Transaction Analysis Rumors

Examining The Homer Bailey Extension

Reactions among fans and MLBTR readers to the initial report of Homer Bailey nearing a six-year deal in the $100MM range seemed at best uncertain and negative at worst. The Reds and Bailey have since reportedly finalized a six-year, $105MM contract that includes a $25MM mutual option (or $5MM buyout) for a seventh season, and little seems to have changed.

The most common criticism I've noticed to this point is that Bailey's career numbers don't make him feel like a $100MM pitcher. However, Bailey's career, as a whole, has little to do with the dotted line on which his signature will find itself in the coming days. The Reds aren't paying Bailey to be the pitcher he was as a 21-year-old or even as a 24-year-old. Cincinnati is paying Bailey for his recent work and what they feel he can do from 2014 through 2019. Bailey's career 4.25 ERA shouldn't be a factor when we evaluate this deal from the outside, because it almost certainly wasn't a major factor when the Reds were deciding whether or not he was worth this price.

In making the deal, Cincinnati appears to be banking on Bailey continuing the improvement he's shown over each of the past two seasons. Dating back to 2011, Bailey has seen year-to-year improvement in his command, ground-ball rate, swinging-strike rate, velocity and out-of-zone pitches chased by hitters. The changes haven't necessarily manifested in his ERAs — though his 3.68 and 3.49 totals from the past two years are solid — but teams have already begun to demonstrate that they're willing to pay for things other than ERA. Given the volatile nature of that stat, it's no surprise to see clubs betting on trends, skill-set and age rather than the ultimate outcome.

For some context, Bailey's 10.7 percent swinging-strike rate in 2013 tied for 11th in the Majors among qualified starters. In fact, he trailed White Sox ace Chris Sale by just 0.01 percent in that field and induced grounders at nearly the same rate — 46.1 percent for Bailey and 46.6 percent for Sale. His 34.9 percent opponents' chase rate was tied for 10th in all of baseball with Hiroki Kuroda and Bailey's own teammate, Mat Latos. Bailey's average fastball velocity jumped from 92.2 mph in 2011 to 92.5 in 2012 and 94.1 in 2013. That 94.1 mph average was the seventh-highest in the Majors among qualified starters, and his velocity actually increased as the season wore on. The Reds probably aren't concerned with his ability to sustain that heat, as he averaged 94.4 mph over 113 innings in 2009 (Fangraphs' Jeff Sullivan took an extended look at Bailey's velocity spike earlier in the week).

Bailey hasn't been on the disabled list since 2011 and has topped 200 innings in each of the past two seasons as well. On top of displaying promising peripherals, he's demonstrated some durability. While that can change at a moment's notice, 200-plus innings will get a pitcher paid, and the Reds likely feel that Bailey's medicals give him a strong chance of staying healthy moving forward. Also of significance is Bailey's age; at 27 years old (28 in May), the Reds are buying more prime years than a team would typically receive in paying open-market prices for a pitcher. Starting pitchers that reach free agency are usually closer to 30 or 31 than Bailey would have been (heading into his age-29 season).

Looking at other pitchers who were extended with five to six years of service time (with some help from the MLBTR Extension Tracker), Bailey's deal is the third-largest in history for a pitcher one year (or less) from free agency. He rightfully fell well short of the extensions signed by Clayton Kershaw and Cole Hamels, but he was able to top Jered Weaver's five-year, $85MM deal. That contract was thought to be team friendly at the time, however, and Weaver's deal is also two years old at this point.

As MLBTR's Charlie Wilmoth noted Sunday evening, the deal essentially amounts to five new years and $95MM, as Bailey was in line for a salary in the $10MM range anyhow. Put another way, he's signing away five free agent years for $15MM more than Anibal Sanchez received a year ago (also for his age 29 to 33 seasons). With one more strong season under his belt and further TV revenue flooding the game, Bailey would likely have topped Sanchez's mark, even in a relatively strong class of free agent pitchers that figures to include James Shields, Justin Masterson, Max Scherzer and possibly Jon Lester (though Lester seems highly likely to sign an extension of his own, and Scherzer could do the same).

Age again becomes a factor here, as Bailey is four years younger than Shields, two years younger than Scherzer and Lester, and one year younger than Masterson. Even if Shields were perceived as the better of the two pitchers next winter, would a team be more comfortable guaranteeing him top dollar starting in his age-33 season, or would Bailey's age-29 season be more alluring?

