Maintaining Financial Flexibility: A New Market Inefficiency? – Part Two

In part one of this series, we discussed each of the major acquisitions and departures from the Cubs this offseason. It would be helpful to read the first part before this piece to add context, but if you missed it, here is a recap of the assertions I laid out:

- While some view John Lackey as an imperfect fit from a clubhouse standpoint, his contract is loaded with low-risk value and complements the existing rotation perfectly.

- The contract signed by Ben Zobrist may carry the most financial risk of any of the Cubs’ signings, despite his reputation for being a versatile, low-risk player on the field.

- In a market that witnessed Joakim Soria and Ryan Madson get multi-year deals, Trevor Cahill’s moderate one-year pact carries little downside and reasonable upside.

- Jason Heyward’s contract should be viewed as essentially a three-year deal, one which offers tremendous surplus value to the Cubs.

- Heyward is still improving as an offensive player, and his best years may still be in front of him.

- Adam Warren is being overlooked as the return for Starlin Castro, and could find success if given an opportunity in the starting rotation.

- Castro’s fifth-year team option is likely to be picked up, meaning the $56 million saved from trading him equals the amount given to Zobrist. The front office essentially consolidated Castro’s value over five years into Zobrist’s value in four, and also received Warren back for their troubles.

- A tremendous amount of financial flexibility was maintained for the vaunted free agent class of 2018.

- By avoiding longterm risk this offseason, management has essentially split the competitive window into two separate parts to maximize the young core of this team.

While this free-agent market has been among the slowest-moving in recent memory, it is likely that each team in the Central Division has made the majority of their maneuverings already, with the possible exception of the Cardinals, who are still searching for an impact hitter. Keeping this in mind, let’s take a look at the financial flexibility moving forward for each team in the division. The future commitment numbers in parentheses are considered with all options picked up, and all arbitration and other associated costs included.

Milwaukee Brewers

2015 Payroll: $98,037,500

2016 Current Payroll: $40.1 million ($60.8 million)

2017 Commitments: $32.5 million ($69.7 million)

2018 Commitments: $20 million ($78.9 million)

2019 Commitments: $19 million ($73.6 million)

2020 Commitments: $17 million ($81.9 million)

Farm System: Weak; top heavy with minimal depth

Outlook: The Brewers major-league roster features a largely uninteresting collection of veterans and young players who don’t project to be high-impact contributors. Matt Garza and Ryan Braun represent the only players with contracts extending beyond 2016, with the latter’s running through 2020 and containing a mutual option for 2021. Braun is no longer the MVP-caliber player he was when he won the award in 2011 and finished as the runner-up in 2012, and the controversy surrounding his suspension for a banned substance and subsequent denials leave a bad taste in the mouth. It is likely his trade value is heavily suppressed by his contract ($105 million remaining in guaranteed money) at the moment, and the team would be wise to leverage any sustained hot streak into a reasonable prospect return.

Garza’s contract has been an unmitigated disaster, with $25 million still remaining between 2016 and 2017. Another hitch in his deal is that the complicated option for 2018 has a legitimate chance of vesting, despite his lackluster performance. The only veteran with real trade value is Jonathan Lucroy, but even his stock plummeted when he was beset by injuries last year and limped to his worst season since 2011. Lucroy has a team-friendly contract through 2017 that guarantees him just $9.25 million total, so you can be certain he’ll be traded at the first resurrection of his value.

The majority of forecasted financial commitment lies with young players currently in pre-arbitration situations that will eventually qualify for arbitration. The downside for Milwaukee is that the collection of players simply lacks the upside that would represent a formidable core. Will Smith, Khris Davis, Jeremy Jeffress, and selected others are useful players, but ultimately they will represent trade market currency as opposed to being members of a future Brewers playoff team.

