Eric Hosmer, Super Two and You

A lot of the discussion of Eric Hosmer's callup centers around the financial impact on the Royals.  If Hosmer qualifies for arbitration after his second year (so-called Super Two status), the Royals will potentially find themselves paying more for Hosmer than if he'd come up a week, a month or two months later.

Unfortunately, there's a lot of misinformation spreading around on what Super Two is and how it may affect Hosmer.  This post serves to try to clear some of that up.

My Biases:

Since biases seem to be driving a lot of the initial reaction to the deal, it's only fair to state mine.  I like the move, but not because I think the Royals will contend this year.  I think waiting until we're on the verge of contending to bring up prospects would mean never bringing them up.  I'd also rather have them spaced out so we don't have to deal with a wave hitting free agency at once, and so it seems that bringing up a hitter in 2011 was a good idea.  I originally expected Moose, but it seems to me that, at least since Spring Training, Hosmer has been considered the most advanced hitter, (see John Sickels February interview with GMDM) so he's the first one up.   If a couple weeks would have made a significant difference in cost in the out years, I think it would have obviously been better to wait. 

What is Super Two status?

1) What it is not

There are two incentives for a team to keep a player who's ready down on the farm. One is team control.  Teams control players (that is, players can not declare free agency and can negotiate contracts with only the one team) for the player's first six full years in the majors.  Under the collective bargaining agreement, a full year is 172 days.  However, there are actually between 180 and 185 days in a season, so a team that wants to maximize their control over a player needs to keep a player down on the farm for at least a couple weeks so that the player accrues less than 172 days the first year and doesn't get his first full year until the following season.  Any GM who had a highly-touted prospect break camp with the big-league club should be sued for malpractice (Brian Sabean did this in SF this year, although the prospect, Brandon Belt, is already back in AAA after stinking it up).

2) What is is

The second incentive to keep a ready prospect down on the farm is delaying arbitration.  A player who's not eligible for arbitration is going to be making around the minimum salary ($414,000 for 2011).  Once a player become eligible for arbitration, that number goes up by somewhere between several hundred thousand and several million.  Arbitration costs teams a lot of money.

Every player under team control (i.e. less than six full years service time) is eligible for arbitration after 3 full years of service time.  In addition, the players that are just a few days short of 3 full years also get arbitration.  This group is the so-called Super Twos.  I'm guessing that this was put in to punish teams that were bringing up players in late April in order to avoid a full service year and maximize team control.  In effect, this rule says "you may be able to delay free agency with that trick, but you can't dodge arbitration."

The rule is more complicated than "a few days short of 3 full years." It actually says that, of all the players with at least 2 and less than 3 service years, and at least 86 days in the most recent season), the top sixth of that group will be eligible for arbitration.  Unlike gaming service time for free agency (where the exact number, 172, is known), figuring out how long to wait to avoid Super Two status is much more complicated.  Making an educated guess on the cutoff requires estimating how many prospects will be called up (one sixth of how big a class?) and how many will be sent back down and for how long (only time on the 25-man roster counts for service time).  To be safe, teams often wait halfway through the season, to late June.  

Will Eric Hosmer be a Super Two?

There are three ways Eric Hosmer could avoid Super Two status:

1) Get sent back down

Since only time on the 25-man roster counts, any time Hosmer spends back in Omaha (after being optioned back there -- a rehab assignment after a trip to the DL wouldn't count) pauses his service clock.  A player called up in May but sent down for a month later will have the same service time accumulated as a player called up in June who stays.  

Some people think the front office is calling him up to show him what he needs to work on to get ready for MLB pitching.  Other people think the front office is clueless but Hosmer is not ready.  Either way, a trip back to Omaha would significantly reduce the chance Hosmer becomes a Super Two

2) Have been called up late enough

Hosmer could stay in the Majors straight on through, but it may be that, at the end of 2013, when they look at the class of players with 2 to almost 3 years of service and at least 86 days of service time in 2013, Hosmer is not among the top sixth of service time.  If Hosmer stays up, he will accrue 2 years 146 days of service time, according to MLB Trade Rumors.  Right now the projected Super Two cutoff for 2013 is 2 years 146 days, according to a major player agent firm.  In other words, Hosmer is right on the cutoff.  If the projection moves up by a day, Hosmer will not be a Super Two.

3) Have Super Two expand/contract/disappear

The current collective bargaining agreement expires at year end.  One of the topics of the negotiation for next year is changing the Super Two formula or getting rid of it altogether.  It's hard to predict the outcome, but neither the players nor owners like the current Super Two setup. If some sort of Super Two eligibility remains, it still may affect Hosmer.  If the eligiblity is tightened, he may not qualify.  If it's loosened, it may be that he would have qualified even if we'd kept him in Omaha until July.  Any signficant change to Super Two status reduces the downside to calling a player up early this year.

