One of the issues for MLB and the MLBPA to resolve during the current CBA discussions is the Competitive Balance Tax. Suppose the next CBA includes provisions for such a tax. How can contract extensions and the Competitive Balance Tax affect Toronto Management’s player decisions?
Featured Images Courtesy Of DaveMe Images. Prints Available For Purchase
Before the lockout, the Toronto Blue Jays signed Kevin Gausman and Yimi Garcia to free-agent contracts. Many MLB observers expect the free-agent market will heat up soon after a new MLB-MLBPA CBA is in place. However, from a payroll perspective, Toronto may not be as active in the upper end of this market as some anticipate. Why? Because of the impact upon Management decisions due to the Competitive Balance Tax, arbitration awards, future contract extensions and free-agent deals.
This article is Part Two of a two-part series. Part One explained the Competitive Balance Tax (“CBT”) and provided contract extension estimates for Vlad Guerrero Jr. and Bo Bichette. Part Two will delve into projections of Blue Jays payroll for the 2022-2026 seasons and how the timing of the Guerrero Jr. and Bichette extensions could impact player decisions made by Management.
Part One of the series covered the following areas:
- What is the CBT?
- The weak link between paying the CBT and making the postseason
- The faint connection between winning the World Series and exceeding the CBT threshold
- Contract extension estimates for Guerrero Jr. and Bichette
- Forecasted free-agent contracts for Guerrero Jr. and Bichette, who are both eligible to become free agents after the 2025 season
Remember that all models are wrong; the practical question is how wrong do they have to be to not be useful.
There is a high probability that the projections that follow will be inaccurate. I based the numbers upon many assumptions that will likely not be 100% correct. However, the key takeaway from the forecasts presented is that the Jays’ payroll will escalate significantly in the next few seasons. Higher payrolls and proximity to CBT thresholds will likely affect decisions made by Toronto Management. The following analysis will examine some of the possible implications of current-day decisions upon future decisions.
For those readers who play golf, think about an experience playing a golf course for the first time. You encountered a tee shot that looked straightforward, and you played it as such. When you go to find your tee-ball, which you assumed was safely in the fairway, you discover that your ball is in a nasty fairway bunker that was not visible from the tee-blocks. No doubt, you said or thought the following: “If I knew that hazard was there, I would have played the hole differently.”
Think of these forecasts as a course map: the map is not to scale, but it will alert you to some possible challenges ahead.
Suppose the Blue Jays can influence when Guerrero Jr. and Bichette agree to contract extensions. Of course, the Blue Jays do not have the power to determine when or if an extension is accepted, but let’s assume that the Jays have some ability to persuade for purposes of the analysis.
I have provided five scenarios for consideration, all of which concern when Vlad Jr. and Bo sign their extensions or free-agent deals. The scenarios are as follows:
- Scenario 1 – Vlad Jr. and Bo sign 12-year extensions before the 2022 season
- Scenario 2 – Vlad Jr. and Bo sign 11-year contract extensions before the 2023 campaign
- Scenario 3 – Vlad Jr. and Bo sign 10-year extensions before the 2024 season
- Scenario 4 – Vlad Jr. and Bo sign 9-year contract extensions before the 2025 season
- Scenario 5 – Vlad Jr. and Bo sign 8-year free-agent contracts before the 2026 campaign
Decisions – Management Considerations
The Blue Jays will have to weigh multiple factors in the cases presented. On one side of the scale, team needs and the expected performance levels of the players. On the other side of the scale, Management will make their decisions in the context of being CBT threshold compliant and remaining consistent with the stated goal of being “positioned for a multi-year run of Championship baseball.” Hence, Management will factor in the AAVs of players and the loss of flexibility to extend core players when the opportunity arises. Toronto’s executives will also factor in free-agent deals for current Blue Jays and the need to trade critical players.
In Part One, starting with Scenario 1, I applied a declining discount to the contract values for Vlad Jr. and Bo. I reasoned that Vlad Jr. and Bo would accept less risk (performance and injury) and a lower contract value in exchange for a longer-term deal. Similarly, my view is that the closer Guerrero Jr. and Bichette get to free-agency eligibility, the less likely they are to agree to contract extensions. Why? Because the length of the risk period (performance and injury) decreases as time elapses. Therefore, for example, Vlad Jr. and Bo will be more inclined to enter the 2026 free-agent market on Opening Day 2025 than on Opening Day 2024.
Accordingly, assuming that Toronto does not want to risk losing either player after 2025, the sooner the team and Guerrero Jr. and Bichette agree to extensions, the better. Or, as the analysis will show, the sooner the Blue Jays have CBT-threshold room to offer extensions, the better.
Additionally, there is a financial incentive for the Blue Jays to sign Guerrero Jr. and Bichette to reasonable multi-year contracts as early as feasible. The sooner these two players agree to long-term deals, the lower the overall cost for the Blue Jays. Table 1 illustrates the noted savings.
Table 3 presents the projected AAVs for the Blue Jays for the 2022-2026 period.
