2015 – One shot at Elite Talent

It’s funny how we get set in our ways.

The Cardinals have the 8th smallest market in baseball. They are a small market. That’s unlikely to change in our lifetimes.

As such, even with their success, revenue, and attendance, they always have to be careful. Their market has limited them so that even if they could afford more, they always had to look years out. A team stumble with a bad long term contract could leave them in a hole for years.  Put a team in the hole for years, even the Cardinals, and the revenue stops coming in.

The Cardinals will lose again. They will stumble. The darling organization of the baseball world will fall below other teams. It’s an inevitability that will lead the younger fans – who haven’t already had to endure decades of focusing their love on positive aspects of the team besides winning – to give a fierce backlash. How dare the Cardinals not continue this wave indefinitely?

Obviously the goal is to push this run as far as possible. The Cardinals have done this by being ahead of the pack. They have been brilliant drafters, finding talent deep in the pool. Their minor league system has turned fringe players into good major league contributors. They have invested in Latin America to fill Draft talent gaps from always picking near the end. They have signed smart contracts that turn out to be below market value.

And they have to be below market value, right? Because this is St. Louis. Whenever we talk about a free agent signing with this team, the first thought is always “Do you think they would accept less to play here?” Followed by shock and disappointment when the vast, vast majority of them say no.

We lost Albert Pujols this way. We lost him because Mo doesn’t play the emotions game. He plays a cautious value added game. It doesn’t always work out, but more often than not Mo gets big wins alongside small bombs.

It’s a good strategy, a great strategy even. It has led the Cardinals to be wildly financially successful and flexible. Cardinal’s management – never one for advocating spending more – has said as much this offseason. That’s the key here. We are talking about this offseason. Because in this offseason the Cardinals have a real chance to secure top talent. Even with all of the success, even with all of the revenue, you can’t remember the last time that was said. And this opportunity? It’s actually a window closing very fast. If the Cardinals are to secure top talent on the free agent market, this will be the very best year to do so. All others will get worse, until the opportunity vanishes again for an untold amount of time.

To remain competitive this team has set up their future by making smart, liability limiting deals.

To continue this, they’d be best to make smart, budget busting deals, while they still can.

It’s time to forget about your ways you’ve grown accustomed to. We’ve entered a new world, with new realities, a shifting landscape that requires new thinking.

Through the 90s and the 2000s we’ve all read and laughed at how terrible long term contracts are. We all heard the warnings from analysts about how much a team is going to regret it in the end. We have seen teams declare they are stuck, payroll wise, because of a bad contract. In order to win, they must shed payroll and start anew. 20 years ago we were told the finances were so bad, two teams needed to be contracted. This was just 20 years ago!

You still hear that today, but it’s silly now. Teams still like to shed payroll, or bad contracts, but it hardly limits them. They are setting a budget, but aren’t scared of actually losing money. If a team wants to win these days, and it’s hit its self-imposed budget, well, they just have to decide if they want to raise it. They aren’t going into the red anymore.

Do you remember laughing at the Barry Zito deal? I do. It was a terrible deal. He was obviously already declining. The Giants would be stuck with that albatross of a contract for YEARS! People were roaring about how much Zito was going to limit them.

Oh, Zito limited them all right. As he was contributing league average stats, the Giants won the 2010 World Series. He got worse, and his salary continued to climb, and the Giants found they could afford to pay their stud pitcher Tim Lincecum.

Oh, no wait, they could afford him. They paid him $40 million over the next two years, and he was terrible alongside Barry Zito who was terrible, and the Giants had the resources to with the 2012 World Series.

And Zito left, and Tim was bad, and the Giants said “Hey, maybe he’ll get better!” and they paid Tim $35 million for two more years. He didn’t get better. And the Giants won the 2014 World Series.

And at no time during this run, when the Giants were wasting $40 million dollars on bad players, did we hear any talk of them needing to dump contracts to compete. The Giants never paid another team money to take a player off of their hands. They could have. Teams would have lined up to take the Timmy recovery challenge at, say, $5 million a year if the Giants were willing to save money and eat $12 million.

