MLB: Kansas City Royals at Los Angeles Angels

Bad contracts, a small budget and the end of the good times

“Money talks and bullshit walks.” 

— Bobbi Fleckman, This Is Spinal Tap

God, how I love this quote. Delivered with such conviction, it’s an absolute. Money makes the world go ‘round. If the first album had been a hit, it would have been so different. Now, everything else is just the details.

In Kansas City, we’re putting our ears to the ground and getting ready to listen to the quiet whisper of David Glass’s wallet.

From Jon Heyman’s latest notes column:

The Royals are expected to cut their payroll by $30 million to $35 million, from $120 million to $85 million to $90… 

Ignoring the awkward syntax, what Heyman is trying to say is the Royals are going to slash payroll. The target for next March is somewhere in the neighborhood of $90 million.

Of course, all Royals payroll speculation is noted with the proverbial grain of salt. The Royals have a habit of stating one thing and then doing something completely different when it comes to the salary structure for their club. And we haven’t officially heard anything as of yet. That will probably change at the season ending press conference sure to be held early next week.

The Royals Opening Day payroll decreased by around $21 million according to data collected by Cot’s Contracts. That was to be expected after the departures of key free agents such as Eric Hosmer and Lorenzo Cain. Still, their payroll of just over $122 million represented the third highest in franchise history. Now comes word they are looking to slash to around levels not seen since 2013-2014, or for perspective, around the time the core of the World Series championship team became eligible for arbitration for the first time.

Money talks, indeed.

This will take some maneuvering. For starters, the team is carrying quite a bit of what could be considered dead money in contracts to Ian Kennedy (two years and $33 million remaining on his deal) and Alex Gordon (in the final year of a contract and is owed $20 million plus a $4 million buyout). It’s difficult to see how those two players could be moved to get the salaries off the books. There are also hefty contracts for Danny Duffy (three years and $46 million remaining) and Salvador Perez (three years and $36 million).

All told, the Royals owe over $66 million in guaranteed money for 2019.

Name 2019 2020 2021
Alex Gordon $20,000,000 $4,000,000*
Ian Kennedy $16,500,000 $16,500,000 FA
Danny Duffy $15,250,000 $15,250,000 $15,500,000
Salvador Perez $10,000,000 $13,000,000 $13,000,000
Jorge Soler** $4,666,667 $4,666,667
Totals $66,416,667 $43,416,667 28,500,000

*Gordon’s 2020 salary is a buyout on a sure to be declined $23 million mutual option. 

**Soler has the option of entering the arbitration process at any time. His guarantees, should he not chose to be eligible for arbitration, are listed above. 

You don’t need a degree in economics or finance, to spot the flaw in the Royals process. Should they decide to slice payroll to around $90 million, that leaves them with around $24 million for their 20 other players. They’re in a fiscal corner. 

The argument could be made the Royals have been living outside their means for some time now. According to USA Today, their 2018 Opening Day payroll ranked 19th among major league clubs. According to Cot’s, their total year-end expenditure on the 40-man roster has placed them in the top 10 among clubs in each of the previous two seasons. These are not the finances of a small market team.

But like the housing bubble we saw 10 years ago, at some point the good times had to end. The contract gifted to Ian Kennedy after the 2015 season remains the worst in franchise history. There’s simply no other way to describe it. In the three years on the roster, he’s posted 1.0 WARP and 2.4 fWAR. That’s a poor return. Factor in the draft pick the Royals surrendered for the pleasure of the signing and it’s an outright disaster. The contract is toxic. 

Meanwhile, the Gordon offensive decline has been so precipitous that it has negated any positive impact he may bring with the glove. At the time of the signing of his contract, there wasn’t much reason to think his bat would fall off this much, this fast. After posting four consecutive seasons of a WARP above 4.7, Gordon finished an injury-shortened 2015 at 2.9 WARP. However, his on base percentages had improved in each of the two previous seasons while his slugging percentage had held steady. In the three seasons since, he’s earned a -0.2 WARP. Yes, negative. We’re now in the portion of the contract where decline was anticipated. Given the poor performances in the three years prior, despite the modest offensive rebound in 2018, the future doesn’t provide optimism.

Those two players neatly define the risk of playing the free agent market. For one player, Gordon, the overpay was accepted with the expectation he would provide value in the first two (or maybe three) years of the contract. The other player, Kennedy, was a reach from the start that failed to pay meaningful dividends. It is difficult to see the Royals escaping the fiscal calamity of either. 

Larger market teams can absorb those kinds of fiscal mistakes. Teams like the Royals, who will (and should) look to slash payroll during the lean times, cannot. If the Royals are truly looking to cut payroll to the levels suggested by Heyman to around $90 million, that would mean two players would be earning 40 percent of the entire budget. Widen the net to include Duffy and Perez and you have four players earning a whopping 69 percent of the payroll. That’s an untenable way to organize your finances. 

This means the roster will be stacked with players with less than three years of experience. It wasn’t all that bad once they jettisoned their free agent roster fillers like Mike Moustakas and Lucas Duda and started playing the kids. Adalberto Mondesi has been a delight and Ryan O’Hearn some kind of pleasant dinger-hitting discovery. There are options in the outfield and we await the jettisoning of Alcides Escobar and replacing him with Nicky Lopez.

Even during the good times, the Royals operated under strict budgetary constraints. Their unwillingness to add salary to the 2015 team resulted in a higher price in prospects surrendered. This last offseason, the cost of unloading a highly paid veteran (Joakim Soria and Brandon Moss) was a fungible bullpen arm. It’s a short-sighted way of doing business. 

Potential fallout could be the Royals keeping Whit Merrifield. With limited budget maneuverability, Dayton Moore and his staff will be focusing on production at the lowest possible cost. That means Merrifield, who won’t be eligible for arbitration until after the 2019 season, is immensely valuable to the team. The Royals should explore the trade market for their most valuable player, but removing him from the payroll and replacing him with a lesser player at roughly the same amount of money isn’t how the Glass family likes to conduct business.

So while it’s certainly possible the Royals can somehow maneuver with big contracts on a small payroll, this austerity will ultimately limit some moves that could help the team going forward. However, as we’ve seen in the past, budgets stated in October aren’t always realized in April. The budget may very well be cut, but time will tell how deep those cuts will be. 

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