Reds GM Walt Jocketty and his staff are continuing to place a premium on age (we've already seen this, to varying degrees, in the offseason with Freddie Freeman's extension and the free-agent deals signed by Phil Hughes and Masahiro Tanaka). While Bailey did have a three-WAR season in 2013, it's unlikely that the Reds feel he's reached his ceiling at this point. A nine-figure guarantee for a pitcher with just two seasons of 200 innings and a career 4.25 ERA seems excessive to many, but again, the Reds aren't paying Bailey for his accomplishments (or lack thereof) in his age-21 to age-24 seasons; the Reds are paying Bailey to be the pitcher they believe he can be based on improvements in non-ERA elements of his game over the past few years.

As for Bailey, he and his agents at Excel Sports Management were likely confident in his ability to post strong totals in his walk season, but there's also the reality that pitchers simply get hurt with relative frequency. Even a two- or three-week DL stint related to his elbow or shoulder would have cast some doubt on his free agency, and missing a significant chunk would have been disastrous.

While many will be quick to call this an overpay, it looks to me as if the Reds paid market value (or close to it at five years, $95MM) for Bailey's 2012-13 skill set, with the belief that he can take another step forward and be the type of pitcher who could have signed for something closer to $120MM+ over six years next offseason. Those outcomes illustrate the risk for both sides: for the Reds, paying market value a year early, and for Bailey, potentially missing out on tens of millions of dollars. Of course, if he regresses or gets injured, the deal will quickly look poor for the Reds, but that's the case with any long-term deal. And given Bailey's age, there's no reason to suspect significant regression in 2014.

Brewers Benefit From Tanaka Waiting Game

Note: Since the time this post was published, the Brewers have issued a statement announcing that the deal with Garza is not yet complete, and negotiations are ongoing.

Prior to the offseason, few would have predicted that the contracts inked by Ricky Nolasco and Matt Garza would land just $3MM apart. Garza was pegged by some as the market's second-best starting pitching option behind Masahiro Tanaka, whereas Nolasco was thought of as a steady, reliable option in the second tier of starters. This was true on MLBTR as well; Garza ranked No. 7 on Tim Dierkes' list of Top 50 free agents, while Nolasco came in at No. 20. Yet, here on Jan. 23, we now know that Garza will pitch for Milwaukee in 2014 on the first season of a four-year, $52MM contract, while Nolasco will be one state to the west, in Minneapolis on a four-year, $49MM deal.

The addition of Garza strengthens Milwaukee's rotation and continues what has become a trend for the Brewers in recent years. MLBTR's Tim Dierkes examined their rash of late-offseason signings earlier this month — a list that is now punctuated by Garza and Kyle Lohse (who signed a three-year deal in March of last season). The fact that Garza comes without draft pick compensation and at the same price the Cubs paid to secure the services of Edwin Jackson just one year prior can be seen as a surprising coup for the Brew Crew.

So then, did the Twins make a mistake by signing Nolasco early in the offseason? It's easy to apply hindsight here and say that had they waited, perhaps they could have topped Milwaukee's offer by a slight margin and landed the consensus superior pitcher, but things aren't that simple.

For one, the Twins entered the offseason likely feeling that they were in desperate need of repairing one of baseball's bleakest rotations. The Brewers, on the other hand, had solid arms returning in 2014 in the form of Lohse, Yovani Gallardo, Marco Estrada and Wily Peralta. While that's hardly an elite rotation, it's significantly better than what the Twins were deploying late in 2013.

Minnesota GM Terry Ryan bided his time in free agency last offseason and ultimately wound up with Kevin Correia and Mike Pelfrey as the only supplements to a rotation that clearly needed more. Predictably, that didn't stop the hemorrhaging, and the Twins entered this offseason with a similar need. After telling reporters last winter that sometimes you "can't give your money away," early-season aggression was likely a key for Ryan and his staff to landing some rotation assistance. The total commitments to Nolasco, Phil Hughes ($24MM) and Pelfrey ($11MM) are a reflection of that aggression. Feeling comfortable with three to four of its rotation spots, Milwaukee laid in wait.

