What would a Danny Duffy extension look like?

On Friday the Royals and Danny Duffy agreed to a one-year, $2.425M contract avoiding arbitration. As mentioned in the Lorenzo Cain arbitration piece, this most recent agreement keeps Dayton Moore's arbitration-less streak going. The Royals goal, and pretty much every team's goal, is to save money or maybe more importantly don't overspend when/where you don't have to. $2.425M for Duffy certainly isn't an overspend. He's expected to be in the Royals major league rotation in 2015 and barring any injuries he doesn't have any restriction on him or major concern other than just being good. Over 150 innings pitched in 2014 Duffy was worth 2.2 wins. That's not a young "stud" but it's a major league average player and paying $500,000 (his 2014 salary) for that is excellent. The larger the delta between value and salary the better, obviously.

In January I tried to identify, in some way, what brings out good Danny Duffy. The basic answer was "I don't know" and the more advanced answer was strikeouts, walks, and home runs, which is essentially the answer for every pitcher. Strikes thrown had a small, the largest outside of the three aforementioned metrics, correlation and Duffy is someone who struggles with walks.

In this article though we'll, ie me, look at extending Duffy.

First the basics.

Age: 26.047

2015 salary: $2,425,000

2014 fWAR: 2.2

Years under control: 3 years

Earliest FA date: 2018

2015 Steamer: 1.1 fWAR

2015 PECOTA: 1 WARP

The biggest enigmatic piece of Duffy is that we don't know how good he is/will be at any given time really. In May of 2014 he had a 5.76 FIP, in June 2.78, and then 4.35 in July. In May he walked more batters than he struck out then the following month he struck out 2.5 times more batters than he walked. Above, Steamer and PECOTA are bearish on Duffy for 2015, however PECOTA itself labeled Duffy as having the 10th best improvement rate in baseball. Basically he'll either be bad, okay, or he'll be good.

The variables you have to answer when trying to look at a possible extension are: what is the player making now, what is his value now, what is his projected future value, and what are his projected future earnings.

What is he making now?

This is the easiest one clearly. Duffy just received a pay raise of ~$2M Friday earning himself a 2015 salary of $2.425M. For the Royals this represents nice value. Even if he were to perform along the bearish PECOTA/Steamer projections the Royals would be looking at somewhere in the range of $5M in surplus value. Any team would be happy to pay Duffy, or most 26 year olds, $2.425M a year I'd imagine.

What is his value now?

I think this one is maybe the toughest. Steamer and PECOTA say ~1 win. I personally think that's a bit low. Essentially that's seeing him worth half as much as he was last year, which for a 26 year old is drastic. The injuries are a concern of course.

Date On	Date Off	Transaction	Days	Games	Side	Body Part	Injury	Severity	Surgery Date
9/7/2014	-	DTD	-	-	Left	Shoulder	Inflammation	Rotator Cuff	-
9/8/2013	9/30/2013	15-DL	22	20	Left	Elbow	Strain	Flexor Strain	-
3/22/2013	6/25/2013	60-DL	95	73	Left	Elbow	Recovery From Surgery	Tommy John Surgery	6/13/2012
5/14/2012	10/4/2012	60-DL	143	129	Left	Elbow	Surgery	Tommy John Surgery	6/13/2012
4/23/2012	5/3/2012	DTD	10	8	Left	Elbow	Inflammation		-
6/19/2011	6/19/2011	DTD	0	0	Left	Lower Leg	Cramp	Calf	-
4/8/2010	8/2/2010	Minors	116	0	Left	Elbow	Sprain	Ulnar Collateral Ligament	-
3/7/2010	3/11/2010	Camp	4	0	Left	Elbow	Soreness		-
7/29/2009	8/15/2009	Minors	17	0	-		Not Disclosed		-
7/8/2009	7/18/2009	Minors	10	0	-		Not Disclosed		-
8/19/2008	9/11/2008	Minors	23	0	-		Not Disclosed		-
4/3/2008	5/19/2008	Minors	46	0	Left	Elbow	Strain		-

We have Tommy John on the list, two DL stints in 2013 (one being TJS rehab), and the shoulder scare in early-September last year. Other than the September shoulder blip Duffy was relatively healthy in 2014 and his velocity was at pre-surgery level.

