Wednesday, January 15, 2014

By Robert Cunningham, Staff Writer - 

No, this is not a new imported Japanese beer brand (although if the Angels sign Masahiro it ought to be a marketing opportunity right?).

However it is the unintended and undesirable effect that Masahiro Tanaka is having on the current off-season trade market.

The entire pitching side of the trade market is at a virtual standstill (no wonder Tanaka likes the Los Angeles area… he’d be at home on the 405). In addition there are certainly teams out there that have proposed trade packages on hold until they can determine if they will be able to sign a particular player (the contingency trades).

Also Tanaka’s eventual selling price and contract length should help lower-tier pitchers to set their own price ceilings and number of years. In the wake of his signing (or the extremely low chance he returns to Japan) we should see a flurry of additional free agent pitchers fly off the market over the following 1-2 weeks.

There has also been tremendous speculation on what Masahiro’s eventual contract will look like. The influx of new money into MLB teams has really escalated contract values this off-season.

Dave Cameron of FanGraphs took a look at the price of a win back in late November. At that time Mr. Cameron determined, based on the limited number of free agent contracts signed at that point, that the $/WAR was $6.24MM. He did note that additional free agent contracts would more than likely increase that number through the remainder of the off-season.

Well nearly a month and a half has passed since that article and there have been additional large contracts signed in the interim. Below are those interim free agent contracts and their effect on $/WAR as of Jan. 14th, 2014. Free agent contract data was primarily obtained from CBSSports

Dave Cameron was correct regarding the impact of later big-ticket signings that included Cano, Ellsbury, Choo, and Beltran among others. The current $/WAR price stands at approximately $6.41MM.

That would be an increase of approximately 16.5% over last year’s $/WAR which is more than the standard year-to-year increase of 10% that is seen historically. Obviously the new MLB money is having an effect on spending.

By updating the FanGraphs piece it also gives us better information to predict and compute a possible Masahiro Tanaka contract.

The table below shows possible 6-year contract values based on a 2-WAR, 3-WAR, and 4-WAR performance per season from Mr. Tanaka and the corresponding contract dollars that you would expect to see based on the 6.41MM $/WAR value from the table above:

So, based on the current running free agent $/WAR average of $6.41MM, Masahiro’s contract could conceivably vary between $100MM and $200MM depending upon a team’s valuation of his ability.

Realistically speaking you have to account for the $20MM posting fee in this equation so in all likelihood that amount would be subtracted from the expected contract value. So instead of $148MM his actual contract value would be about $128MM.

A solid #2 starter would probably be in the neighborhood of 3 WAR. Since Tanaka is considered by many teams to be a #2 guy, it seems quite possible that Masahiro will sign for approximately $120-140MM plus the additional $20MM posting fee for a total of $140-160MM.

Before some of you scoff at that amount you have to realize that the economics of baseball have changed dramatically in the last couple of years. The approximate 16% increase in the price of a win over just last season is indicative of this trend.

Another important note is the fact that this valuation only used the $/WAR average. Looking back at the first table you can see that players like Cano, Ellsbury, Granderson, and others were actually significantly higher in terms of $/WAR. This is reflective of the fact that they are bigger names that will generally produce more consistent results, thus the inflation in their contracts.

It is likely that Masahiro will be closer to the mean since he is an unproven commodity in Major League Baseball. Although he has the big name, his price will be tempered by his MLB inexperience.

Jerry Dipoto and the Angels front office should be prepared to spend $20MM or more per year to acquire Masahiro Tanaka’s services. Since the Angels apparently only have about $15-20MM to work with it looks like he may be out of reach.

However there are some things to consider that may make it possible for the Angels to still win the Tanaka sweepstakes.

First of all the Angels still have assets that could reduce payroll if they were moved in trade. That is one way that the Angels could shave enough dollars to fit Masahiro in under the luxury tax threshold.