Of course it didn’t happen, because there was no need to make it happen. The Giants could compete even with wasted payroll. Times have changed, man.

They’ve really changed in the past 5 years. We’ve all laughed at the Angels from day 1. Albert obviously wasn’t going to be earning his $30 million at the age of 42. He was already declining. The contract was a bust from the start. It would cripple the Angels for years!

Then they signed Josh Hamilton to another terrible contract. More crippling! The Angels won’t have money left! How will they sign Trout?

Turns out easily. From 2018-2020 he’ll be making 34 million dollars a year.

And guess who has been linked to Jason Heyward?

These are bad contracts, for sure. Pujols and Hamilton you could smell from a mile away. They were terrible contracts for aging players. But the Angels are not going out of business. Any financial restriction in place are of their own making. The Angels are loaded.

Just like almost all of baseball is.

Just like the Cardinals are.

Folks, here are MLB Revenues from 1995 to 2014

The quick take away is this: MLB made $1.8 Billion in revenues in 1995.

If MLB were in the same place in 1995 as it was in 2014, with inflation it would have made $2.67 Billion

Instead it made 9 Billion dollars in 2014.

Let that sink in.

It’s actually nice and easy math. Over the last 20 years, Baseball revenues increased by 500%.

BUY. THAT. STOCK.

Oh, and a little tidbit, this graph says 95, but it’s actually since 96. In 95, the # was 1.4 billion.

That’s how you go from contracts that halt a team, to contracts that simply annoy the profits you’d like to have.

So you’ll want to see how the Cardinals specifically are doing, right?

Here you go:

http://www.forbes.com/teams/st-louis-cardinals/

If you’d rather me break it down for you, I will.

The Cardinals are filthy rich.

The concerns about signing Pujols after 2011 were warranted, as the Cardinals bottom line would have been nearly flat – and no business likes to run flat.

But in 2014, you saw a massive, massive jump in revenue. Why?

  • Baseball in general continues to be more healthy, so revenue increases
  • The Cardinals in specific have continued their success run
  • Ballpark village and extra seats, my friends
  • MLB signed a new TV deal, and the results of that new TV deal is an additional $25 million dollars in revenue for EVERY SINGLE TEAM EVERY SINGLE YEAR.

That’s a pretty big fact you may not have known about. MLBs TV package, for the last two seasons, has allowed the Cardinals to increase their payroll by $25 million a year simply from the national TV deal.

What has their payroll done?

It has gone down a million dollars since 2013.

The end result is, the Cardinals could have spent SEVENTY MILLION MORE DOLLARS last year and still have turned a profit.

And that was last year.

Since then baseball has gotten even healthier, the Cardinals won the most games in baseball, and:

The Cardinals signed a new deal with KMOX. We don’t know the financials of the deal – but, uh, do you think it was for less money?

Me neither.

And of course, you know about the big one.  The Cardinals signed a new TV deal that is worth over a billion dollars. Starting in 2018, the team will get around 20 million more in revenue from this deal, and it will increase to a total of $86 million a year by the time the deal expires in 2032.

That’s not bad, is it?

It’s also bunk.

If you read that link you saw that Forbes valued the Cardinals at $1.4 billion. This was knowing the Cardinals were going to get a new TV deal.

When the actual TV deal was reached, it was better than Forbes projected it to be, and the revalued the Cardinals at $1.6 billion.

That’s a worth of $200 million more.

But wait a minute, they were surely already expecting an increase in revenue, so how did they end up off by $200 million?

Because the Cardinals got a 30% equity stake in Fox Sports Midwest.

That equity stake means the Cardinals didn’t sign a Billion dollar deal. They likely signed a 2-3 Billion dollar deal.

When people tell you the deal is worth a billion dollars, they do so not understanding what that equity stake means. Now, you do. Now, tell me:

Is there an argument on this planet that makes sense where the Cardinals signing one player means that they cannot afford another player?

No, no there isn’t.