The other key factor in this situation was Tanaka. At the time of the Nolasco signing, Tanaka was a mystery as Major League Baseball and Nippon Professional Baseball looked to hash out an agreement on a new posting system. At that juncture, it wasn't even certai if Tanaka could be headed to the Majors. It also wasn't readily apparent that he would take until Jan. 22 to agree to a deal, nor was it clear that his market would effectively create a gridlock for the rest of the top free agent starters. Had all of the parties that were interested in Nolasco, Jason Vargas, Bartolo Colon and Scott Feldman known that Garza, Ervin Santana, Ubaldo Jimenez and Bronson Arroyo would be available in late January, they may not have acted quite as quickly in striking those deals.

Such is the case in any offseason; teams weigh the risk and reward of pouncing early — and thereby paying more — or waiting out a potential bargain while knowing the result could be empty hands and a disappointed fan base. This particular offseason is one of the most unique in recent memory, as the consensus top three domestic free agent pitchers were without jobs as late as Jan. 23.

Teams that have weathered the storm stand to be rewarded, and Garza's contract is proof of that. Even Santana, who at one point was said to be eyeing $100MM, is thinking something closer to the four-year, $60MM range, according to a report from earlier today. It will be interesting to see the eventual price tags for Santana and Jimenez — two pitchers that (unlike Garza) are attached to draft pick compensation and are looking for jobs at a time when many interested parties have already spent a good deal of their offseason budget.

Tanaka's long, drawn-out free agency has likely created the opportunity for teams to acquire upper-level talent at (relative) bargain prices, as evidenced by Garza signing for Jackson money. While the Twins were handcuffed by their overwhelming need for rotation help, the Brewers' status as a team not desperate for starting pitching allowed them to sit on the periphery of the free agent market and strike quickly following the resolution of the Tanaka saga. Garza's $52MM guarantee could serve as a talking point in discussions for Santana and Jimenez, creating opportunities for pitching-hungry teams to strike deals that most would not have thought possible just two or three months ago.

Breaking Down The Tigers’ Bullpen Situation

In signing Joe Nathan to a two-year, $20MM deal this week, the Tigers secured the best reliever on the free agent market at only 77% of the amount I projected in mid-October.  There's a significant age difference between the two relievers, but I'd rather have Nathan at two years and $20MM than Joe Smith at three years and $15.75MM.  The way Nathan spoke about focusing on the Tigers from the outset of free agency, it's possible they were able to leverage his enthusiasm to get him on a relatively reasonable deal given the typical save-related inflation.

In 2013 the Tigers' bullpen ranked 12th in the AL with a 4.01 ERA.  That figure counts guys like Jose Valverde and Jeremy Bonderman, however, and the situation wasn't as dire by season's end as the ERA suggests.  In the postseason, the Tigers' key guys were Joaquin Benoit, Drew Smyly, Jose Veras, Al Alburquerque, and Jose Alvarez.  They lacked a good second lefty, but the core group of Benoit, Smyly, and Veras was strong in the regular season, as seen here.

The Tigers decided to move starter Doug Fister at what ESPN's Keith Law termed as "about 30 cents on the dollar" to presumably clear payroll space for Nathan (MLBTR's Jeff Todd looked at the Fister trade in depth here).  That deal may have weakened the Tigers' rotation and bullpen, as the pen will lose Smyly but he probably won't be as good as Fister was in the rotation.  The Tigers added a southpaw in the deal in 22-year-old Ian Krol, who has 31 innings of experience beyond the Double-A level.  Lefty Phil Coke will also return to the team's bullpen after an underwhelming year.

In early November the Tigers declined Veras' $4MM club option in favor a $150K buyout, suggesting they did not value him at $3.85MM on a one-year deal.  Benoit would be pricey to retain, with an outlay potentially topping Nathan's if he finds a three-year deal again.

It has been very surprising to see the Tigers take multiple cost-cutting measures.  Were they not faced with this apparent restriction, they could have picked up Veras' option for the depth he provides, retained Fister, allowing Smyly to remain in the bullpen, and signed Nathan.  Nathan would be replacing Benoit, a reasonable measure, and then GM Dave Dombrowski could have gone bullpen bargain shopping in January. 

Keep in mind that the Tigers also saved $76MM in the Prince Fielder trade.  Though we haven't seen this in recent years from the Tigers, it seems clear that most of this offseason's moves were driven by financial constraints.  As surprising as that is, I can accept that no team has an unlimited amount of money to spend.  But if you decide Fister is the piece you're going to move, and your bullpen needs tons of work, how do you trade him and not get back even one established, controllable reliever?  As it stands, the Tigers do not have anyone reliable to slot in after Nathan, so Dombrowski will likely continue tinkering with his bullpen.

