Monday, February 17, 2014

Saving the Dempster money for a big splash?

The Red Sox have many options on how to spend the windfall, but the best one that comes to mind is acquiring Cliff Lee from the Phillies at some point this season. Acquiring Lee at midseason would use up the $13.25 million freed up by the Dempster semi-retirement. Thanks to the large amount of cap room, it wouldn't preclude other acquisitions as well. It would also give the Red Sox a true ace for the next 2.5 years that Lee would be under contract.

Despite their massive payroll ($170 million, 3rd highest in baseball), the Phillies are not expected to contend - ESPN ranked them as the second worst team in baseball. From the Phillies' perspective, dealing Lee would give them a great deal of additional financial flexibility in the next few years and would get them under the luxury tax threshold. The Lee's contract is one of the only large ones the Phillies could really move. The ink is still drying on the recent extensions to Cole Hamels and Chase Utley, and the deals to Ryan Howard and Jonathon Papelbon are pretty much unmoveable - Howard's contract was ranked at the third worst in the majors last season. Lee's contract is really the team could trade while acquiring real prospects.

Additionally, the Red Sox can fit his $25 and $27.5 million salaries for 2015 and 2016 into their budget without going over the luxury tax threshold. Based on rough calculations, the Red Sox have ~$20 million in payroll room for 2014 before they'd have to pay the luxury tax. Following the 2014 season, the Red Sox have a large number of players coming off the books - David Ortiz, Jon Lester, Jake Peavy, A.J. Pierzynski, Koji Uehara, Cody Ross, Craig Breslow, and Burke Badenhop. Combined, these players will earn $66 million in 2014. On top of that, thanks to the clause in Lackey's contract, the team has an option at the major league minimum for 2015 for him, which means that his salary will decrease $14.75 million from 2014 to 2015. Even if the Red Sox resign Lester (say, at $20 million/year) and Ortiz ($15/year), that would still give them $45.75 million more room following the 2014 season than they do now. Given that they're already well under the luxury tax threshold by about $20 million, that would put them $65 million under the luxury tax for 2015. Quite simply, that's an awful lot of money to try and spend on the free agent market.

Looking ahead to the end of the 2015 season, the Red Sox have Napoli's ($16 million/year), Victorino's ($13 million/year) and Muijica's ($4.75 million/year) coming off the books for an additional $33.75 million worth of salary flexibility. Amazingly, the Red Sox only have two players under contract for 2016 - Pedroia at $13 million and Buccholz with a $13 million option. To give you an idea of how different that is from the Yankees, they have an astounding $144 million committed to the 2016 salaries of Sabathia, Teixeira, A-Rod, Tanaka, Ellsbury, McCann, and Beltran alone.

There are several reasons why I think this money would be well spent on Cliff Lee:

1. Pitchers as good as Lee simply cannot be had on short term deals. Yes, the annual average value (AAV) is still very high, but the total outlay of money would be less than a free agent deal, and what good is a little financial muscle if you can't flex it to get the best players. In terms of absolute dollars, the contract would be in the same ballpark as what Garza or Granderson got this year, despite the massive question marks surrounding their health and performance. In terms of AAV, it would be well below what the Yankees effectively spent on Tanaka ($27 million, when you include the $20 million posting fee spread out over 4 years, which assumes he'll opt out).

2. Pitchers as good as Lee simply don't hit the free agent market any longer. More and more, teams are extending their young pitchers before they become free agents. Recently, three high profile pitchers have signed both long and lucrative contracts prior to hitting the open market. All three of them were signed for much longer deals and for similar to slightly higher AAVs:

Years Value AAV Avg. WAR
Verlander 7 $180 $25.70 6.36
F. Hernandez 7 $175 $25 5.53
C. Kershaw 7 $215 $30.70 6.17

Those three players are the only three pitchers who have been better than Cliff Lee over the last three years, and Felix just barely edges out Lee by 0.1 WAR. If you use Baseball Reference's WAR calculation, Lee comes out even more favorably - #2 over the last three years and a rounding error behind Clayton Kershaw for #1 (0.03 WAR/year). Add in Tanaka's deal (7 years, $175 million, or 4 years, $108 million), and Lee at 2.5 years for $65 million looks a heck of a lot more palatable. Plus, no one really thinks Tanaka is going to be as good as Lee or any of the three pitchers listed above. Granted, Lee would be looking at a different contract than these players, given his age, but I still think that if he were a free agent right now, he'd command a 4 or 5 year deal at $25 million per year or more. Getting a short term deal means that there is just less risk- it is a heck of a lot easier to predict production over the next three years, rather than seven.

3. The Red Sox have the prospect depth to make a deal without hurting the long term outlook ofr the team. They could either send low level, high upside prospects, while taking on the entire salary, or send better prospects while getting the Phillies to eat some of Lee's contract. Trading for Lee would not be mortgaging the future in any way - in fact, the Red Sox have an impending crunch of mid-level pitching prospects. Using some of them to add an ace would be an excellent use of resources.

There are a couple of catches. First, Lee has a limited no trade clause in his deal, allowing him to block a trade to 21 teams each year. The list can change each season, but the Red Sox were on it last year. That's no surprise, given how many teams he can have on the list and how few teams would be able to take on his contract. Perhaps guaranteeing the 2016 option ($27.5 million, $12.5 million buyout) would be enough to do it. Given the massive buyout associated with the option year, that is a fairly small concession. A much more difficult concession would be agreeing to decline the option, as it would mean Lee was only under contract for 1.5 seasons while costing over $31 million per season. From Lee's perspective, hitting the free agent market a year early and with an extra $12.5 million would be very valuable, but I think that would scuttle any potential deal.

Perhaps more importantly, the Phillies appear to be a bit deluded about how valuable Lee is. Don't get me wrong, Lee is a spectacular player, but at $25 million/year, he's being paid what he's worth. According to rumors at the deadline last year, the Phillies asked for Xander Bogaerts in exchange for Lee. That's just nuts - in June, Fangraphs ranked Bogaerts as the 29th most valuable player, in terms of trade value. Since that ranking he's been called up to the bigs, held his own at shortstop and third base, and was a key contributor to a World Series champion. Lee, on the other hand, was not ranked. If Amaro Jr's price tag for Lee hasn't come down a lot, there just isn't a deal to be made. And no, Jon Heyman, I think we can safely say that the Red Sox shouldn't have traded Bogaerts for Lee at the 2013 deadline. It all worked out quite fine, thank you very much - a .296/.412/.481 line from a 20 year old shortstop in the playoffs is rather nice.

The Red Sox made the famous Nick Punto trade, it gave them $250 million worth of financial flexibility while simultaneously bolstering the farm system. The prospect depth allows the Sox to make a deal without significantly damaging their future teams, while the money allows them to pay for extremely high value players on short term, high cost deals. We've seen this approach with the Victorino, Napoli, and Gomes deals last offseason - dealing for Cliff Lee would just be taking it to a whole new level. There's no doubt that spending $25 million on a single player is risky, but by keeping the years low and adding a player with a spectacular track record, that risk is as low as it is going to get for a top tier pitcher.

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