And you people have already seen this. You saw the Cardinals go for over $25 million a year to get David Price – that’s just 2014 national TV money! Did you think that meant no Heyward? The Cardinals said themselves they could afford both. The numbers are plain to see.

That quote from Theo Epstein declaring that the Cardinals could do whatever they wanted? That they are “almost unlimited?” This is what he is talking about.

When you are thinking about players this offseason, you do not, for one moment, have to worry about what the Cardinals can afford. That’s yesterday’s thinking. If the Cardinals declare they can’t afford a player, it’s because they decided not to. Not because they couldn’t. DeWitt has hot tubs in his hot tubs.

 

OK, so we’ve established signing players has nothing to do with what the Cardinals could afford, let’s move on to why this year.

No, it’s not because the Cubs and Pirates are super de dooper good, so I guess the Cardinals should actually try.

It’s because salaries amongst the top talent in Major League baseball is severely depressed, and that’s going to change extremely fast.

I know. Your eyes are bulging out of your head. Because you are using yesterday’s thinking. But I’ll give It to you straight:

Virtually every single deal you see with numbers that make your eyes bulge out is below market value.

Zimmerman? Whoa!!!! David Price? Not worth it!!!!

Oh, they are worth it.

After all of the talk about the Cardinals TV deal, do you know what’s sad about it? It’s speculated to be in the top 10 of all of baseball.

We oooh and ahhh over this deal, but the reality is, one by one, every team is getting a deal like this. And as a result, their revenues and ability to spend is exploding.

What? You don’t remember when it was only the Yankees who could, at will, outspend everyone else?

Well now it’s the Dodgers, and the Angels, and the Rangers, and the Giants, and the Cubs who could produce payrolls that would blow you away. The Cardinals aren’t a top dog, and as more TV deals come, there will be other teams joining the spending festivities.

And the deals will only get comparatively better.

And the amount of teams ready to throw $30 million a year at a player will only increase.

And when that happens, if you want the player, you’re going to have to go higher. Zimmerman is going to look like an absolute steal.

This is already happening. The world is changing quickly. Remember in 2012, the Cardinals signed Yadi to that huge extension? The kind of money that they couldn’t have had if they had kept Albert around?

Do you realize that Yadi will make 14 million dollars next year? This is well below the qualifying offer level. We gasped in delight 3 years ago. Now Yadi is making less than Colby Rasmus.

The last guaranteed year of Matt Carpenter’s contract is $14.74 million.

That big FA splash Johnny Peralta is making $12.5 million next year.

These big deals have quickly become chump change.

What’s going on here?

Everything is cyclical, and after baseball saw a few long term bad deals go belly up, everyone got more cautious and smarter.

Teams used to sign free agents with nary a thought about draft picks. Now we see qualifying offers causing players not to sign at all. Those 6 protected years – often including a player’s peak years – quickly became the most valuable assets in baseball. Teams went to sign their young stars out of their arb years, and gave them a few million dollars so that when they did develop, they weren’t faced with unknown quantities through arbitration, and a player that smells free agency.

Think back to virtually every deal that has been signed that’s like this. They all come with the same phrase. “Team friendly.” Well yeah, you take a 24 year old that might be hurt, or bust, or end up out of baseball, and say “Hey kid, he’s is 30 million dollars. No matter what happens, you’ll be secure for life!” and they are going to sign.

Oh, and here are a few team option years, but don’t worry, those years come with a raise!

Sounds good to me.

And when those options come around? Years have passed. Baseball revenues have skyrocketed. Those high priced options become no-brainers.

$11 million a year for an often injured, enigmatic pitcher who folded like an umbrella during the playoffs, AGAIN?  Well sure. You’ve got to do that deal. Welcome back Jaime Garcia.

Some of these kids go bust, and live off of their $30 million. It’s wildly worth it for a team to do this. Because the ones that play to their ability – are worth a whole lot more.

And if they do enter Free Agency, they do so with a part of their peak behind them. 30, 31 years old, in a decline phase, with amounts more than the up and coming youngsters, means they aren’t getting record setting deals.