Breaking Down The Hughes, Kazmir Signings

The Twins agreed to sign Phil Hughes to a three-year, $24MM deal on Saturday, which would have been the largest free agent expenditure in their history had they not committed $49MM to Ricky Nolasco a few days prior.  I don't think anyone would argue that the Twins needed to add a pitcher or two like Hughes, who has shown promise in his career and has yet to turn 28.  We know Hughes will be better away from Yankee Stadium, but it's hard to say how much better, as he's an extreme flyball pitcher no matter where he goes. 

Hughes had a serious bout of shoulder inflammation in a lost 2011 season, but he's otherwise shown good health even if he's not an innings guy.  Left alone to take his turn every fifth day in a smaller market, with the security of the first multiyear deal of his career, it's feasible that Hughes could put up 180 innings of 4.25 ball.  That would be good value for $8MM a season in today's market.  I found Hughes' decision to go for a three-year deal coming off a bad season to be an interesting one.  Prior to free agency, we've seen more and more young players choose multiyear security over maximizing their dollars going year to year.  I'm guessing Hughes would have signed one of those types of arbitration-year extensions after 2010 had he been with a more willing team.  Some pitchers will bet on their talent with a straight one-year deal and get right back out on the market, accepting the added pressure of having free agency looming again.  Others, like Francisco Liriano last offseason, hedge their bets with a two-year deal.  Hughes went for the comfort of three years, made possible in part by his youth compared to the typical free agent.

Scott Kazmir is an example of a pitcher who hedged his bet, by signing a two-year, $22MM deal with the Athletics.  It seems likely that one year at $12-13MM was available to him.  But as someone who hadn't had big league success since 2008 prior to 2013, it would have been very difficult for Kazmir to eschew multiple years in an attempt to maximize his career earnings.  As it stands, Kazmir did much better than the two-year, $16MM contract I guessed in September.  As a relatively young southpaw who returned to throwing hard and missing bats this year, Kazmir was a free agent you could dream on.  And teams love to dream in free agency, where in a limited market certain players start looking better and better.  Only in free agency can a team wipe out three or four years of data suggesting Kazmir was no longer an MLB-caliber pitcher, pointing only to his last 158 innings to project what he'll do in the next few seasons.  Kazmir still seems like a wild card for 2014-15, but $22MM is not a huge commitment for an MLB team these days.

Breaking Down The Twins’ Ricky Nolasco Signing

The Twins agreed to the largest free agent contract in franchise history last week, inking Ricky Nolasco to a four-year, $49MM deal with a fifth-year vesting option.  Nolasco, 31 in December, projects as the team's Opening Day starter in 2014.  What did the Twins get for their investment?

FanGraphs' standard wins above replacement metric is not a great one to use for Nolasco.  By FanGraphs WAR, Nolasco has been solid over the last three years, accumulating about 2.9 per year.  FanGraphs WAR, however, uses Fielding Independent Pitching (FIP), and Nolasco is notorious for posting an ERA above his FIP.  He's done so in every season since 2009.  In those five seasons, his ERA has been more than half a run higher than his FIP every time except for 2013.

The important questions for the Twins are why Nolasco's ERA has been consistently higher than his strikeout, walk, and home run rates suggest, and if that will remain the case over most of the next four years.  From 2009-13, the typical NL starter has stranded around 72% of his baserunners.  Nolasco's strand rate in that time is a bit shy of 68%, worst in MLB among those with at least 700 innings.  Perhaps that's unfair, as it's roping in some really low strand rates from 2009 and '11.  If we look at just 2012-13, Nolasco is at 70.1%, 16th worst in MLB among those with 300 innings.  Nolasco has a 4.08 ERA in that time, versus a 3.60 FIP.  A metric that treats Nolasco as a 3.60 ERA pitcher is overstating his value.

Nolasco's strand rate problems stem from his performance with men on base.  His strikeout rate falls below six per nine innings and his walks jump up to around three, even in his successful 2013 campaign.  If the Twins don't find a way to address this, they might have a 4.50 ERA pitcher on their hands from the start.  FanGraphs has another version of WAR called RA9-WAR, which essentially uses a pitcher's actual runs allowed instead of his FIP.  That metric suggests Nolasco was a two-win pitcher in 2013, his best season in years.  If Nolasco begins at two wins, this contract is not good value even if a win on the 2013-14 free agent market costs $6.2MM.  I'm not comfortable valuing a pitcher based on ERA or FIP, however.  The valuation changes drastically if we split the difference and project Nolasco as a 2.5 win pitcher in 2014.  In that case, I think this can be an even money deal, though I don't have a lot of confidence in predicting the annual inflation of the free agent market.

