric Seidman

        Avatar of Eric Seidman

        Yeah but trade trees are fun — just ask Dan Haren and Carlos Gonzalez.

         
      • Posts: 0 George

        EricL: You comment here that giving up prospects for Pence are sunk costs, and that you like “to just look at trades on their individual merits,” and yet in a different thread, you mentioned that the Lee trade was particularly damaging because it lead to the Phils having to give up prospects for Oswalt. Maybe “generally” allows for some exceptions, but maybe you’re just linking trades or not linking them to justify whatever point you’re trying to make.

        Maybe trading Lee for second rate prospects should be considered a sunk cost, too.

         
      • Posts: 0 schmenkman

        Can’t speak for Eric, but I think he meant that how you acquired Pence should have no bearing on your decision about what you do going forward.

         
  • Posts: 0 Don M

    I don’t even know if you could get Victorino for 3 years of $6 M ($18 M total) . . . . you definitely can’t sign him for 1 year/ $6 M…

     
  • Posts: 5196 Lefty

    Avatar of Lefty

    Eric another great piece. I understand the roster ramifications, and I think Hamels is worth it for one or 2 seasons while some other contracts expire and new ones are signed, at least I hope he is.

    Sometimes you have to take downward steps to secure the future. It’s a tough sell to the fan base, taking a chance of being mediocre for a short period, but the die hards like most of us (although we may will moan and groan some), will never leave.

    The alternative is to eject the core (Hamels) but then the ship won’t fly at all.

     
    • Posts: 0 Devin

      You make a very good point, but boy, that metaphor was more mixed up than a pig up a river with his pants down.

       
  • Posts: 0 Richieallen

    Just wait till the Phills get that new cable tv contract in 2 years…….They won’t care about no stinking cap.

     
  • Avatar of "Big Ed" Delahanty

    Kudos,Eric, on another well-written article.

     
  • [...] there’s the matter of options. My colleague Eric Seidman explained this issue well over at Phillies Nation in a discussion about Cole Hamels‘ contract extension: Both vesting and club options [...]

     
 
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