So prices, annual values, stay down.

But the teams still have a ton of money to spend, and so they spend it upside down, with lesser players getting far more $ for their contribution to the team.

The Cardinals just signed aging, backup Brayan Pena for $2.5 million dollars a year. He was worth 0.2 fWar last year, which was one of the better years of his career. He’s actually had negative WAR over the length of his career.

Let’s assume he stays as productive as he was last year – unlikely due to decreased playing time, and further aging, but let’s show just how much money the Cardinals gave to Brayan Pena.

If Brayan Pena is worth $2.5 million for his 0.2 fWar then…

Jason Heyward is worth $75 million dollars a year.

That’s on a linear scale, which I will get to in the specific Jason Heyward section. A true scale, and Heyward would be worth more. And this is with a very kind assumption on Brayan Pena’s contribution next year.

This is why the JA Happs of the world – aging, shaky track records, definitely risky – are getting guaranteed deals for more than you’ll ever see in your lifetime. The clubs have the money to spend, and if it all goes bust, Happs $36 million will barely even be felt. $13 million 3 years from now? It’s nothing.

I know, that’s hard to comprehend, so let’s look at it this way:

A major league roster has 25 active players, ok? The amount of money a team can spend before it pays a luxury tax is $189 million dollars.

Now, on that team (because we are here for the Cardinals we’ll talk about an NL team) you have, say, 14 important players. That’s 8 position starters, 5 rotation starters, and 1 closer. The rest are bench and bullpen. The average MLB salary last year was $4 million, but of course your starters are likely to make more than that, so we’ll say bench and bullpen pieces are $29 million of those dollars. That’s $2.64 million per player, which is an absurdly high amount considering how likely it is that many of those players are in their first year out of the minors, and making less than a million dollars. But hey, I’m trying to be conservative with these numbers.

That leaves $160 million dollars for 14 players. That’s over $11 million per player.

Think about the Cardinals 14 players for a moment. How many made over 11 million last year?

Holliday
Wainwright
Molina
Peralta

Out of 14. And no player on the Cardinals ever has a contract year, even an option year, where they get $20 million plus.

That leaves teams with a ton of money to spend.

So why aren’t they?

For the same end reason they were cautioned for 15 years ago. Too much payroll tied up into too few players that goes bust will hurt their ability to be flexible with money.

But wait, WHAT? After all that I just said?

This is because of the CBA and the luxury tax. This is baseball’s way of avoiding a salary cap, but also giving teams the freedom to spend as much as they want. I love the concept, but like everything else, it needs fine tuning.

1st of all, the price to garner a penalty is way too low. 5 years ago it was set at $178 million dollars. 2 years after that it went to $189. It stayed at $189 for 3 years in a row.

Imagine that. To avoid any tax at all, teams at the limit could only increase their payroll by $2 million a year. That’s basically a 1% increase per year. That’s less than actual inflation, forget about the huge jumps baseball has been having. This number should be much, much higher.

2nd of all, it penalizes a team for staying over the cap for too many years. Rather than having a flat % for paying over the line (as I think it should be) the percentage increases for each year you’ve been over the line. You can only reset it by having a year where your team drops under the line.

Teams don’t like paying for nothing. This is why even the Dodgers, who spend so much money they might as well be considered a government, have even made statements lately about needing to get back below the line. Because even if they keep payroll steady, the % penalty they pay jumps (big) every year, and your profits will plummet into other team’s hands for absolutely no reason.

This is why – not speculation, this is what they said – the once kings of spending, the Yankees, stopped giving out their mega deals and worked to get their payroll below the 189 mark.

The result of this is that the biggest stars in the game have found it harder to get higher AAVs and longer contracts. The system gives the giants huge incentives to dip below the line every few years.

Naturally, this has limited the amount spent on salaries.

We know the richest teams in sports don’t like it. Do you think the players like that? They’d have to be totally against it. Their top stars are suffering for it.

