Holding Court: Doug Fister, Ted Lerner and the Luxury Tax – A Story of Hope

Can the Nats Afford him? (Spoiler: Probably-yes).

Can the Nats Afford him? (Spoiler: Probably-yes).

Court Offers his Thoughts on a Variety of Topics in this week’s Holding Court.

Fister!

I love the Fister deal. I wrote a bunch of words about how Rick Porcello was a great cost effective target but Rizzo when out and got a better pitcher for less than I suggested. This deal was really about Robby Ray for the Tigers so ultimately his career will provide the final answer as to who “wins” this trade, but Ray’s going to have to be pretty damn good for the Tigers to justify giving away a top-20 pitcher with two years of control.  Fister is also a great candidate for a qualifying offer which will either give the Nats a third year, a draft pick, or hamper his market so much that the Nats have an advantage in negotiating a longer term contract. All good things.

Plus Fister is will improve his numbers, or at least get his ERA in line with his FIP by moving to the National League and playing in front of a better infield defense. Fister’s BABIP (.332) and LOB (73.5%) were high and low respectively – both key indicators of bad luck or bad circumstance. WAR recognizes these things which is why Fister had a higher WAR (4.6) than any National Starting Pitcher. Fister’s 2013 season was better than Jordan Zimmermann’s 2013 (3.6) and almost as good as Gio Gonzalez’s 2012 (5.1) just for reference.

Unlike last year, the Nats now have a surplus of starting pitching to help out if and when anyone goes down. As an added bonus, the fifth and final spot in the rotation will sport a full scale Battle Royale this spring as Detwiler, Jordan, Roark and Ohlendorf fight to the death. (Read On).

Fister’s addition is also a great platform to address the National’s long term salary considerations. As you may have heard, Fister became the ninth Nat to be offered arbitration. And with only two years left he, like Zimmermann and Ian Desmond, is a great candidate for an extension. The benefit of extending guys like this, in addition to ensuring their services for years to come, is the hope of controlling their cost. If these three continue to put up the numbers we hope and expect, they are only going to get more and more expense before they reach free agency.

Payroll-Can We Afford It All?

The payroll for the 2013 Nats had already gone up from last year before the Fister addition. As the front office ponders adding any more payroll, I was curious to see what the payroll could look like moving forward, by guessing at future arbitration figures, to get a ballpark idea of what will happen to just by hanging onto everyone currently under contract and promoting from the minors to replace free agents. My hope is get a better sense of what the Nats can afford to add to that via free agency, or at least to see what could happen to the payroll, to try to find a point where money becomes an object. We know Harper and Strasburg are in line for big numbers at some point in addition to the three in line for more money now.

To avoid any Rand Paul-like plagerism charges, I want to make clear here that I flat out sold, via cut-and-paste, Cot’s Baseball Contracts’ spreadsheet for salary layouts. I then plugged in MLBTradeRumors’ arbitration estimates for all 9 arb eligible players  Arbitration raises are based on the previous year’s salary and performance so projecting years out is dicey. I think the best way to do this is plug in MLBTR’s estimates for this year and then apply a 90% increase year over year. ESPN has reported previous year’s increases have averaged between 73 and 123%, with the average being 89% in 2012.  However, I used higher percentage (123%) for players who are above average, lower percentages when the numbers get above $9M (73%), and even an even lower percentage (65%) for relievers based on Clippard’s expected raise this year.

Harper is a real wild card due to his complicated contract and above-average production. So I just used Giancarlo Stanton’s first-time-eligible estimate of $4.8 and went from there. There are three contract options for 2014 and I went with the assumption that Soriano and LaRoche will not be picked up but Span will be. The bottom of the roster is obviously in flux so I just plugged in the most likely replacement as a place holder. All of these guys are league minimum guys so as long as we account for $500K per roster spot, it doesn’t really matter if it’s Mattheus or Garcia or Perez or Brown. When a guy’s contract expires, I just plugged in a league minimum replacement to denote his roster spot being filled from the minors. Below is my spreadsheet with the total salary numbers at the bottom.

Click for Larger or download PDF below)

Click for Larger or download PDF below)

Nats salary projections (PDF)

As you can see, the projected salary is already in the $130M range for 2014 and the team is not finished shopping. I could easily see another $10M spent on a left-handed reliever and left-handed bench bat alone. The 2015 estimate was really eye-opening – over $150M already. Strasburg and Harper will probably both hit arbitration plus Jordan Zimmermann would be in line for another huge raise, as will Desmond, Fister and Clippard. Payroll then dips to $110M in 2016 as Zimmermann, Clippard, Span, Fister, Desmond and Detwiler are all due to hit free agency before jumping up to over $125M in 2017 (the last year of Werth’s deal) as arbitration begins to skyrocket for Strasburg, Storen and Harper. Extending those three early would greatly help control that though.