When you look at his possible upside you could see a left-handed starter who could potentially strike out 8 batters per outing, walking 3-3.5, and settling in a low-3/mid-3.5 ERA/FIP. That's basically Chris Archer, Justin Masterson, Gio Gonzalez, or a low #2/high #3, which is nice.

Ultimately the command profile limits his upside as you just can't walk 10-12% of the batters you face without having to strike out a large amount of the others batters. His ceiling, for me at least, is a 3-3.5 win pitcher. At $8M per win that's worth around ~$25M per season. Let me clarify and stop any thought there though: Duffy isn't worth that per year, at all.

What is his projected future value?

If Duffy reached his above ceiling for the next 3-4 years then he'd be worth 12-15 wins which is similar to what Gio Gonzalez has done from 2011-2014. Realistically though over say the course of four years I think Duffy could reasonably be worth 6-8 wins which is more along the lines of what Yovani Gallardo has done over that course. That's roughly 2.5 wins per 180IP over the span of 3 years.

FanGraphs fan projections pegged Duffy at 2.4 wins in 2015 due to a not as severe jump in walks/homeruns as PECOTA/Steamer projects. I think that's a reasonable baseline to expect, if healthy, from Duffy from age 26-29.

What are his projected future earnings?

The Royals just avoided Duffy's first possible run through the arbitration judge and will have two more seasons left under control after 2015.

We all know the arbitration process doesn't necessarily reward player by the advanced metrics but more so the more traditional ones like home runs, RBI, Wins, Losses, ERA etc...

Duffy's win/loss record for his career is 17-22 so he's not getting paid through that. Now by ERA, Duffy has actually been good. For his career he has a 3.67 ERA with a 2.53 ERA last year over 149 innings. By strikeouts and ERA Duffy could see moderate pay increases and if he is able to log ~360 innings in '15/16 he could see more of an increase in his 2017 arbitration (his final year). If he logs another hypothetical 180 innings in 2017 then his free agency profile gets even better.

Players don't get pay decreases through arbitration and generally see a minimum of 20% raise even as a poor performer as long as they can play a full season or so worth of baseball.

Mat Latos is projected to make ~$8M in this his final year of arbitration even after an injured 2014 season through the value he built up from 2010 on. That's more than Duffy is likely to make projecting at this point in time. Bud Norris though is projected to receive a similar amount as Latos despite being a quite worse pitcher in relation to Mat Latos and may be a comparable case to Duffy.

Here is Bud Norris' 2013/14 stats compared to Duffy's career:

Player	K/9	BB/9	ERA
Bud Norris	7.54	3.13	3.92
Danny Duffy	7.34	3.99	3.67

It's not a perfect match (I'm open to better ones), but Norris is a final year arb eligible player.

Norris salaries:

Arb 1:  $3M (2013 - avoided arbitration)

Arb 2: $5.3M (2014 - avoided arbitration)

Arb 3: $8.8M (2015 - avoided arbitration)

Duffy just avoided his first arbitration year for $2.425M which is somewhat close to Norris' first agreement.

Another interesting one may be Travis Wood.

Player	K/9	BB/9	ERA
Travis Wood	6.99	3.42	4.00
Danny Duffy	7.34	3.99	3.67

Wood just settled with the Cubs for $5.685M in January to avoid his second trip through arbitration. Last year he and the Cubs avoided his first trip through arbitration for $3.9M which is ~60% more than Duffy and the Royals settled at Friday.

If Duffy is ~2 win pitcher for the next 2 years then we could be looking at something like $4M in arb year 2, and $6-7M in arb year 3.

I think something like

Arb 2: $4M (2016)

Arb 3: $7M (2017)

Total: $11M

Duffy could have one of those 3+ win seasons, or two, and those 2016 and 2017 salaries would shoot up.

Does that seem reasonable? $11M? Duffy isn't going to sign for that amount right now likely as he'd probably rather bet on himself. Meanwhile the Royals aren't going to guarantee him arbitration rates that good then let him walk into free agency. They are going to want a discount on free agency years in return for guaranteeing him money.