The CBA expires after 2016, and teams must plan ahead. Here are two things I expect to happen:

  1. Goodbye 189 million, obviously. This number will go up. It won’t go up drastically because, hey, small market teams still need their revenue sharing, but it’s due to go up. I expect it to be in the 200-225 range, and for it to escalate faster than it did in the previous agreement.

The results of this means that next year’s offseason will be an immediate payroll boost for all rich teams. If it goes up to say, $200 million (always playing conservative) then not only will they have 11 million more to spend, but they’ll also have $11 million fewer dollars they are penalized for spending. So poor teams will have the payroll their teams expect. Rich teams – teams that will be competing for the top talent in the FA market – will have $11 to $16 million more to spend.

And that’s at $200 million, which I consider the lowest it will be.

  1. Restructured penalties for high spending teams. You’d think setting, say, a flat 20% tax would suit everyone well. Rich teams don’t have to play games trying to get out of the bigger penalties. Poor teams don’t have to worry about rich teams dipping under the line to avoid the constant growth – and thus the poor teams have steady money coming in – and the players get more years and more value out of their contract. The fear for teams signing a long term deal at a high cost drops dramatically. And those big boys will spend.

That’s 2016.

That’s why 2015 is a magical, magical time for the Cardinals to spend money. Whatever you think elite pitching costs now, it’s going to jump with every new TV deal, and the new CBA. If you can lock in a position for the future, and have the money to do so, you lock it in this year, and you smile as that move looks more and more like a bargain every single year that goes by.

This is why the Red Sox threw $217 million at David Price.

As I’ve said, revenues have exploded, and the price given to players has been bottom up. As a result, people like David Price would have been underpaid in the market place. Fangraphs uses the same methodology I showed you with the Pena/Heyward comp, and the extrapolate it over the entire Free Agent market to find out what a player is really worth for every “win” teams try to buy in Free Agency.

David Price became a full time starter in 2010. Here are his values compared to the Free Agency Market that year (in millions):

2010: 25
2011: 33.2
2012: 32.8
2013: 32.8
2014: 46.1
2015: 51.2

Now, factor in the explosion of cash on the market place, and the new CBA upcoming, and you tell me, is David Price worth $31million a year?

Yes, in 7 years he will be 37 years old. But baseball will be 7 years richer, and remember, a team like the Cardinals isn’t about to go bankrupt from a bad contract. They become write-offs.

There is also a matter of scarcity. We keep comparing things from a linear standpoint, but the truth is, a 6 WAR player is worth more than twice what a 3 WAR player is.

This is because there are only so many at bats and pitches to go around. And if you choose to take the 2 players over the better one, you have one fewer position to gain additional value. So you pay the 6 WAR player more, and you know that for your other position, even if you get a cheaper player worth less than 3WAR, you’ll still come out ahead.

Then when you consider how much easier it is to get a 3 WAR player, then find a 6 WAR player, oh yeah, their actual value is worth more than even the numbers you see listed here.

David Price is a 6 WAR player. Jason Heyward is a 6 WAR player.

Price was worth that gamble for sure, and I wish it was the Cardinals that would have taken it.

But a few things on Price:

  1. He’s a pitcher. His chances of missing a year+ due to injury are substantial
  2. He’s already 30. These will include his decline years.

Which brings us to Jason Heyward. Earlier I got into a friendly spat with Dan Buffa about how much Jason Heyward should get. I put the ceiling on 10 years/330 million dollars. That’s a ceiling remember. I would be worried to give more than that.

But is a 30 year old pitcher is worth 31AAV with injury risk and decline years, remember for Heyward:

  1. We are talking about his age 26-35 seasons, going through 5 prime years you wouldn’t get with Price
  2. He’s a position player, who are far more safe bets
  3. Oh, about that whole David Price thing. Remember those numbers above? Jason Heyward is better. By a lot.

Over the last 4 years, Price has been worth about 7 million more than Heyward, with Heyward missing 1/3 of a year after getting hit in the face. Price was also in his prime years, while Heyward has been doing it 5 years younger.

