Not signing Eric Hosmer was the right move for the future Royals payroll

In many ways, the San Diego Padres inking Eric Hosmer to an eight-year deal and thereby spiriting away the face of the Kansas City Royals to sunny California is as important symbolically as it is in pure baseball terms. That is because Hosmer himself is a symbol of all of the New Golden Age Royals, from Danny Duffy to Jarrod Dyson to Mike Moustakas to Greg Holland and beyond.

So it is fitting that San Diego’s snapping up of Hosmer specifically is as much of a turning point for the franchise as it was when he debuted in May 2011. Without Hosmer, Kansas City’s only route forward is to rebuild. Devoid of their best three hitters from last year, and devoid of any top prospects to arrive soon and save the day, Kansas City will enter a cocoon and hope for a metamorphosis at least as effective as the previous great rebuild.

San Diego will pay Hosmer $20 million a year from 2018-2022 after doling out a $5 million signing bonus. After that, Hosmer will be able to execute an opt-out clause in his contract that will allow him to test the waters of free agency again at age-33. If he is not productive or if he is injury-prone, Hosmer can decline the opt-out and play three additional years at a ripe $18 million per season. So Hosmer will either enter free agency again for either the 2023 or 2026 seasons.

Now, hopefully the Royals are going to be good before 2023. That’s a perfectly reasonable hope, too, not a “I hope I win a billion dollars in the lottery” hope. And while Hosmer would ostensibly be able to positively contribute to a competitive team at some point, there are major reasons why the Royals ultimately not signing Hosmer is a good thing for the franchise, as Royals Review and elsewhere has written.

But the biggest reason why not signing Hosmer is the right move for future Royals payroll is not usually the first thing that is discussed, and that reason is payroll flexibility.

With limited resources, every cost has an additional opportunity cost. Every dollar spent somewhere means it can’t be spent somewhere else, and the opportunity cost grows as the cost itself increases and as resources become ever more limited. The Royals are a small market team despite their recent success; the Kansas City media market ranks 33rd nationally, even behind a handful of markets without an MLB team. Though revenue sharing exists in baseball, the small market teams will never leverage the resources that a large market team does.

Since Major League Baseball lacks a payroll floor, payroll fluctuates heavily based on teams’ windows of contention, market size, and available players. Below is a chart showing every American League team’s payroll obligations for the next five years, with numbers from Cot’s Contracts*.

*Exact info on J.D. Martinez’ deal with the Boston Red Sox is unknown as of publish time, so it has been added at the approximate annual value (AAV) amount of $21 million.

The salaries for 2018 include all salaries for this upcoming season, though there could be some increases are there are still a few impact free agents without jobs floating around. However, the numbers for 2019 on are for guaranteed contracts only, such as extensions, free agent deals, and buyouts.

Kansas City will in all likelihood retain the fourth-lowest payroll in the AL, above the actively tanking Tampa Bay Rays, the rebuilding Chicago White Sox, and the always stingy (and continually rebuilding) Oakland Athletics.

Kansas City has four big deals on their payroll: Alex Gordon, who is owed $40 million through 2019 with a $4 million buyout in 2020; Ian Kennedy, who is owed $49 million through 2020; Salvador Perez, who is owed $48.3 million through 2021; and Danny Duffy, who is owed $60 million through 2021.

While everyone agrees that the Royals are going to be very bad in 2018 (and probably in 2019 too), Hosmer’s deal would start to turn sour just as the Royals are looking to become competitive at the turn of the ‘20s. In this hypothetical world, the Royals would be paying three veterans in their 30s about $50 million in 2021. That’s an awful lot of money to sink into three guys whose best days will have been behind them (read: could be 2017 Alex Gordon).

Thankfully, without a seven-year or eight-year Hosmer contract, the Royals are actually excellently positioned for the future when that money matters. Not only do the Royals clear out their contracts on the books over the next few seasons, but their ‘next generation’ of prospects isn’t even here yet.

After three full seasons in the big leagues, players enter into arbitration and become significantly more expensive, especially after the first year of arbitration. The following graph shows the amount of players who will hit the second year or higher of arbitration in the four seasons after 2018:

Obviously, a little bit of this is guesswork; additional minor league time can delay arbitration, and not every player on a roster will hit those later few years of arbitration.

Royals fans in particular know that good players can get quite expensive even before they hit free agency—Hosmer, Lorenzo Cain, and Mike Moustakas made a combined $32 million in 2017—and players in arbitration consume a sizable part of every team’s payroll. However, as you can see, the Royals consistently have the lowest amounts of players getting to those second, third, and fourth years of arbitration. There is no big wave of salary increases on the horizon.

While the Royals certainly could have afforded Hosmer on a similar backloaded contract to the one the Padres offered, the opportunity cost the Royals gained by not offering it are immense. Kansas City is one of only three AL teams without a single cent committed to 2022 or beyond. The last time the Royals had no salary commitments four years in the future was the 2013 season; that flexibility allowed the Royals to field a franchise-high $143 million payroll on opening day in 2017.

Not signing Hosmer was the right move. The 2022 Royals and beyond are going to be alien and bizarre, and giving those teams as much breathing room as possible to spend whatever is necessary to win trophies is going to be a big deal, whether that is recognized now or not.