Nats Avoid Arbitration, Buy Out A Year of Free Agency With Gio

Do you have something to say? Fantasy Info Central is looking for part-time writers that are eager to share their insights on baseball, basketball, football, and hockey. Click here if you’re interested.

The Washington Nationals paid a steep price in prospects to acquire four years worth of Gio Gonzalez in December. On Sunday, they avoided arbitration with Gonzalez and bought out his first year of free agency by signing Gonzalez to a five year, $42 million extension. The deal also includes two club options for the 2017 and 2018 seasons that could make it worth a total of $65 million. The deal established a record high for a player entering his first year of arbitration eligibility, but should prove to be a bargain for Washington in the long run. Let’s examine how.

First off, let’s do a brief synopsis of arbitration rules for those who aren’t real comfortable with how it works:

Year One Through Three: The Reserve Clause

Generally speaking, players who are still under the reserve clause play for a salary that is at or around the league minimum regardless of performance. To show the case of an extreme example, we can look at 2008 (and 2009) NL Cy Young Award winner Tim Lincecum. Lincecum won that first Cy Young award in his second season, when he was getting paid $405,000. As he entered his third season, Cy Young in hand, Lincecum received a raise of just $245,000 to $650,000. While many of us would consider a 60% raise for being the best in our field more than ample, it simply wasn’t in this case when considering what comparable (or, for the most part, lesser) players get paid.

Years Four Through Six: Aribtration

There’s a lot of grey area regarding what a player can expect to receive through arbitration. Obviously, performance starts to come into play here, as players finally start to get some degree of leverage. The arbitration process exists in part to ensure that players start moving towards what they would be worth on the open market, but they still depress salaries enough so that teams won’t pay what they would have to for a comparable player on the open market. The general rule that we find is that player salaries will increase each ensuing year assuming similar performance from year to year. For this reason, many have tried to quantify what we can expect the player’s salary to be in comparison to a free agent who offers similar production. Perhaps the most common expectation is that a player can expect roughly 40% of what a comparable free agent would make in his first year of arbitration. He’ll make 60% in his second year of arbitration. Finally, he can expect roughly 80% in his final year of arbitration eligibility. This 40/60/80 rule obviously isn’t anything that’s carved in stone, but seems to be the general rule that many statisticians use when guesstimating what a player might get through arbitration.

Super Two (or Super 2)

Players with more than two but less than three years worth of service time can be considered eligible as Super 2 arbitration eligible players if they have accrued 86 or more days worth of service time during Year 1 and rank in the Top 17% (in terms of service time) of players who have accrued more than two but less than three years worth of service time. They are still under club control for the next four seasons, but hit arbitration a year early. This is the class that Gio Gonzalez fits into.

Finding a “Free Agent” Gio

In order to figure what Gio Gonzalez could have expected to sign for through arbitration (again, assuming similar performance to what we’ve seen so far), there are two different routes we can use. We can use the expected market rate per win (using fWAR) and see what Gonzalez figures to be worth for the next several seasons. We can also try and find some players who have produced at similar levels and use their current contracts as a baseline.

Paying Gio Per WAR

First off, Gio is 26, which means that we should expect him to be enjoying his baseball prime for the next five to seven years (actually, the length of the contract). While we should probably expect his WAR to account for his seasons of peak production, we’re going to simplify things a bit by assuming similar production to what we’ve seen the past few years. We’ll use a weighted three year average (60/30/10) to give a little more credit to recency as we figure the average WAR we’ll use as the baseline.

So 3.2 fWAR is what we’re going to go with.  Again, this doesn’t assume any improvement (expected as he hits his peak years), regression, or injury. We’re assuming that Gio is a pitcher who throws roughly 191 innings with a 3.42 ERA and 3.77 FIP per season. Most current models see teams paying between $4.5 and $5 million per win. We can usually expect inflation, but we’ll treat this as if we’re handling the signing in a vacuum. Let’s look at the low end ($4.5 M/WAR) to figure out what Gio’s expected salaries may have been through his four arbitration eligible seasons.

What this tells us is that if Gio is the same pitcher that he was based on a weighted average of the past three seasons over the next four years, he probably would have gotten somewhere between $38 and $42 million (remember… we used $4.5 as the market value for wins).  The Nationals signed Gio for $42 million including these four seasons and the addition of a fifth season which would have been a free agent year (worth roughly $14.40 million if he remained at the same level of production) with two more option years which would be slightly below his expected market value ($11.5 million Average Annual Value on the options).