When extending players you have to account for the potential arbitration raises and potential free agent earnings. Duffy comes with an injury history so you could discount for that, but he isn't going to sign with the Royals for basically break even value (in his mind that is). The Royals would likely be glad to extend Duffy right now for the next 3-4 years at an AAV of $5M, but Duffy isn't going to give away his potential free agency earnings and some possible arbitration volatility earnings if he has a great year or two. Basically you have to overcompensate the player to convince him to take an extension unless he is willing to take a home discount (which maybe Duffy is #BuryMeARoyal). Duffy isn't expected to break arbitration records or come close so it doesn't make sense for the Royals to give him $11M for '16/17M. If he were a star player then guaranteeing arbitration figures of some manner would make sense, but Duffy and the Royals will likely go year to year.

What could an extension look like?

I mentioned Chris Archer earlier for another reason. He and the Rays agreed to a 6-year, $25.5M extension with two club option years at $9M and $11M that could keep him a Ray from his age 25-32. That could be a total of $45.5M over 8 seasons.

For Duffy I wouldn't be too into those club option salaries, but I would like the options. Unfortunately that's just the way it works. Archer wasn't going to give the Rays two club-friendly options but instead those options will each be worth the cost of about any two of the other years in the deal combined.

Gio Gonzalez and the Nationals agreed to a 5/$42M contract in 2012 that covered his age 25-30 seasons. Also included was a team option at $12M for age 31 and a vesting option of the same amount for age 32. Altogether a total possible amount of $66M. Although not fully guaranteed, this would be the largest possible contract in Royals history if Duffy were to sign it.

Gonzalez is a much better pitcher than both Archer and Duffy so it would seem that the Archer deal would be the better comp of the two.

In Duffy's case that deal would buy out his final two arbitration years for $7,833,332 total while buying out two free agents years at $14,083,334 (age 29-30). Then of course are the two club options worth $20M covering an additional two free agency years of age 31-32.

We could go with two options here. Keep the more expensive club options or get rid of them at the cost of having to bump his other figures up.

Note* In the below figures I used a stagnant fWAR amount for each year. Also, I averaged out the cost of a win for the next 5 years with 5% inflation each year for $9.77M as my figure for the $/WAR, for ease.

Option 1:

Age	Salary	1 fWAR	1.5 fWAR	2 fWAR	2.5 fWAR	3 fWAR
26	$2,425,000.00	$ 7,345,409.98	$12,230,614.96	$17,115,819.95	$ 22,001,024.94	$ 26,886,229.93
27	$2,916,666.00	$6,853,743.98	$11,738,948.96	$16,624,153.95	$21,509,358.94	$26,394,563.93
28	$4,916,666.00	$4,853,743.98	$ 9,738,948.96	$14,624,153.95	$19,509,358.94	$24,394,563.93
29	$6,416,667.00	$3,353,742.98	$ 8,238,947.96	$13,124,152.95	$18,009,357.94	$22,894,562.93
30	$7,666,667.00	$2,103,742.98	$ 6,988,947.96	$11,874,152.95	$16,759,357.94	$21,644,562.93
31	$9,000,000.00 - Team Option	$770,409.98	$ 5,655,614.96	$10,540,819.95	$15,426,024.94	$20,311,229.93
32	$11,000,000.00 - Team Option	$(1,229,590.02)	$ 3,655,614.96	$ 8,540,819.95	$13,426,024.94	$18,311,229.93
Total/Surplus	$44,341,666.00	$24,051,203.83	$58,247,638.75	$92,444,073.66	$126,640,508.58	$160,836,943.49

So yeah...even if Duffy was just a one-win pitcher for the next 7 years he'd be worth $24.5M in surplus value. The better he is obviously the better the Royals look for the extension. That's a steal of a contract if he's worth 2 wins a year over the deal. (Remember that I'm using estimated $/WAR values and there's a good chance that they could be higher/lower in the future - though likely it will be higher).