Nolasco's contract clearly resembles Edwin Jackson's four-year, $52MM deal from the Cubs last winter.  Jackson pitched the first year of his deal at age 29 as opposed to 31 for Nolasco.  While Jackson got about 6% more than Nolasco in guaranteed money, Nolasco's 2018 vesting option adds value even if he's a long shot to trigger it.  Another similarity is that the Cubs did not seem primed for contention in the first year of Jackson's deal, nor will the Twins be picked as division favorites for 2014.  Labeling certain teams non-contenders prior to the season often proves wrong, to be fair.  Nolasco must be viewed as a win-now signing for the Twins, since he'll likely provide the most return in the first few years of the deal.  A few weeks ago, Cubs president Theo Epstein said of the Jackson signing, "Given the situation, I think we could have been more patient."  The same may prove true of the Twins and Nolasco.

2013 was Nolasco's first season with a sub-4.00 ERA since '08, and the timing was excellent for the pitcher and agent Matt Sosnick.  The early July trade to the Dodgers was a big boost to Nolasco's value, removing the possibility of draft pick compensation and giving him a bigger spotlight.  For the Twins, the Nolasco contract has little upside, and represented the market price for mid-to-back rotation innings.

Breaking Down The Jhonny Peralta Signing

While many pundits expected a few deals in the four-year, $50-55MM range to be issued this offseason, few thought that Jhonny Peralta would be on the receiving end of such a lavish payday. Yet that's exactly what took place over the weekend, with the Cardinals agreeing to a four-year, $53MM contract with the former Tiger and Indian.

At first glance, Peralta's contract appears to be an alarming overpay, however that's more due to the fact that there was clearly a disconnect between his market value and the media perception of his worth. This isn't said to pat myself on the back by any means (I was off by $17MM on the total value of his contract, after all), but my own projection of three years and $36MM for Peralta was among the most aggressive numbers I saw around the baseball sphere when looking at other predictions. News that Peralta was seeking $56-75MM late last week was widely scoffed at by MLBTR readers both on Twitter and in the comments section of the post.

Reports have indicated that the Mets believed, initially, that they would be able to land Peralta on a two-year contract. They weren't the only ones thinking along those lines, as ESPN's Jim Bowden pegged him at two years and $20MM. Meanwhile, over at CBS Sports, Jon Heyman spoke to an agent and an unnammed GM, and that trio pegged Peralta in the two-year, $16-21MM range. When I presented my own three-year, $36MM prediction to MLBTR's Tim Dierkes as we were discussing the free agent profile series, he was struck by its aggressive nature.

As it turns out, I, like many others, failed to properly weigh three key components that played a vital role in Peralta's contract:

  • The middle infield and third base markets offered little to no competition. Even with a limited number of teams looking to spend big on a free agent shortstop, the bar was set higher than any of us imagined, as the floor for Peralta appears to have been three years and $45MM.
  • Teams' strong desire to hang onto draft picks is likely greater than any of us have taken into account. Stephen Drew, who is connected to draft pick compensation after rejecting a qualifying offer, represents the only true everyday alternative to Peralta on the open market. The amount for which he signs will be one of the most interesting stories of the offseason from this point forth.
  • Teams may not be as hesitant to sign players connected to performance enhancing drugs as we would initially think. If this is the case, it's good news for Nelson Cruz and Bartolo Colon as they look to maximize their free agent paydays. I predicted three years and $39MM for Cruz and one year at $10MM for Colon in their respective free agent profiles — two projections that are feeling a bit light given the early direction of the free agent market.

From a performance standpoint, Peralta is a solid player that's probably deserving of a $13MM AAV. I won't rehash the fine work done by Eno Sarris and Dave Cameron over at Fangraphs in illustrating why a slightly above-average hitter (relative to the rest of the league, that is; Peralta dwarfs the average shortstop in terms of offensive prowess) and a reliable defensive shortstop is worth such an investment, or why this is the going rate for such players.