The main conclusion of this exercise is that Nats are a legit large market franchise and will need to carry a payroll of $150M+ to maintain the bulk of this promising team. The Nats have gotten themselves within earshot of the World Series with aggressive moves like the Gio, Span and Fister trades, as well as the Werth and Soriano signings, and now is not the time to ease off the petal. Ted Lerner is a billionaire and he ain’t getting any younger. Time has come to push the luxury tax limit of $189M. Despite the growing payroll, the Nats can still add a $20M/year player, extend their top young players, and pick up marginal free agency role players without having to pay the tax. The team could easily spend $45M a year in ‘16 and ‘17 on Desmond, Zimmermann and Fister. That would put the 2016 payroll around $155M and $170M in 2017.

However, I would strongly suggest working out extentions for Desmond, Fister and/or Zimmermann and maybe even Clippard, sooner rather than later to save some money and give the organization some payroll stability. These are all key players who would be expensive to replace via free agency. Cost-effective extensions also make these guys more tradeable should the need arise to trim payroll down the road. Clippard, for example, would be more more attractive to other teams if he were to sign an extension that paid him around $7-8M a year for the next couple of years, as opposed to having only one year of control left with an arbitration salary of close to, if not over, $10M in 2015. Perhaps the Nats can also use Bryce Harper’s contract confusion to work out something that at least covers his arbitration years – if a longer term deal is not in the cards – to help keep his salary under control to help plan future free agent signings.

A big ticket free agent, like Robinson Cano or Masahiro Tanaka, can be added with minimal sacrifice from the current roster, as long as everyone gets on board with the fact that the Nationals are top payroll team who will occasionally flirt with the luxury tax in years where a run at the championship is in order. A conservative reworking of the MASN deal, going from about $30M/year to $60M/year (which would still be way below a market value of about $100M) would pay for Cano alone. As long as guys are extended at rates that make sense (like Gio was), there’s no reason top players would have to be let go due to salary considerations alone.

The payroll is most likely going over $150M next year, even if Rizzo doesn’t make another move. So does an annual payroll between $150-170M make sense? Let’s forget for a moment that a billionaire writes the checks. He didn’t get that way by wasting money with bad investments. But the Nationals are not a bad investment. The Lerners have already made a couple hundred million on the franchise according to Forbes who now value the Nationals at $631M compared to the $450M the Lerners paid. Forbes also lists the Nats’ revenue at $225M with $64M going to overhead costs (28.4%) leaving a budget of $161M for payroll.

So far, Rizzo has done whatever he’s wanted to do without money being an issue so credit ownership for that. Things will get more complicated for sure, but for the right type of player, say like a power hitting middle infielder who has been the picture of consistency for years prior, it makes sense to dive into the deep end with the big boys. The Nats made money hand over fist while keeping payroll low. It’s time to reinvest those earnings into the team and announce to world that the Nationals are never going to let money get in the way of their ambitions. Invest for success. The Lerners can still make money spending $160M a year on players even if profits don’t increase and the tv deal is not reworked. Both of those things are highly unlikely however, thus there should be no real impediment to a payroll that sits between $150-180M per year, touching the $189M limit when it makes sense – like in 2015.

Spending money doesn’t guarantee winning, but fielding the best players possible does – and that takes money. The Nats have done a great job of drafting well and developing their own players and soon they will have to pay for that success. But attendance is up. TV ratings are up. Bryce Harper is poised to be a superstar. Robinson Cano already is one. The Nats don’t need Cano, just like the don’t need Tanaka, but both players would make the Nats much, much better and either one could be the difference between winning it all and cursing below average role players. If I were a billionaire owner of a franchise that had already made me hundreds of millions of dollars, I’d go get an impact player let the Dodgers and Yankees and Tigers know that the deep end of the pool is about to get more crowded.

2 thoughts on “Holding Court: Doug Fister, Ted Lerner and the Luxury Tax – A Story of Hope

  1. Hey!-Why am i just finding your site? As a devoted and reasonably knowledgeable baseball fan -as in life-long fan, college scholarship, minor league invite, )albeit as r.i.l. cannon fodder!), sufficiently saber-savvy….the fact that you have pointed out the obvious in Lombo (would that I could play half as well…but i AM 56!) has immediately made you a must read…along with Huzzard, Gordek, Boss…a few others…..
    GREAT stuff! Can’t WAIT to go over all the back “issues”-and i haven’t even READ this post!Too …mollified? satisfied? “about time-ized”? from the Lombo bit!
    Many Thanks! Now on to this article!
    Jim

  2. Pingback: Get to Know a Staff: Fister’s not a Four and Strasburg’s not a One | Nationals 101

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