Furthering the gloomy outlook, the television rights contract signed in 2009 was inked at the height of the global recession, and will pay them roughly $21 million per season through the end of the decade—a pittance, compared to other recent deals. While their contractual burdens are light and the virtue of flexibility has been upheld, the organization lacks the talent and revenue streams to quickly turn the tide. The outlook does not look promising, and it would come as a reasonable surprise if the Brewers made the playoffs at any point before the end of the decade. Expect to see more veterans with perceived upside signed—such as Chris Carter—in an attempt to capture sign-and-flip trade deadline value.

Cincinnati Reds

2015 Payroll: $114,869,587

2016 Current Payroll: $73.7 million ($91.2 million)

2017 Commitments: $67.5 million ($101.7 million)

2018 Commitments: $64.3 million ($91.1 million)

2019 Commitments: $53.7 million ($95.5 million)

2020 Commitments: $35.7 million ($120.2 million)

Farm System: Above-average and improving

Outlook: It is no secret that the Reds are now in full rebuild mode, having shipped All-Star third baseman Todd Frazier to Chicago’s South Side, and closer Aroldis Chapman to the Bronx after dealing ace Johnny Cueto last July at the deadline. Look for Cub-fan favorite Brandon Phillips to be dealt next, but the prospect return will be minimal. While these moves make sense in a vacuum, they clearly waited at least a year longer than they should have to begin shedding assets and getting younger. Frazier’s inability to get on base last year likely suppressed his value, but the return of Jose Peraza and others in a three-team deal left many looking for answers as to why the Dodgers received a stronger prospect haul than the Reds, despite Frazier being the main trade-chip pushed into the middle.

The suppression of Chapman’s value is a completely different story, as a Winter Meetings trade with the Dodgers was undone after reports of a domestic abuse incident surfaced. With just one year of team control remaining, it was imperative for the team to capture his value this offseason, something they eventually achieved in a deal with the Yankees for a reasonable but somewhat uninspiring prospect package.

The team’s best player—on-base specialist Joey Votto—remains a superstar despite turning 32 in September, but he carries with him the cloud of an unthinkable $199 million remaining in guaranteed money through 2023. Furthering the burden, Votto has intimated he would invoke his no-trade clause should he be so prompted, meaning he is likely to play out the duration of his useful days in a Reds jersey as an excellent player on awful teams. Homer Bailey is the other contract that isn’t going anywhere, as the $86 million owed to him through 2019 appears highly objectionable. Jay Bruce is signed through 2017 and will likely be traded, while Devin Mesoraco was an All-Star in 2014 and could plausibly rebuild enough value to net some legitimate prospects despite the $25 million still owed him.

Between Billy Hamilton, Brandon Finnegan, Raisel Iglesias, Peraza, and the rest of the intriguing farm system, there is enough talent to see the makings of a legitimate rebuild. An issue that I see is that of this group, only Finnegan and Peraza are under 25, meaning a window of contention may not exist with Votto still in his prime. If it does not, look for these players to eventually be flipped for an even younger group of talent. A borderline top-10 group already, 2016 will be a critical year of development for the up-and-coming farm system, as they could establish themselves as an elite group, or take a step back into the middle of the pack.

While their talent situation is rosier than that of the Brewers, the financial situation isn’t particularly enviable. With significant funds committed through 2019, quickly developing successful young players is essentially the only path the Reds have to near-term contention. Their current television deal pays them around $30 million per year, while facing a critical renegotiation when it expires after this season. The knowledge of a new contract almost certainly assisted in giving them the confidence to reward Votto with a massive contract, but that may ultimately prove to be a fool’s errand by limiting their flexibility when they need it most. With a new TV contract and a potentially burgeoning farm system, Central Division contention beginning in 2019 remains a possibility, but an expectation of success until then is unlikely to be met.