We can also look at this in terms of surplus value. If Gio were to maintain his current level of productivity for the next five seasons (guaranteed years), they could expect $72 million worth of value if we account for $4.5 million per WAR, which would give the Nats $30 million worth of surplus value. If they were to exercise both option seasons (again, expecting 3.2 WAR as his average production), they would net $35.8 million worth of surplus value.

Current Comparables In Terms of WAR

To figure out some of Gio’s comparables, we’re going to look at pitchers who have accrued between 6.5 and 7.0 WAR the past two seasons. While I hate to cherry pick with two seasons, Gonzalez’s production has improved in each of the past two years (as you would expect) after a ho-hum rookie showing (at least with the surface stats). Oddly, the majority of the pitchers in this group tend to be in Gio’s age bracket, which makes for some interesting salary comps. We’re going to take a quick look at Ricky Romero (6.9), James Shields (6.9), Jaime Garcia (6.7), Matt Garza (6.6), and Chad Billingsley (6.6) to see how the Nats may have done.

Like Gonzalez, Romero would be entering his first year of arbitration right now. However, the 27-year-old lefty signed a five year, $30.1 million extension that locked him up through his arbitration years in August of 2010. The deal included one year’s worth of reserve clause status, all three of his arbitration years, and one season’s worth of free agency. As we’ll see with most of these contracts, the earlier a team jumped in and extended a player, the better a deal they figure to get in the long run.

Shields’ deal is even more team-friendly than Romero’s. He signed it at Gio’s age (26) with a year and a half of service time under his belt. The deal was originally for four years and $11.25 million, but contained three option years for 2012-2014 that figure to bump the total to $38 million over seven seasons. Performance bonuses can kick it to $44 million in total, and the Rays are kind of known for doing this with their young stars.

Perhaps the easiest comparable to find is Cardinals left-hander Jaime Garcia, who has been good for 3.1 and 3.6 wins in the past two seasons (Gio has been good for 3.2 and 3.5) per fWAR. Garcia would also have been entering his first year of arbitration this season, and is about ten months younger than Gonzalez. The Cardinals got a slightly better deal with Garcia, signing him to a four year extension (buying out his arbitration years and one year of free agency) with two club options. The deal guarantees him $27 million (AAV of $6.75 vs. Gio’s AAV of $8.5) with two option years that would make the deal worth $50.5 over six years. While the deal is slightly better for the Cardinals than what Gio got from the Nationals, it’s not that far out of whack.

Garza could be interesting to look at, but we don’t have all the data on his deal. He would be interesting because he was a Super Two himself and he has gone year to year through the arbitration process. He’s entering his third year of arbitration (and eligible next year) and figures to get a hefty raise from his $5.95 million salary in 2011 as he comes off of his best season (5.0 WAR) in Chicago. In those first two seasons of arbitration eligibility, Garza has earned $9.3 million. The expectation is that he’ll get somewhere in the $9 million range this season, a figure that would rise again in his final year of arbitration in 2013. Figure on roughly $30-$32 million over his four years of arbitration.

Billingsley is probably the lesson here. The Dodgers did not sign him to a long-term deal early on, opting to wait until after he’d gone through his second year of arbitration. The deal wasn’t awful by any means, but it guarantees him $35 million over the next three seasons ($14 million club option for a fourth year) and buys out two years worth of free agency (the option year would be a third). In reality, it’s not far from what Billingsley would make on the open market, though.

Retrospective

As for Gio, the deal figures to control costs a bit for the Nationals moving forward. With the two club options in place, the Nationals can ensure that they’ll have a borderline number two starter signed for less than a $10 million average annual value for the next seven seasons if they so choose. We obviously don’t know whether they’ll use the money they expect to save with Gio to try and sign Prince Fielder (something that Gonzalez was vocal about on Twitter after being traded to Washington) or extend some of their other core players like Ryan Zimmerman, Jordan Zimmermann, or Stephen Strasburg in the near future. Either way, if Gio is performing as expected, this deal should prove to be a bit of a bargain in the Nation’s Capital.

Follow @ficsports on Twitter, like us on Facebook, or subscribe to our newsletter for the latest fantasy news.

About Jim Meyerriecks, FIC Senior Editor

St. Louis, MO

The longest tenured member of our staff, Jim has been writing for FIC since 2002. He has also represented the site well in several Experts Leagues across the net over the years. An East Coast transplant, Jim has been living in St. Louis since 1989. This diehard Montreal Expos (now Washington Nationals) and New Jersey Devils fan cringes at the mention of the year 1994!