Tuesday, February 21, 2012

Phillies Contracts and the Luxury Tax

Evaluating Ibanez got me thinking about the Phillies contracts.  As Mr. Haas pointed out in his comment, it is difficult to evaluate Phillies contracts in terms of cost, as their budget is so big.  To an extent I agree.  I also am a firm believer that to get a desired player on the free agent market, it may be necessary to not only overpay in terms of average salary, but it may be necessary to overpay in terms of years.

If we cite Raul as an example, he received a contract in his late 30s that paid him over 10 million per season for three years.  He was coming off a string of good seasons with the Mariners leading one to believe that his success would continue.  However, merely looking at his baseball card would indicate that his age was a concern, and baseball history suggests that players at Raul's age often have a steep decline, with all time Phillies great Mike Schmidt being a great example.  The Phillies obviously knew about Raul's age, and tried to convince their fans (and probably themselves) that since he played so sparingly at the beginning of his career, he would not age as fast as the normal player.  However, the Phillies would be kidding themselves if they fully believed everything that they claim publicly.  In an ideal world, I have little doubt that the Phillies would have signed Raul to a 1 yr. deal.  They even would have been satisfied with a 2 yr. deal, but there is no way they wanted to give Raul that 3rd year.  Presumably, that 3rd year was what convinced Raul to sign on the dotted line in November rather than hang around all off-season looking for a better offer.  A similar story can be written about Cliff Lee, for whom the Phillies guaranteed five years and 120 million to despite the fact that he would be 32 years old entering the contract.  The Phillies certainly did not want to go to five years, but five years was the only way that they could get Lee to leave the Yankees offer on the table.

The reason that I do not agree 100% with Haas's comment about expenditure not mattering is mainly because the Phillies are not the Yankees and have yet to demonstrate that they will pay the luxury tax.  This being the case, the Phillies have a tight budget.  It is a steep budget, but it is still tight.  Until the Phillies go over the luxury tax, you will not see a signing similar to the one the Yankees made with Hiroki Kudoda where ownership had to (reportedly) approve additional funds.  Granted, the Yankees trade of AJ Burnett may have been partly financially motivated, but my point is that they are able to spend more freely than the Phillies.  While it is impossible to know if Ibanez's salary kept the Phillies from making other moves, it does appear that the luxury tax played a large part in the Phillies unwise trading of Wilson Valdez.  Presumably, the luxury tax also kept the Phillies from making an off to Roy Oswalt and was a big reason why the Phillies gave Kendrick an extension now.  This coming offseason, it is very likely the luxury tax will rear it's ugly head like never before as the Phillies will have two big money free agents - Victorino and Hamels.  Overall, I think the Phillies had a productive off-season, but have been critical of the Valdez, Qualls, and Papelbon signings.  Needless to say, in the grand scheme of things, the Valdez and Qualls moves are minor.  The Papelbon move could, however, have grave repercussions as his $12.5 million/year contract may be just one of the over-expenditure the Phillies have made (along with Ryan Howard) that will keep the Phillies from locking down core players in years to come.

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