Royals Overpay In Years To Get Low AAV On Vargas

In Jason Vargas, the Royals added an innings-eating, low-upside arm for $8MM per season yesterday. While news of Vargas' four-year deal initially elicited some shock, the contract actually looks reasonable in terms of Vargas' average annual value.

The first thing to do is accept this fact: free agency is an environment in which few players are able to be secured at a bargain rate. Unless a player is coming off an injury or a terrible season, the odds are against him signing for anything other than a premium in terms of years, dollars or both. In Vargas' case, the Royals paid a premium in years in order to avoid doing so in terms of dollars.

Vargas is a slightly below-league-average starter overall in terms of ERA+ (96 over the past four seasons) that has shown flashes of being a slightly above-average starter (104 ERA+ in 2010). He's likely to deliver a season of roughly league-average work in any given year — sometimes a bit more, sometimes a bit less.

What Vargas provides is innings, and save for a freak blood clot that isn't likely to cause any recurring issues, he's been a durable source of those roughly league-average innings since 2010. Vargas averaged 204 innings from 2010-12 and has averaged 194 frames per season from 2010-13, even when accounting for the lost time due to this year's fluke DL stint. Durability pays on the free agent market, and Vargas hasn't had arm-related troubles since 2007 when he had minor surgery to remove bone spurs from his elbow. Consistently delivering innings and consistently delivering similar performances (his ERA has sat between 3.78 and 4.25 over the past four seasons) gives teams peace of mind. The Royals paid for that peace of mind and consistency.

Some detractors will point to Vargas' somewhat incriminating xFIP over that same stretch and say that he has the skill set of a 4.50-ish ERA pitcher, but xFIP assumes a league-average homer-to-flyball ratio. Flyball pitchers like Vargas tend to see a lower percentage of their flyballs leave the yard, so it's reasonable to assume that Vargas can continue to post HR/FB marks around nine percent and keep his ERA in the low 4.00 range.

Aiding Vargas' case is that he and his flyball tendencies will be calling the spacious Kauffman Stadium home — a park that suppressed home runs better than all but eight stadiums in 2013 (including Angel Stadium and Safeco Field). He'll also have a solid outfield defense on his side, as Alex Gordon will man left field with some combination of Lorenzo Cain, Jarrod Dyson, David Lough and Justin Maxwell patrolling the other two spots (barring another outfield addition). Cain, Lough and Dyson each carry a sterling defensive reputation, per UZR and The Fielding Bible's Defensive Runs Saved metric.

When it comes down to it, the AAV is the key to this contract for the Royals. Paying a mid-rotation or back-end starter $8MM annually seems alarming to some, but consider the following comparison of two pichers, if you will:

  Games Started Innings Pitched K/9 BB/9 GB% ERA FIP xFIP SIERA
Pitcher A 131 847.2 4.81 2.03 46.4 3.88 4.07 4.24 4.46
Pitcher B 120 761 5.88 2.53 38.2 3.97 4.22 4.46 4.45

The two aren't that far apart, so we can reasonably expect that they'd sign similar contracts. While one might think that's the case, Pitcher A is Mark Buehrle from 2008-11, who signed a four-year, $58MM contract following that four-year stretch. Pitcher B, of course, is Vargas, from 2010-13. While Vargas doesn't come with as lengthy a track record, the past four years indicate that we can reasonably predict his output, at least for the next few seasons. Is Buehrle worth $6.5MM more than Vargas on an annual basis? Here's that pair's 2010-13 campaigns side-by-side:

  Games Started Innings Pitched K/9 BB/9 GB% ERA FIP xFIP SIERA
Buehrle 128 821.2 5.17 2.03 44.4 3.94 4.04 4.23 4.40
Vargas 120 761 5.88 2.53 38.2 3.97 4.22 4.46 4.45

Vargas probably isn't as good as Buehrle, but he has age on his side and fits a similar profile. Looking at other four-year deals, Edwin Jackson signed for $13MM annually just last offseason. While his peripheral stats are superior to those of Vargas, is he worth $20MM more over the life of a four-year deal? The market simply doesn't create opportunities to sign pitchers of Vargas' ilk for $8MM per year anymore. That level of AAV lands players like Joe Saunders and Joe Blanton or serious injury reclamation projects like Brandon McCarthy.

Sticker shock reigned supreme when Vargas' agreement was announced, but it's my feeling that most focused on the wrong of the two relevant numbers. Rather than looking at the four-year term, which admittedly feels like an overpay, the $8MM AAV is far more important. When I wrote my free agent profile on Vargas, I projected him to sign for three years and $28.5MM — an AAV of $9.5MM. I wound up being pretty close in terms of his total guarantee, but the Royals were able to secure that fourth year just a few million more.

There isn't a ton of room for upside in this deal, but 190-210 innings of league-average baseball has value, and the Royals secured that value at a relatively low annual rate by making the decision to pay a premium in terms of years. Had the two concepts been reversed and Vargas signed for two years and $22MM, would the contract have elicited such backlash? I lean toward no, since we're conditioned to expect that type of overpay. Overpaying in terms of years isn't something we're as accustomed to, but it could work out better for the Royals than doing so in terms of dollars. I certainly don't love this deal, but it's a defensible contract given the landscape of today's free agent market.

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