How much is being a Super Two worth?

If Hosmer does become a Super Two, how much extra does he cost the team?

How arbitration works

In the arbitration process, the player and the team submit contract proposals to a panel of arbitrators, the two sides argue over whose is more fair, and then the arbitration panel picks one or the other.  It's designed to encourage both sides to submit offers they genuinely believe are fair because an extreme position will just result in the arbitrator picking the opposing side.

What can be considered by the arbitrators?

The collective bargaining agreement, in Article VI, Section (12) [pdf], lays out what should be considered by the arbitrators.  Technically anything is fair game (except five exclusions in paragraph (b)), but the agreement directs the arbitrators' focus for young players:

The arbitration panel shall, except for a Player with five or more years of Major League service, give particular attention, for comparative salary purposes, to the contracts of Players with Major League service not exceeding one annual service group above the Player’s annual service group.

So Super Twos get compared to 2nd and 3rd year players, Third-year players get compared to 3rd and 4th year players and so on.  Once a player has five full years complete (for Hosmer, this is after 2016), contracts are compared to all MLB players.

In practice, not surprisingly, players tend to get compared primarily to others who play the same position, so what really matters for a Super Two first baseman is how much money do 2nd- and 3rd-year first basemen make.

So how much would Hosmer make as a Super Two?

In the last two years, there have been 5 first basemen who've signed contracts after their 3rd full season:

• In 2010, James Loney signed a 1 year contract for $3.1M [source: Cot's 2010 ]
  
• In 2011, Dan Johnson signed a 1 year contract for $1M [source: Cot's 2011]
  
• In 2011, Kendry Morales signed a 1-year contract for $2.975M
• In 2011, our very own Billy Butler signed a 4-year contract for $30M
• In 2011, reigning MVP Joey Votto signed a 3-year contract for $38M

Since multi-year contracts are buying out more expensive years, you can't just divide by 4 and say Billy would've made $7.5M on a one-year deal, but it's clear that Butler and Votto would have made much more than Loney, Johnson, or Morales on one-year deals. 

It's not clear how much Super Twos are hurt by being compared to players in their same year of service time -- after all, those are second-year guys and almost all are making major league minimum. However, if Hosmer proves his critics here at RR wrong and produces at a Billy Butler level, it seems fair to guess he'll likely cost the Royals $3 to $6 million to play the 2014 season if he achieves Super Two status versus about $0.5 million if he doesn't. 

Does being a Super Two increase your subsequent arbitration awards?

At first glance

On the surface, the answer is no.  Nothing in the collective bargaining agreement requires an increases in salary from year to year.  (There is a provision that limits the maximum salary reduction in arbitration to 20% over one year and 30% over two years). 

Players tend to increase from the arbitration after their 3rd to their 4th to their 5th full years (sometimes described as 40% / 60% / 80% of the major league average), but this has more to do with aging curves -- the player's production is likely increasing and the players forming the salary comparison (players with the same or one year more experience) are getting better and earning more money.

The case for saying yes -- Ryan Braun

Ryan Braun signed a contract with the Brewers in his first full year (2008) for 8 years at $45 million.  It contained a clause that would have increased the value to $51 million if he'd qualified as a Super Two.   If $6 million is more than he would have made in his Super Two year, then the remainder is extra value that Super Two status brings for his later arbitration years.  

The case for saying no -- recent history

In addition to the superficial look at arbitration mechanics above, recent history suggests that Super Two status does not affect arbitration awards in the third year. 

Using the Cot's salary data, I pulled all the 2011 contracts signed by arbitration-eligible players with at least three but less than four years of service time (note Cot's indicates service time as #years.#days so 3.126 is 3 years, 126 days), and I compared contract awards between players who had been eligible for arbitration as Super Twos in 2010 and those who hadn't.  I set aside multi-year contracts rather than arbitrarily assign a portion of the value to 2011.  I don't believe it made a difference overall.

Right-handed pitchers -- 24 players / 22 signing 1-year contracts; average salary: $1.76M

The biggest contract (Matt Garza, $5.95M) and the two smallest (Jared Burton, $0.75M and Joey Devine, $0.56M) were signed by players who'd been Super Twos the year before.  In between were 21 other RHPs signing for between $0.8M (Edward Mujica) and $3.9M (Mike Pelfrey) In addition, four Super Twos who'd signed one-year contracts the year before were not up for arbitration.  The Giants signed 2 year deals with both Tim Lincecum ($23M) and Brian Wilson ($15M) during 2010, which will cover them for 2011 and 2012 seasons. At the other extreme, Super Twos Matt Albers and Dustin Nippert were both released.  Also of note, Jared Burton's contract for 2011 was smaller than he signed for 2010 as a Super Two.