While many will be quick to label this contract an "overpay," we need to be more mindful of what that term really means. Should an "overpay" be defined by our own expectations, or should it be defined by the possibilities within the structure of a given free agent market? Each free agent market is its own animal, unique in nature and unlikely to be repeated. In this instance, a three-year deal likely wasn't happening, and there are even reports that have indicated Peralta left money on the table to join a stacked Cardinals organization. If that's the case, Peralta's signing is likely a bargain relative to the realm of realistic possibilities, even if it's an eye-popping number for which most of the world was ill-prepared. Kudos to agent Fern Cuza of SFX for dissuading teams from the media's perception of his market and more than doubling most prognosticators' expectations in terms of years and dollars.

Breaking Down The Angels’ Joe Smith Signing

The Angels made the largest relief signing of the offseason so far, committing $15.75MM over three years to right-handed sidearmer Joe Smith.  Any sizeable commitment to a reliever will be poorly received with sabermetric analysts, but did the Angels at least get the top setup man Smith's contract suggests?

Smith may have been paid based on his ERAs for the Indians in the past three seasons: 2.01, 2.96, and 2.29.  Fangraphs wins above replacement, which uses fielding independent pitching (FIP) in its calculation, does not credit Smith for those ERAs, giving him 2.0 WAR over the three seasons.  The main components of FIP are strikeouts, walks, and home runs allowed, and Smith has excelled in only one of those.  Given his strong groundball tendencies, Smith has allowed just ten home runs in 197 innings dating back to 2011.  Wins above replacement can also be calculated using runs allowed instead of FIP, and that figure credits Smith for a healthy 4.7 WAR over his last three seasons.

The Angels aren't interested in paying Smith for what he did for the Indians; he's getting $5.25MM per year from the Halos in hopes of continued sub-3.00 ERAs for 2014-16.  To see how likely that is, we typically turn to estimators like FIP, xFIP, and SIERA, which predict future ERA better than ERA does.  Using Smith's 2011-13 peripheral stats, those estimators spit out figures in the 3.33-3.68 range, well above his actual 2.42 mark.  The estimators are not crediting Smith for one potential skill, though, and that is his consistently low batting average on balls in play (BABIP).

Smith's BABIPs the last three years were .258, .253, and .282.  His career mark is .272.  Compare that to the average reliever, who was at .291 this year.  Smith seems to be better at keeping his BABIP low than other relievers, which is why he's consistently allowed fewer than eight hits per nine innings since 2008.  Smith's career BABIP against right-handed hitters is .259, versus a more normal .298 against left-handed ones.  This makes sense: he's a right-handed sidearmer, and he is able to induce weak contact against same-handed hitters.  This apparent skill has been magnified by his usage, as Smith has faced right-handed hitters two-thirds of the time in his career.

In 2013, 54 non-closer right-handed relievers pitched at least 60 innings, including Smith.  As a group, they faced right-handed hitters about 55% of the time.  In addition to the aforementioned low BABIPs, Smith has been adept at getting right-handed hitters to hit groundballs.  In 2011, Smith began the transition away from being a full-blown right-handed specialist, but he was still shielded from lefty hitters in 2011-12, magnifying his skills against righties and aiding his ERA.  Only in 2013 did Smith graduate from right-handed specialist to general setup man: he faced right-handed hitters only 50.6% of the time.  Indians manager Terry Francona let Smith face left-handed hitters 128 times, easily the most in his career.  The promotion was overdue, as he hadn't been hit too hard by southpaws since 2010.

$5.25MM a year is setup man money.  The Angels invested in Smith after he posted a 2.29 ERA in 63 innings, truly in a setup role for the first time in his career.  However, Smith's low ERA was not due to the usual factors, a low BABIP and a high groundball rate.  His .282 BABIP was his highest since 2007, and his 49.1% groundball rate was the lowest of his career (the latter owing to his facing more lefties).  Instead, a big factor in Smith's 2013 success was his left on base percentage of 86.3%.  Among relievers with at least 60 innings, Smith ranked 14th in baseball.  Almost everyone ahead of Smith on that list struck out more than 27% of batters faced, while Smith was around average at about 21%.  There's no reason to expect Smith to be much better than the relief league average LOB% of 75% going forward.

If ERA alone doesn't convince you Smith is a top setup man, then it's hard to find a particular standout skill he displayed in 2013.  He's not a strikeout guy, he doesn't have great control (especially versus left-handed hitters), and his groundball rate and BABIP weren't anything special this year.  His ERA was low because he stranded 86% of his baserunners.  The Angels probably don't have a reason to expect that to be repeated, so they're left with a guy whose only above average skill might be inducing groundballs from right-handed hitters.  They didn't need to spend $15.75MM to find a guy who can do that, with Matt Albers and Jamey Wright also on the free agent market.  That's not to suggest Albers and Wright are as good as Smith, but with limited payroll flexibility and a need for two starting pitchers, this signing was a questionable allocation of resources for the Halos.