The usual argument against Jason getting money is his non-flashy bubblegum card stats.

Please. I expect better from people that watched Ozzie Smith play. This game is not about HR/RBI, it’s about accumulating wins in any way you can. That defines Jason Heyward.

(So I could now tell you that yeah, there is a chance as he actually hits his prime years he could develop into a power hitter and blah blah blah, but there is no need. If Jason Heyward plays at the same level he did last year over the next 5, he’ll be an incredible value. And remember, he’s moving into his prime, so you can actually expect him to be at least a little better.)

Heyward wins at all facets of the game.

A little roster construction theory for you:

A playoff team has to, on average, be one of the 10 best teams in baseball. That’s to make the playoffs. If you are expecting more, then you obviously need to move that up the list.

But in general, you should want to look at your players and say “yeah, they are in the top 10.” If you can’t, and it’s not a young person you expect to improve, then that’s an area of weakness you need to address.

Now, obviously this is a moving number when considering depth. You don’t need 5 top 10 starters. But your nice target should be a #1 starter in the top 10, #2 in the top 40, #3 in the top 70, and so on. I could go on thousands of words more on that, but I’ll space you. Suffice to say, position starts make this easy. Teams should look to have a top 10 at whatever positions that can, and consider the other positions always in need of an upgrade.

The Cardinals struggle in this area. Matt Carpenter was a top 10 player at his position. (Judging by WAR. I know you can hate WAR. Fine. But there isn’t a better tool we have right now to look at a players complete game, so deal with it until something better comes along) Grichuk and Pham (believe it or not) were close. Besides this, they were empty.

Oh, except for Jason Heyward.

He was the 2nd best RF in baseball last year (behind Bryce Harper) on a team that…doesn’t have nearly enough high ranking position players.

That’s overall, which is great, but you can break this down by Heyward’s individual skills:

This is among all players with 250 at bats who could even reasonably be considered a RH (for example Brandon Moss is on this list, and he isn’t a freaking RF) So take Heyward’s rankings, and remember, they are as low as you can get.

  1. Base running Runs added – 1st
  2. Total Offensive Runs added – 7th
  3. Defensive Runs saved – 1st

That’s a complete player. Need more proof? He was 7th in offensive output, which is still great. Each of the 6 players above him had negative defensive ratings, while Heyward had some of the best #s in the game.

There is no slump for Heyward. If he isn’t hitting, he is doing other somethings, and he is doing them better than anyone else who comes near his position.

In baseball, there are 3 right fielders of the future: Harper, Stanton, and Jason Heyward.

Not Piscotty. Not Grichuk. Not Pham. They all have holes in their games. Jason Heyward doesn’t have holes, and he’s yet to hit his prime years. Whoever gets Heyward is going to be freaking thrilled. He’s going to be awesome.

Jason Heyward has been worth $33.01 million dollars per year on average for the 1st 6 years of his career. This includes being a young kid, it includes injuries, it includes everything.

That’s with past years’ finances, and prior to his prime.

What’s he going to be worth over the next 10? It’s a safe bet it’s well beyond $330 million.

What will $33 million look like in the last year of his contract? Based upon the jump in player value from 2014 to 2015, and passed out over the next decade, in 2025 $33 million dollars would get you a 2.6 WAR player in Free Agency. That’s a player slightly better than Kolten Wong was this year.

Will I go ahead and bet on a 35 year old Heyward beating that? Yeah, I think I’ll go for it.

This is it. This is the year the Cardinals can go for it. It’s the year before money gets unleashed, and the big market teams can go hog wild. It’s the years before all the other teams without a TV deal start signing their new, lucrative contract.

Jason Heyward was worth 48 million dollars last year, as a 25 year old.

You’d be a damned fool not to jump at the chance to pay him $15 million less than he’s worth.

Because the next time a Jason Heyward, or a David Price hits the market, you won’t be hearing the name “Cardinals” associated with them.

You want elite talent while you can afford elite talent? Pay the man.

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