Table 4 summarizes the CBT threshold positions under the five scenarios for the roster as of December 31, 2021. Readers can find the scenarios here: Scenario 1, Scenario 2, Scenario 3, Scenario 4, and Scenario 5.
For those interested in the key assumptions, please refer to the Appendix.
There are two cases to consider.
- Case A – Toronto signs Freddie Freeman to a five-year, USD 135 million deal (contract terms per FanGraphs)
- Case B – the Blue Jays acquire Matt Chapman, who can become a free agent after the 2023 season.
I selected Cases A and B to represent particular situations. Case A illustrates the impact upon Toronto’s CBT thresholds of signing another free agent to a five or six-year deal with a USD 20 million-plus AAV. One could substitute the name of Kris Bryant or Trevor Story for Freeman.
Case B is an example of the Blue Jays using CBT threshold room to acquire a player with a relatively large AAV for the 2022 and 2023 campaigns. Alternate options to Chapman include Jose Ramirez or Michael Conforto. Ramirez can become a free agent after the 2023 season; he will earn USD 12 million in 2022 and USD 14 million in 2023. FanGraphs estimated that free-agent Conforto’s next contract would be a one-year, USD 18.4 million deal.
Let’s Get Down to Cases
The actions that I have outlined are not the only options available to the Blue Jays. However, Toronto will have to jettison a player(s) to avoid the CBT for a particular scenario in a given case.
Case A – The Blue Jays Sign Freeman
- Scenario 1 – Trade Hyun Jin Ryu and Randal Grichuk before the 2022 season; trade Cavan Biggio before the 2023 campaign
- Scenario 2 – Before the 2023 season, trade Ryu, Grichuk and Hernandez
- Scenario 3 – Decline to sign Hernandez to a free-agent contract
- Scenario 4 – Trade Hernandez or Freeman before 2025
- Scenario 5 – Before the 2025 season, trade Biggio; trade Hernandez or Freeman before the 2026 campaign
Case A – Conclusion
Given the disruption to the team described in Scenarios 1 to 3, Toronto would likely elect to defer signing Guerrero Jr. and Bichette to extensions until after the 2024 season. That decision probably increases Toronto’s risk of Guerrero Jr. and Bichette opting for free agency. It also increases those players’ long-term costs if they remain Blue Jays during the 2022-2033 period. Therefore, signing another player before the 2022 campaign to a contract with a five-year plus term and a USD 20 million-plus AAV would not be a good option for Toronto.
Case B – The Blue Jays Acquire Chapman
- Scenario 1 – Trade Grichuk before the 2022 season; trade Ryu before the 2023 campaign
- Scenario 2 – Before the 2023 season, trade Ryu and Grichuk
Case B – Conclusion
Compared to Case A, Case B is much less disruptive to the roster under all scenarios. Also, acquiring a player such as Chapman (short, team-control period) gives the Blue Jays contract flexibility vis-à-vis Guerrero Jr. and Bichette. Namely, Toronto could consider offering contract extensions to Guerrero Jr. and Bichette as soon as before the 2024 season.
You can’t grow long-term if you can’t eat short-term. Anybody can manage short. Anybody can manage long. Balancing those two things is what Management is.
Case B is the best option for Toronto’s Management to pursue. Such a strategy allows Toronto to make quality additions without sacrificing the flexibility to sign key players to extensions or be forced into trading many essential team members. This strategy enables Toronto’s executives to sign critical Blue Jays to free-agent contracts. More importantly, it is a sound strategy for a team that wants a multi-year run of Championship baseball.
The Last Word
The Toronto Blue Jays are poised to become a perennial World Series contender. From a payroll perspective, top-calibre players in their pre-arbitration years are very cost-effective. However, young players among MLB’s best will earn much higher compensation packages as they near free agency. A case in point is Guerrero Jr. and Bichette. Toronto’s Management will have to factor in the escalating AAVs of those players into current-day roster decisions and the CBT threshold. Currently, the best course of action for Toronto’s Management is to add quality players with high AAVs on short-term deals rather than those on long-term contracts.
*Featured Image Courtesy Of DaveMe Images. Prints Available For Purchase.
HEAD ON OVER TO THE JAYS FROM THE COUCH VS ALS STORE AND GET SOME GREAT SWAG THAT YOU WILL LOOK GREAT IN AND YOU CAN FEEL GREAT ABOUT.
YOU CAN ALSO HEAD TO OUR JAYS FROM THE COUCH VS ALS FUNDRAISING PAGE TO MAKE A TAX DEDUCTIBLE DONATION DIRECTLY TO ALS CANADA.
THANK YOU FOR VISITING JAYS FROM THE COUCH! CHECK US OUT ON TWITTER @JAYSFROMCOUCH AND LIKE US FACEBOOK. BE SURE TO CATCH THE LATEST FROM JAYS FROM THE COUCH RADIO
Bob was a St. Louis Cardinals fan until the Blue Jays arrived on the baseball scene, although he still has a soft spot for the Cards. Similar to straddling the Greenwich Meridian, as depicted in the avatar, Bob applies sabermetrics when applicable, but his heart tells him that Lou Brock belongs in the Hall of Fame.