Secondly Arte Moreno could simply approve the acquisition of Tanaka and allow the team budget to slip above the luxury tax threshold. The penalty for the first year is only 17% and in all likelihood it would only be for one season as the Vernon Wells contract comes off the books next year giving an instant $17MM in salary relief.

Finally the Angels financial situation isn’t bad at all. According to this article, by Eric Lindros of SB Nation, the Angels have approximately $150MM in annual rights revenue. However, the Angels, like the Phillies, also have a 25% ownership stake in Fox Sports West. The interesting about this, as Scott Boras was quoted in a different article, is that by having a percent ownership in the entity, it prevents the Angels from exposure to revenue-sharing rules.

So based on the large LA market, despite our split with the Dodgers, you have to think that the Angels are pulling in at least another $75-125MM in advertising revenue. That is a significant sum of money.

When you combine that advertising revenue with the annual rights revenue and when you consider that the Angels have no discernible debt, you have to believe that if Arte ever wants to bump payroll he could do so quite comfortably.

This doesn’t mean that the Angels want to go over the luxury tax threshold but it certainly points to the fact that if and when Mr. Moreno wants to make a cont(r)act play at the plate he can certainly do it and do it well. This is why anything is possible in regards to signing Tanaka as the Angels appear to be quite comfortable from a financial standpoint.

Once Tanaka signs other free agents, such as Matt Garza, will be in a better position to really understand their potential contract leverage with interested teams. A ball club that misses out on Masahiro might stretch their budget to offer Garza additional dollars or years to make sure they don’t miss out on the next tier of talent.

Additionally once this bottleneck begins to clear, the trade market should see some activity as teams are able to proceed forward with contingency trades. If Team A would only make a particular trade with Team B if they are able to sign Matt Garza you should see some additional market activity, post-Tanaka.

It would not be entirely surprising if the Angels executed one more trade before Spring Training. This may be especially true if they end up missing on Tanaka and Garza as it seems unlikely Dipoto would feel completely comfortable starting the season with the current rotation depth. It’s better than last year but not as good as it should or could be.

Erick Aybar, Howie Kendrick, Kevin Jepsen, and Chris Iannetta are still tradable assets and if we were to find the right trade partner a deal could still be found for another quality starting pitcher.

Some have pointed out that there aren’t many teams left that are in need of a 2nd baseman or shortstop. That may be true but there are teams that could use an upgrade at those positions and all that they have to do is move their current occupant out to another team to make a trade happen, so the options for trade partners is probably slightly higher than many realize.

A team like the Reds for instance has a 2nd baseman, Brandon Phillips, which they would like to move, possibly at a discount. A package centered on Howie Kendrick for Brandon Phillips and Homer Bailey might be possible. Phillips contract is underwater and Bailey is heading into his last year of control before hitting free agency so the Reds would likely be open to the idea if they don’t believe they can extend Bailey.

Teams like Toronto and Baltimore don’t have solid options at 2nd base heading into 2014. The Mets have been in the rumor mill regarding their possible need at shortstop and a good solution to not signing Stephen Drew would be to trade for a shortstop like Erick Aybar, which would almost certainly save them money. Drew is likely looking for a 3 year/$30-40MM deal and Aybar, the better player, would only be a 3 year/$25.5MM commitment for the Mets.

Again there are always options beyond free agency and it seems very likely that the Angels front office has explored multiple options as the off-season has unfolded. Just like a First Year Player draft board, as pieces come off the board, the team makes the necessary adjustments to fill team needs. The same is true of the off-season.

In the minutes before submitting this for publication the headline came out that Kershaw signed a 7 year/$215MM extension with the Dodgers. The new national and regional television deals are definitely having an impact on the economics of baseball, without a doubt, and will continue to do so for at least the next couple of years.

So until the Tanaka bottleneck clears you should only expect to hear about player extensions (ex: Kershaw) and free agent signings of position players (ex: John Buck).

If this Tanaka bottleneck continues much longer the fans just might need a beer to wash down the sour and bitter taste.
Love to hear what you think!

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