Option 2:

Age	Salary	1 fWAR	1.5 fWAR	2 fWAR	2.5 fWAR	3 fWAR
26	$2,425,000.00	$7,345,409.98	$  12,230,614.96	$17,115,819.95	$22,001,024.94	$26,886,229.93
27	$6,000,000.00	$3,770,409.98	$    8,655,614.96	$13,540,819.95	$18,426,024.94	$23,311,229.93
28	$8,000,000.00	$1,770,409.98	$    6,655,614.96	$11,540,819.95	$16,426,024.94	$21,311,229.93
29	$10,500,000.00	$(729,590.02)	$    4,155,614.96	$9,040,819.95	$13,926,024.94	$18,811,229.93
30	$10,500,000.00	$(729,590.02)	$    4,155,614.96	$9,040,819.95	$13,926,024.94	$18,811,229.93
Total/Surplus	$37,425,000.00	$11,427,049.88	$35,853,074.82	$60,279,099.76	$84,705,124.70	$109,131,149.64

So excluding the already agreed $2.425M they agreed upon, Duffy is guaranteed $35M over the other four years. Why $30m? It's a round number? The original deal guaranteed Duffy ~$25M with extensions to get it to $45M. The second option guarantees Duffy an additional $10M with the ability to hit free agency again as a 30 year old. Now, this not a suggestion of an extension, but more of an example. In this scenario though the Royals don't see nearly as much surplus value (obviously due to the higher guaranteed overall contract), but they of course had to pay Duffy extra to drop the club's friendly options.

For the Royals they obviously want option one. This gives them the possible club friendly options and control over Duffy over his theoretical peak years.

For Duffy, he wants option two. A larger guaranteed salary and he can hit free agency at a relatively youngish age.

Clearly this is black and white so let's try to find a win-win for both sides.

Age	Salary	1 fWAR	1.5 fWAR	2 fWAR	2.5 fWAR	3 fWAR
26	$2,425,000.00	$ 7,345,409.98	$12,230,614.96	$17,115,819.95	$22,001,024.94	$26,886,229.93
27	$12,000,000.00	$(2,229,590.02)	$2,655,614.96	$7,540,819.95	$12,426,024.94	$17,311,229.93
28	$12,000,000.00	$(2,229,590.02)	$2,655,614.96	$7,540,819.95	$12,426,024.94	$17,311,229.93
29	$10,000,000.00 - Team Option	$(229,590.02)	$4,655,614.96	$9,540,819.95	$14,426,024.94	$19,311,229.93
30	$10,000,000.00 - Team Option	$(229,590.02)	$4,655,614.96	$9,540,819.95	$14,426,024.94	$19,311,229.93
31	$10,000,000.00 - Team Option	$(229,590.02)	$4,655,614.96	$9,540,819.95	$14,426,024.94	$19,311,229.93
Total/Surplus	$56,425,000.00	$2,427,049.88	$26,853,074.82	$51,279,099.76	$75,705,124.70	$100,131,149.64

Maybe this isn't a clear win-win, but I think it's more of a compromise for both sides. Duffy is guaranteed the equivalent of the option one four year deal, but instead gets it over two years. In return, the Royals now control Duffy for an additional three years at a reasonable rate. Duffy still gets to hit free agency around the same age as option one and two, while pocketing $54M (before taxes of course). If the Royals elect not to pick up the options, he goes to free agency earlier. You could add buyouts, performance bonuses, and vesting caveats to the team options as well, but there's an idea at least in the frame.

As mentioned, extending Duffy is both interesting a risky. He doesn't have a long track record of success, but neither did Chris Archer prior to his extension. Duffy also carries injury risk with his surgery as the best predictor of future injuries is past injuries. Meanwhile extending him guarantees the Royals control over him for all of his theoretical peak seasons at a set rate, and if they modeled something around option one then they control him at a very team friendly salary.

Personally I'd want option one, but I don't think option two would be terrible either. The cost of even the back end of a rotation piece is rising alongside baseball payrolls/revenues and the cost per win. Also the marginal cost per win for the Royals must be taken into place if they expect to be competitors for the next several years.

We are coming off a recent contract where a 34 year old Jeremy Guthrie was guaranteed $25M over three years. I'd find it to be a hard stance to argue that Duffy isn't worth equal what Guthrie is making, if not more.