Pittsburgh Pirates

2015 Payroll: $84,312,499

2016 Projected Payroll: $66.7 million ($97.6 million)

2017 Commitments: $48.2 million ($86.1 million)

2018 Commitments: $22.1 million ($81.4 million)

2019 Commitments: $11.5 million ($64.4 million)

2020 Commitments: $2 million ($62.7 million)

Farm System: Strong, holding steady

Outlook: The little engine that could just keeps chugging. A 98-win season in 2015 was good for the second-best record in baseball, and their 93-win average over the last three seasons is easily their best franchise mark since Barry Bonds was patrolling the outfield in the early 1990s. The core of Andrew McCutchen, Josh Harrison, Jung Ho Kang, and the perpetually underrated Starling Marte are locked up through 2018 at less than $35 million per season combined. There is not a single dime committed that lacks substantial surplus market value, and the only commitment whatsoever after 2018 is to Marte at impressively team-friendly levels. Between these four players, you can conservatively estimate 15-17 WARP per season while carrying a total commitment of just $30-35 million per year. We haven’t even begun to discuss the plethora of young, cost-controlled talent they are hoarding, yet you can already sense the impressiveness of what this franchise has become.

And yet there remains the matter of their young talent. Gerrit Cole is already an ace and under team control for four more seasons. Gregory Polanco is brimming with a five-tool skill set and remains under Pittsburgh’s purveyance for five more years. Tyler Glasnow, Jameson Taillon, Austin Meadows, Josh Bell, and Alen Hanson form the top of an impressive array of minor-league talent yet to break through to The Show. Considering the recent success of the big-league team and the constant churn of talent from the farm system, this is an organization on the precipice of being a juggernaut. The only thing holding them back is the wondrously mysterious matrix of achieving success in October.

The revenue side of the equation is rather perplexing. Attendance has skyrocketed to nearly 2.5 million per year as the team has found success, ranking them 15th in the majors despite their reputation as a small-market team and the benefit received from large-market revenue sharing. Team President Frank Coonelly is on record saying that while the local television contract terms are bound by a confidentiality agreement, the reported figure of $18 million per season is “grossly understated.” Between growing attendance, burgeoning talent, impressive fiscal restraint and endless financial flexibility, make no mistake about the trajectory of this organization. These poor Pittsburgh Pirates are not a warm story of a shepherd boy, they are David in all of his righteous anger selecting five smooth stones from the brook.

St. Louis Cardinals

2015 Payroll: $115,350,000

2016 Projected Payroll: $118.9 million ($143.2 million)

2017 Commitments: $90.5 million ($142.6 million)

2018 Commitments: $58.8 million ($108.8 million)

2019 Commitments: $40.8 million ($85.7 million)

2020 Commitments: $18 million ($91.5 million)

Farm System: Average, slipping

Outlook: Long considered a model of small-market success, yet another 100-win season did nothing to dissuade that perception to the casual observer. The indefatigable core of Yadier Molina, Matt Holliday, Adam Wainwright, and Matt Carpenter seem to be stuck in a vacuum in which they do nothing but win Central Division crowns. The sustained brilliance of this organization is something even the most passionate opponent must tip their proverbial cap in acknowledgement of accomplishment. Greater than a decade of dynasty-like winning has created a culture of superiority that the rest of baseball has taken notice to, so much so that the self-proclaimed moniker “Best Fans in Baseball” has become a tongue-in-cheek utterance that has spread from coast-to-coast.

However, a layer under the surface, fissures in the armor of this great organization have begun to form. A shocking report of an FBI investigation into an alleged hacking scandal culminated last week in a “guilty” plea by former Scouting Director Chris Correa. The ramifications handed down by Major League Baseball are still to be determined, but will likely be severe. Separately, Shelby Miller, Tyrell Jenkins, Rob Kaminsky, and Joe Kelly have all departed via trade, with very little to show in return. The final blow was being summarily dispatched from the National League Division Series in four games by their archrival.

Despite the challenges this season presented, all is not lost. Though the minor-league system looks shallower than it has in over a decade, the major-league roster still has ample opportunity to compete for the near future. The aforementioned core is aging, but youngsters Stephen Piscotty, Randall Grichuk, Carlos Martinez, Trevor Rosenthal, Kolten Wong, and Michael Wacha still represent one of the best collections of young talent in the game.