Yankees Make Best Possible Catcher Upgrade In McCann

When the 2013-2014 offseason is said and done, there are going to be many major signings no one saw coming in September, in terms of the contract or the destination.  The Yankees' five-year, $85MM deal with catcher Brian McCann won't be one of them.  The Yankees were in dire need of catching and a middle of the order bat, they have payroll flexibility, and McCann was easily the best option.

McCann's contract wasn't much beyond expectations, though agent B.B. Abbott did score significant value additions in a full no-trade clause and a sixth-year vesting option.  Not all free agents of this caliber are able to secure full no-trade clauses.  For example, B.J. Upton and Jose Reyes did not.  As for the vesting option, its value will depend on how easily attainable it is.

For the Yankees, McCann is an upgrade on the magnitude of perhaps three wins above replacement, since they had Francisco Cervelli, Chris Stewart, and Austin Romine on the depth chart at catcher.  He's a good fit for their ballpark, and can transition to a part-time designated hitter role toward the end of the contract.  McCann doesn't turn 30 until February, though, so I doubt he's thinking much about the DH position except as a way to grab some extra at-bats.  Locking down a surefire middle of the order bat was important for the Yankees, as before this signing the heart of their 2014 order was Mark Teixeira and Alfonso Soriano.

The November contract for McCann is also a sign the Yankees will be true to their word about not letting Robinson Cano hold up their offseason.  They've snagged the fourth-best free agent in McCann.  While the lines of communication will surely remain open with Cano, it seems the Yankees will move right along looking at Carlos Beltran and a cast of other top free agents.  The Yankees do have a payroll limit, and as they continue putting free agent notches in their belt, the money available for Cano will have to be reduced.

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.

The Market Impact Of The Fielder-Kinsler Trade

In case you missed it — or, perhaps, thought the headlines were fantasy baseball musings rather than a real thing — the Tigers and Rangers consummated a rather substantial trade last night. The clubs swapped the big contracts owed Prince Fielder and Ian Kinsler, with $30MM also heading to Texas. In sum, then, the Rangers have added $76MM in salary, and each team has plugged a hole that it might otherwise have addressed in free agency.

While the ultimate impact on the fortunes of the two ballclubs involved will not be known for some time, the broader effects on the free agent and trade market will be sizeable and immediate. Here are some initial thoughts on what that might look like:

