Let’s figure out if Jason Vargas should get a Qualifying Offer

Lost in all the scuffle over the Royals three core pending free agents (pending for about another month) is Jason Vargas, the Royals other-other-other-other-other pending free agent (after Lorenzo Cain, Mike Moustakas, Eric Hosmer, and Alcides Escobar - ordered by skill level).

You and I are well informed on the 2017 Jason Vargas. In his first full season back from Tommy John surgery it was a tale of two extremely dissimilar halves. The first half Jason Vargas was very good, and though he wasn’t really close to Chris Sale or Corey Kluber for the Cy Young, the fact that he was in the conversation for the top five is surprising. Then it was as if someone swapped Vargas out for late-stage Jeremy Guthrie after the All-Star break.

First Half Vargas was pretty good. Second Half Vargas was effectively unusable (and actually worth negative value).

There is no doubt that if First Half Vargas turned into Full Season Vargas, he would be looking at a late-career resurgence deal (akin to Rich Hill), just as there is no doubt that if Second Half Vargas lasted the whole season, he might have been cut by the Royals and been looking out for a minor league deal. Instead, we got Full Season Vargas, which is the most interesting and enigmatic Vargas we could have received.

Three of the four core free agents are going to receive qualifying offers - a one year deal worth $18M - (Cain, Moustakas, and Hosmer) and they will all decline it. Escobar won’t, and even though he should never play another game in a Royals uniform again, he’ll be back on a 3-year deal (third year is a mutual option) almost guaranteed.

Will Vargas get a Qualifying Offer.? No, probably not, and if he did get one, he should probably accept it. But let’s try to reason through offering Vargas a Qualifying Offer.

Players and the QO

For the first time since it started in 2012, the winter of 2015 (going into the 2016 season) saw three players actually accept their QO: Brett Anderson, Colby Rasmus, and Matt Wieters. Here are all the players who have received a QO and their decision on it:

So roughly 8% of the time so far, a player has accepted their qualifying offer. I’ve always operated under the thought that a GM should extend QO’s to both all the obvious candidates and also all the fringe guys too where there’s a 40-50% chance they accept it. That was under the old QO rules too, a much simpler set of circumstances to receive draft pick compensation. Now things are a bit more confusing...

I think the new system makes it much more of a slam dunk to give those fringe guys a QO. As you can see in my flow chart, the cost of coughing up a draft pick has been weakened. No longer are teams set to lose their first round pick for signing Ian Kennedy to a bad contract. Now depending on the team’s revenue sharing circumstances, they could lose as little as a third round pick. This is a motivation for the team to offer a QO and hope that the player declines though. What we are interested in is offering a QO to Vargas and hope he declines it.

Players though love betting on themselves. Jose Bautista probably turned down a sizeable deal with the Blue Jays heading into the 2016 season (one that was likely far below his “demands”) only to see his value crater. Now he looks like he’ll go searching for a one-year deal this winter, and it almost certainly won’t be with the Blue Jays. There are dozens of other reports of younger guys turning down huge deals that would buy out a few years of free agency (such as Francisco Lindor reportedly turning down r around $100M). We have though seen players agree similar deals in the past (such as Mike Trout signing away three years of free agency).

The thing there though is that those are young guys who haven’t made a lot of money through their careers. Trout had “only” made ~$3M in his career (including his draft signing bonus). The chance to immediately make 48x more was hard to turn down, and the Angels weren’t trying to get him to sign a cheap, deep discount (even though he’s worth far, far more than what he is being paid) like the White Sox got with Chris Sale.

Jason Vargas has made ~$50M in his career, so unless he bought a bunch of stock in Chesapeake Energy, he’s set for life if he never pitched another major league inning. This means that Vargas can be picky on his next contract, and doesn’t have to rush for the safety of financial security. He could turn down the qualifying offer and seek a deal with a team that needs a 4th/5th starter type and could be a contender (Vargas was a part of the World Series winning team in 2015, but his year was ended effectively in June due to a torn UCL). Maybe he wants to be a full part of a World Series winning team (he came close to it in 2014). I don’t know, that’s a pretty unfulfilling narrative.

On the other hand though, $18M is almost 40% of Vargas’ career earnings. Making as much as you made in the past two years combined in one year isn’t a bad deal, particularly when that’s almost half of your career earnings.

Valuation

So of course the question is, what is Vargas worth in the open market. That’s both an easy and hard question to answer. It’s easy because he’s 35 years old, so we know roughly how long of a deal he’s looking at (2 years max). It’s tough though because of just how good he was in the first half, and how bad he was in the second half. Then you throw the Tommy John surgery into the mix...

So let’s put together a list of similar age-34 seasons as Vargas (since 1970) and how they did the next year:

Hey, those are some okay results! On average those guys have posted a 2-win season, right on par as what Vargas did on the whole this year. 2.2 wins in the open market is worth ~$18M, the same as the QO.

Let’s try another way. Vargas was worth 1.9 fWAR this year, so let’s just use some back of the envelope calculations to figure a valuation off that and his age:

If you think over the next two years Vargas can put up ~2.5 wins, that puts his value just over the qualifying offer. The 2.5 wins, or something close to it, seems reasonable as there is value in being able to pitch every 5th day while not being Chris Young. So if you value him at ~$21M and think that he’d take that to join a competitive team, then it’s possible he declines the QO.

And there is kind of the thing... Vargas doesn’t have to actually get more than $18M...he just has to think he’s going to get more than $18M. As long as he turns down the qualifying offer, where and how much he signs for doesn’t matter (at least in this example as he won’t command a $50M+ deal to net the Royals an earlier pick).

Maybe the Royals should sit him down sometime soon, and have a conversation something like:

Dayton Moore: “Jason, thank you for meeting with us.”

Jason Vargas: “My pleasure”

DM: “Jason, we know you are going to explore free agency. We just want to exchange opening numbers here, just to get our foot in the door.”

JV: “Ok.”

DM: “We think you are easily worth $20-25M over two years. Now, we aren’t offering that yet because we need time to evaluate things going into the GM meetings, but we just wanted to let you know what we think you are worth.”

JV: “Wow, that’s great! Are...are you sure tha...”

DM: “Yes, and please tell other teams that too. You shouldn’t accept a penny less than twenty mil...twenty five million dollars.”

And now Jason Vargas thinks he has a shot at making $20-25M this offseason, and he can turn down the paltry $18M QO.

That won’t actually work, and Vargas probably shouldn’t get a QO. His age, noticeable fatigue in the 2nd half, and lack of stuff will keep him on a deal less than the QO in almost all certainty. And even if he thought he was actually worth $20M-25M, he’d rather take 1/$18M than 2/$20M given the big AAV differences.

I’d put the odds of him getting a QO at something like 10%, and the odds of his accepting the QO at something like 90%. Then again, the Rockies were in the same situation with Michael Cuddyer. At age 35 they offered him a QO (at the time worth $15.3M) and he declined it, both events coming as a surprise. Cuddyer then signed with the Mets for 2/$21M, and the Rockies netted the 27th overall pick that next summer. Cuddyer in no real surprise to anyone, wasn’t very good with the Mets, and after an injury in the first year of his deal, he retired.

Cuddyer is probably the best case scenario (other than the injury) for the Royals. First Vargas would need to turn down the QO, and then a team would need to cough up a pick for him (which again is a bit softer due to the new CBA). It’s possible, but unlikely.