Left-handed pitchers -- 11 players signing 1-year contracts; average salary: $1.6M

Dallas Braden signed the biggest deal at $3.35M.  The two Super Twos from 2010, Tom Gorzelanny and Rafael Perez both came back for middle-of-the-pack 1-year contracts.  $2.1M for Gorzelanny and $1.33M for Perez. 

Outfielders -- 15 players / 13 signing 1-year contracts; average salary: $2.4M

2010's Super Twos included Hunter Pence, to whom the arbitrators awarded the biggest 1-year contract of any player in his service year -- $6.9M (the Astros offered $5.15). The other two Super Twos from his class were Carlos Gomez, who signed for a below-average $1.5M, and Rajai Davis, who signed a 2-year deal for $5.75M.  If that money is prorated according to the conventional wisdom (players make 40% of MLB avg in 3rd year and 60% in 4th year), his 2011 money would put him in the middle of the pack. To return the context to Hosmer for the moment, there are some very good hitters in this class.  In addition to Pence, Shin-Soo Choo got $3.975M for one year and Nelson Cruz got $3.65M

Infielders -- 17 players, 14 signing 1-year contracts; average salary $1.75M

Super Twos in the infield did not represent.  Alex Gordon led the way at $1.4M, Mike Fontenot got $1.05M, and Jesus Flores got his 2010 salary again -- $0.75M.  The big one-year contracts were signed by Martin Prado ($3.1M) and Kendry Morales ($2.975M), and this group also includes Votto and Butler, as mentioned above.

In Summary:

Among these players (arb-eligible with at least three but less than four years service time), the average one-year contract signed by those who'd been a Super Two in 2010 was bigger ($2.23M) than those who hadn't ($1.85M).  However, the median salary for Super Twos ($1.36M) was lower than the median salary for the others ($1.39M).  The Pence salary really skews the average. 

All in all, I don't see any apparent pattern of Super Twos getting bigger contracts their third year than players who are newly eligible for arbitration.  If there were going to be a difference, it should be most dramatic here.  Some have suggested that Super Twos would get 50% more salary (60% of the MLB average instead of 40%) in their third year than non-Super Twos while others have suggested 25% more (50% of the MLB average instead of 40%).  I see no evidence for either proposition here.

What about the last two years of arbitration?

Regular (i.e. non-Super Two) players get a boost in their third arbitration year (after their fifth full service year) because they are no longer compared to their peers' salaries but instead to all MLB players.  Some have suggested that Super Twos, who have four arbitration years instead of three, would get that benefit in their third and fourth years.  That is not the case.

As I hope I've made clear above, the collective bargaining rules dictate treatment based on a player's years of service, not how many years of arbitration.  A player who was once a Super Two is treated the same way after four full years of service as one who was not, even though it's the third arbitration year for the former Super Two and the second arbitration year for the other

Conclusion

The chance that the Royals would have saved any money by delaying Hosmer by a month or so is far less than 100%.  We can only speculate, but Dayton has access to information on both the state of the CBA negotiations, and, of course, whether he plans to send Hosmer back down to Omaha at any point (some have suggested during interleague play, to allow Hosmer to continue to hit every day).  For me, I'd say that, between the 3 causes outlined above, there's about a 50% chance that the Super Two issue will end up costing the Royals money, primarily because I expect it to change in the new Collective Bargaining Agreement.

As for the amount of money at stake, I'd estimate $5M, almost entirely in 2013.  And that doesn't bother me very much.  Glass will come under pressure to raise payroll, and in the early years of the youth movement, the only ways to do that are to bring in free agents or buy out players' arbitration years.  If we can sign more folks to Billy Butler-type contracts, I'd say that's great, but I don't know that that's gonna happen in time to meaningfully affect 2013 spending.  While it would be nice to save money for the future, I don't think that's realistic, especially when small market hoarding becomes a higher profile issue in CBA negotiations.  I think at least $40 to $45M is going to get spent on the 2013 Royals, and I don't have faith in Dayton to spend it wisely on free agents.  If it goes to Hosmer instead, I'm not too troubled.  If I believed that this move would meaningfully raise spending on Hosmer in 2014/5/6, I would be more concerned, but I don't believe that's the case.