The financial windfall this organization continues to be is something to behold. Sustained success has created impressive attendance figures year-after-year. Despite being named the most profitable team in baseball, the small-market nature of St. Louis still provides the benefit of possibly scoring compensatory draft picks each year. The significant amount of money owed to Wainwright, Mike Leake, and Jedd Gyorko is reason for a modicum of pause, but the overall financial picture is still exceedingly bright considering the cache of cost-controlled players mentioned above and a newly-signed $1 billion television contract that will net them on average $66 million per year over the next 15 years. It will be interesting to see if a period of possibly-reduced success will leave the fan base calling for more investment into payroll. While the foundation of each the Cubs and Pirates may have surpassed them, expect the Redbirds to remain in serious contention every year for the foreseeable future.

Chicago Cubs

2015 Payroll: $114,629,523

2016 Projected Payroll: $126,500,000 ($163 million)

2017 Commitments: $108.2 million ($147.6 million)

2018 Commitments: $79.7 million ($112.6 million)

2019 Commitments: $78.2 million ($114.6 million)

2020 Commitments: $50.2 million ($117.2 million)

Farm System: Above-average, holding steady

Outlook: The storybook 2015 season is one we’ll talk about for a long time, not so much because of the height of the achievement, but rather because of the journey it took to arrive there. A mostly home-grown core of players who themselves proclaimed that because they “were too young to know any better” they were able to stay loose through the crushing mountain of pressure-packed October baseball.

Jake Arrieta won the Cy Young award, Joe Maddon won Manager of the Year, Kris Bryant took home hardware as the game’s best rookie. Kyle Schwarber exceeded all expectations, and a monument to his mark on the team remains on top of the right-field scoreboard. Addison Russell made the collective slack in our jaw stretch time and again. It’s difficult to imagine enjoying a season more than we did last year, even if the ultimate goal remained beyond the team’s grasp. The additions of Heyward, Lackey, and Zobrist suggest a take-no-prisoners mentality from the front office, one that is attempting to kick the door of contention wide open for years to come.

A bevy of promotions forced the farm system back into the shadows this season. While it doesn’t boast the dizzying array of talent it held 12 short months ago, it remains solid even if it lacks ready-made major-league reinforcements. Gleyber Torres is as precocious as they come, Willson Contreras has an opportunity to fill a long-standing organizational hole at catcher, and Albert Almora is one sustained offensive breakout away from being an everyday regular in center. The system now boasts more overall depth than it ever has, even if it doesn’t hold the obvious star power of previous iterations. In many ways, it resembles the Cardinals’ system of the past decade, which consistently provided reinforcements when the big-league team needed it most.

The financial side of the equation isn’t as easily parsed, but in many ways it mirrors the impressive foundation of players the roster now boasts. Wrigley Field is undergoing a tremendous revenue-generating overhaul, and will surely surpass the three-million mark in attendance this year. The front office has committed to maintaining flexibility even in their free-agent acquisitions, and the cost-controlled nature of the young core allows them the ability to pursue the top of the market.

While scoreboards, hotels, and other luxuries bring in the lifeblood of an organization known as cash flow, the real money is made in regional television contracts. While the existing contract that runs through the 2019 season provides them a respectable sum north of $60 million per year, the bottomless pit of resources is likely to come in time for the 2020 season, when payroll will explode as unthinkable amounts of cash land in the coffers from a newly-established Cubs-owned network. While the money itself won’t land until the turn of the decade, the knowledge of its existence will positively affect the ability of the front office to participate in the 2018 class of free agents, and also allow them the flexibility to aggressively pursue extending their existing homegrown talent.

As we discussed in part one of this series, Theo Epstein has theoretically split his window of contention into two parts: The first part features the young core, Zobrist, Lackey, Heyward,  Jon Lester, and Miguel Montero. By the time the 2019 season rolls around, it is likely only Lester and Zobrist will still be around, with the latter in the final year of his contract. The execution of this strategy has allowed the Cubs the ability to go all-in not just once with their cost-controlled core, but ultimately twice when considering the financial flexibility that has been maintained for the free-agent class of 2018.

Payroll figures used in this piece are courtesy of Baseball-Reference.com.