The Padres have long held a competitive advantage in that San Diego is a desirable place to play baseball, specifically with a large, pitcher-friendly ballpark. They can often sign free agent starting pitchers without making the highest bid, as was the case with their one-year, $8MM deal for righty Josh Johnson.
Johnson was limited to 16 starts for the Blue Jays in 2013 due to triceps tightness and a forearm injury, which resulted in arthroscopic elbow surgery in early October. As explained in our free agent profile, Johnson has had only three healthy seasons in the last five, and the gold standard contract for a pitcher coming off an injury is Ben Sheets' $10MM deal with the Athletics nearly four years ago. It seems possible Johnson and agent Matt Sosnick could have gotten close to that $10MM mark had they focused on the highest bidder, but the pitcher preferred San Diego for personal reasons. The Padres got a discount approaching 20%, just for being the Padres.
Johnson was already a low-risk proposition, since he targeted a one-year deal from the outset as a means of rebuilding value and re-entering free agency after 2014. The Padres further lowered their risk a bit by acquiring a $4MM club option for 2015 in the event Johnson makes fewer than seven starts in 2014, according to Yahoo's Jeff Passan. We saw a more drastic version of this clause play out with the Red Sox and John Lackey, as Lackey's league minimum option went into effect when he missed significant time with surgery for a pre-existing elbow injury. Most likely, Johnson will make at least seven starts in 2014, as he has each season since 2007, when he had Tommy John surgery. If he doesn't, something serious will have gone wrong, and the Padres may not want to guarantee Johnson even $4MM for 2015. It would be nice to have the option, though.
Johnson hasn't had an ace-caliber, healthy season since 2010, which is why I think his upside is something closer to 2012's 3.81 ERA rather than the type of season that gets Cy Young votes. There's still considerable upside for the Padres in this deal, though, as Johnson's earnings top out at $9.25MM for 2014. The going rate for a #3-4 type starter is around $14MM, and Johnson certainly has that capability for the Padres.
The best part about signing Johnson for the Padres is that they are not relying on him. As Passan explains, they've got a surplus of starters with Ian Kennedy, Andrew Cashner, Eric Stults, Tyson Ross, and others, so if Johnson goes bust it won't ruin their chances of having a good rotation.