Reduction In Demand
First and foremost, both of these big-spending clubs have now filled major vacancies without a single new dollar being committed to the market. And it is entirely possible that neither of those clubs has opened a new hole through the deal, which is probably a big reason why it got done: top prospect Jurickson Profar will step in at second for Texas, while Detroit has internal options to account for its corner infield jobs (including, potentially, its own highly regarded prospect in Nick Castellanos.) If that is indeed the case, the deal is probably bad news for free agents generally, because it takes two premium, high-paying potential jobs off the market. 
The impact is even more pronounced because neither Kinsler nor, especially, Fielder were sure things to be dealt this off-season. And tens of millions of dollars figured to be spent on the spots that each will now occupy. The point shouldn't be overstated — after all, Kinsler could well have ended up taking over at first for Texas, and there are still plenty of openings to be filled — but it will have some impact, especially when it comes time for agents to play serious bidders off of one another to drive high prices or prop up low ones. After already seeing international free agents take away possible new homes, guys like Omar Infante and Mike Napoli probably have lost a potential landing spot, and with it some leverage.
Except For Corner Outfielders?
On the other hand, one particular group of free agents could stand to benefit: top corner outfielders. Both the Tigers and Rangers entered the off-season with a need at the corner outfield, as MLBTR's Steve Adams and Charlie Wilmoth respectively explained. Now, those clubs have found a way to address one need without coming out of their collective pocket. In theory, that should mean more money is free on the market to be spent on outfielding needs.
Enhancing the impact is the fact that multiple mid-tier options — Marlon Byrd, David DeJesus and David Murphy — have already come off the board at fairly substantial prices, setting a high floor. And those signings may not have drastically reduced demand: the Phillies could well still be in on top outfielders, and the Indians were, as Charlie noted, far from certain to spend at the corner outfield coming into the off-season (meaning that Murphy does not really take an obvious, pre-existing landing spot away from free agents). Four of the top twenty open-market players (per MLBTR's Tim Dierkes) are expected to defend the flanks of the outfield, and that already-well-regarded group could see a boost.
A potential corner outfield boom probably requires the Fielder-Kinsler dancemates actually to be buyers in that market. Having made a deal out of left field, are these two clubs now more or less likely — as a practical matter — to spend on left field? While there are arguments in both directions, I think both Texas and Detroit will keep the wallets open for the corners.
You might pencil in the Tigers to apply their cash windfall to a Max Scherzer extension instead. But with a roster begging for another shot or three at a World Series victory, the organization seems relatively unconcerned with limiting short-term payroll. (Indeed, this deal will not help Detroit much in that regard.) Instead, the payroll flexibility needed by GM Dave Dombrowski and co. is in the long run: Fielder promised to be a major drag and an impediment to keeping players like Scherzer and Miguel Cabrera in Motown. But the Tigers should have little problem keeping free future cash for Scherzer while still aggressively pursuing Torii Hunter's mirror image in left field — a strong veteran who figures to land a short- or mid-length deal.
Of course, nothing is decided, and Dombrowski could chase a third baseman or keep Cabrera there while deploying Castellanos in the outfield. But the thin market at the hot corner and Miggy's recent injuries, age, and defensive limitations keep the smart money on a new addition in left.
Meanwhile, the Rangers added salary, which would seem to be a significant drag on outfield spending. But the net payroll impact of $76MM is less than the team would have likely committed to a premium free agent, and the cost was a player that had become expendable. More importantly, because the length of Fielder's deal is the biggest factor in the cost difference, the added dollars mostly impact the payroll further down the line. The Rangers were one of those clubs whose future obligations were fairly front-loaded, making the salary flip relatively easy to stomach in the long run. And in the short run, Texas should remain just about as flexible as it was already.
With first base filled, the corner outfield and catcher are the two clear areas where GM Jon Daniels can most easily add value over the in-house options. Indeed, Daniels noted that the club still intends to add another bat. With the aforementioned Murphy now in Cleveland, the Rangers may at this point be even more likely to spend in the outfield than they were before the deal, when a shift of Kinsler to left was at least a hypothetical possibility.
Shifting Trade Winds
This unexpected blockbuster could also impact several other rumored swaps. With Fielder's remaining seven years off the books, extending (or re-signing) Scherzer now looks a lot more feasible from Detroit's perspective. Indeed, Dombrowski acknowledged that keeping the newly-minted Cy Young winner is now "more possible going forward." As MLBTR's Zach Links noted, that makes speculation that Scherzer might be dealt seem less plausible. 
Further, a major premise of the rumors linking the Rangers to star trade chips like David Price and Giancarlo Stanton was the possibility of packaging Profar, a centerpiece that few other organizations could match. But with his name now scratched into the middle infield dirt at Arlington, Texas may no longer have the trump card — or, perhaps more importantly, the desire and ability to deal from depth — that made it a seeming market-driver for premium trade acquisition targets. (Of course, even if Profar's new starting gig has some impact on Tampa's ability to drive up the trade value of Price, the lack of a competing front-line starter in Scherzer would more than compensate.)
Finally, with Kinsler finding a new home in a pretty unexpected place, teams that might have targeted him as a keystone option will have to look elsewhere. Of course, as Dave Cameron of Fangraphs notes, Howie Kendrick and Brandon Phillips still seem available by trade. So there is only the slightest silver lining here for Infante, who as Zach reported will not return to Detroit. If the Yankees bring back Robinson Cano, as expected, the market may be devoid of big-spending, win-now competitors for his services.
Ultimately, there is little question that yesterday's trade will have major ripple effects on how the puzzle pieces end up falling in place. While it is impossible to forecast with any confidence exactly what the impact will be, this deal makes for a fascinating shift of the market at the outset of the off-season.

Franchise Alteration
Finally, while I will not offer any take on the merits of the deal for the two teams involved, I would like to offer some further perspective on its impact to their balance sheets. In some ways, the clubs have swapped positions in terms of future financial obligations. With $30MM reportedly set to head south over 2016-20 (presumably, in equal installments), the deal results in the following changes to the clubs' respective guaranteed contract obligations from 2015 onward (information courtesty of Cot's Baseball Contracts):
To visualize the shifts, look at these charts of the future commitments: