Royals take calculated risk with Danny Duffy extension

The big news on a mournful day in Kansas City after a Chiefs loss (or maybe they should be cheering that baseball is starting soon) is the extension of Danny Duffy. The terms of the deal are five years, $65 million and will keep Duffy in Royal blue until age 32.

Danny Duffy had his breakout season in 2016 after being converted back to a starter in early summer. The process was slow (four years of build up if you think about it) as he started off throwing only a few innings but he came out the gate hard in terms of production. Eventually he was going deep into games, something unthinkable of any past iterations of Danny.

I love looking at contracts and particularly trying to value players worth. In fact I wrote about extending Duffy two years ago, suggesting a deal close to six years, and $56 million for the lefty. That was before his breakout season, but the agreed-upon deal isn’t too far off that estimate.

Duffy is difficult to value. Normally you can just apply projections and a straight aging curve to a player with an inflation-adjusted $/WAR premium. If you strictly did that, then Duffy looks something like:

In real life Duffy got about half of that. It is worth noting that calculation is based off what he would have gotten in free agency so you could drop it slightly since he had not yet reached free agency and did not have multiple bidders. However a 2.5 to 3 WAR pitcher over the next few years ain’t cheap.

Mike Leake at a similar age and performance, with a longer track record of durability than Duffy, got a five-year, $80 million deal last year in free agency. Ian Kennedy had durability but lacked a track record of performance, but was still paid 5/$70M in the past offseason. Of course, neither of those guys had Tommy John surgery, which in Duffy’s case is critical.

The rate of reoccurence of Tommy John surgery isn’t terribly high, but it has spiked in recent years. I usually use a general rule of thumb of 6-8 years as the typical shelf life of a repaired elbow. Some organizations use six while others (like the Nationals) use eight years. Duffy had his Tommy John surgery in 2012. That would mean his “danger window” would 2018-2020, near the tail end of the deal. His UCL could snap on the first pitch of 2017 (sorry for putting this into the air) or it may never happen. That’s the mystery of Tommy John surgery, and teams take that into consideration.

Just once in the recent history of the sport has a Tommy John survivor received a free agent contract worth more than $100 million - Jordan Zimmermann. Stephen Strasburg also landed a big deal when he signed a seven-year, $175 million extension with the Nationals before he reached free agency.

We can use those two cases as comps for Duffy, since one is in free agency and the other is an extension. We can look at what they were worth from a strict valuation standpoint and then against what they received.

Going into free agency, Zimmermann looked worth something like $131 million over five years:

Zimmermann received a five-year, $110 million contract from Detroit, representing something of a 20% discount. We’ll just call this the Tommy John discount. It’s not perfect I admit but it’s reasonable enough to get in the ballpark.

Strasburg, whose contract extension doesn’t start until this upcoming season, is worth around $185 million.

Strasburg received $175 million but when you factor in his deferred money and opt outs, the time value of the deal is worth around $140 million. That puts his Tommy John surgery discount at about 20% as well.

Using that 20% discount on Duffy’s future value comes out to about $100M in value.

We also have the terms of the deal which allows us to gauge surplus value. It is a pretty straight forward, not including any opt-outs, options, or deferred money.

The Royals would get $35 million in surplus value, a very club-friendly deal. In October I tried calculating the surplus value of most MLB players this past October and found that a surplus value of $35 million is equivalent to roughly what Anthony Rizzo was worth this past season. Duffy would provide that surplus value over five seasons, but that is still terrific value. In terms of prospects, $35M though is roughly the value of a top 25-50 hitting prospect (or top 11-25 pitching prospect given their higher attrition rates), which could be a factor as the Royals may want to use him as trade bait eventually.

The Royals are looking to make one final run at a title this year before entering a dark and unknown realm in 2018. Duffy took a discount from his arbitration expectations this year to afford the team flexibility, taking $5 million in salary in 2017 rather than the $8 million he had filed for in arbitration, in exchange for more money later in the deal. However if the team should find themselves out of contention at the trade deadline Duffy now goes from a short term rental to a pitcher under club control through 2021.

This contract is a win for the Royals and it is a win for Danny too. Royals fans wanted him in Kansas City for the foreseeable future. At best, the Royals have their best starter under control for an additional four years, while at worst he’s a decent trade piece for a future Royals rebuild (I guess worst case is his arm falls off but let’s not think about that).

There seems to be a pending rebuild or reload coming, whichever word you chose depending on your optimism. If you think “reload” is the better descriptor then you are counting on the Royals not losing everyone to free agency, while also banking on prospects currently in the (thin) system to come through. In that case, Duffy will be around for the next window. If you think a rebuild is more likely, we know rebuilds usually take 4-5 years if everything goes perfectly (or in the Royals case it took around 30 years). This probably rules out Duffy for the next contention window, but it makes it a valuable piece to trade in the future to skip ahead the rebuild a year or two.