Whit Merrifield gets a good deal, Royals break about even in value

Late across the proverbial wires Sunday night there were rumors of the Royals and some contract news. Close after, who that news was about was somewhat surprising: Whit Merrifield. The Royals controlled Merrifield for another four years at a minimum and he’s already 30 years old (not old for this Earth but older for baseball). They unequivocally hold Merrifield through his age 33 season, so the idea of an extension seemed unlikely. This wasn’t some 21 year old top 10 prospect who just lit up AAA, who you could see the arbitration system being kind for (well, kind in the sense that a salary minimizing system like arbitration can be). This was a now 30-year old second baseman who hadn’t even started arbitration yet, and despite having a career year, was unlikely to break the bank in the process, assuming even if he carries over his great 2018 again into 2019.

Though we all went to bed (well most of us I suppose) without knowing the final details, the deal was all but done. Now 24 hours later, we know the terms:

2019: $1M

2020: $5M

2021: $6.75M

2022: $2.75M

2023: $10.5M team option with $750K buyout.

All-in-all of guaranteed money, Merrifield will take home $16.25M, with potential for $26M if the option gets picked up. There are also:

$2M in escalators (I’d like to see how many malls $2M in escalators could fill up) and $1.6M in other possible bonuses over the first four years. Then with that fifth year team option, there is an additional $1.4M in further bonuses, making his potentially 5/$31.75M maxed out,

This is really a tale of two contracts, so let’s start with the meat of the deal, the terms covering his arbitration years.

These arbitration covering deals aren’t rare for Dayton Moore (though they do seem rare for other teams):

Moore is notorious for avoiding the arbitration process, and often before he’s signed multi-year deals for arbitration eligible players but only covering their arbitration years. This essentially caps the arbitration upside for a player (suppose he has some monster MVP type year), which is a team friendly thing. However this also now flips non-guaranteed money into guaranteed money, decidedly not a team friendly thing.

While the arbitration process has come around recently to a more progressive reward system (except for still excluding Statcast data for evidence), it still values things like home runs, RBI, saves, pitcher wins, and awards like MVP or Cy Young. Now of course, players who leaders in those categories are typically also good players, thus get “rewarded” (reminder again that the arbitration process is specifically built to deflate player salaries relative to their free agent potential). However this means players who might be as good as others in overall value but don’t hit 50+ home runs can be underrate in the system and not be rewarded as much.

Merrifield falls into the latter category. While in 2018 his 5-WAR season was just as good as Trevor Story overall, Merrifield was not going to start off arbitration at the projected $6.4M that Story was possibly looking at.

So how much could Merrifield have possibly made over the course of his four team controlled years? The standard for arbitration used to be 40/60/80. That is, players got 40%, 60%, and then 80% of their open market value during the three arbitration years. That principle has long since been forgotten and now the general standard is probably more like the 25/40/60 rule. There is a problem though with that rule. It really only seems to fit for players who do stand to make a lot in arbitration, that second category class of players who rack up gaudy totals of stats that are rewarded by arbitration. It doesn’t seem to be a particularly good estimate for the average or so player, otherwise guys like Kevin Pillar, Zack Wheeler, Jimmy Nelson, and Tyler Skaggs should be making in arbitration more than they will. I don’t have the numbers to back this up, but I think a 15/25/35 rule seems more applicable here.

Now here is the big sticking point before we get into this. We are going to be using general aging curves for Merrifield. I know there is an argument that he could age better than the curve and that his projection for next year, while still above average, is ~60% of the value he put up in 2018. I can live with the argument for his 2019 WAR being higher but I don’t like to argue against age. Alex Gordon, the epitome of health (the guy hasn’t had a friggin slice of pizza in a decade), woke up one day at the age of 32 and must have rolled off his bed and over the side of a cliff. Jason Heyward woke up at the age of 26 one year and forgot how to hit. I think predicting who will and won’t age well is a fool's errand mostly.

Potential arbitration estimates and savings

Under those numbers (which I can live with arguments for the arbitration to be higher or lower) the Royals save ~$4M in salary without any escalators, all of it coming in the final year of arbitration. Merrifield doesn’t sell away that much of his upside (assuming he doesn’t think he’ll hit 50 home runs and win the MVP next year) in exchange for not having to worry about one tarp tripping incident ruining his future earning power.

This is a clear win for Merrifield, who figured that he’d probably make $16M in arbitration anyways and also leaves him room for more in the form of escalators (which would have only helped his arbitration case anyways, so it’s a wash there).

For the Royals, it doesn’t change much (we’ll get to that fifth year team option in a second). Compare his surplus value before and after this deal:

The Royals squeeze about an extra $4M in surplus value by not having to worry about runaway arbitration payments (unlikely but possible). That’s not nothing, but it’s essentially the value of a throw in prospect if he were traded. Every additional piece in a trade is better than not getting it (assuming it doesn’t cost you anything extra to acquire it), but this in reality doesn’t change Merrifield’s value.

Now one argument is that there is some value in knowing exactly what a player will make, but I’d argue that flexibility is more important.

The arbitration process is effectively just a series of team options, one with somewhat unknown prices at first, but ones that become very clear with every passing year. Arbitration one sets the precedent for arbitration two, which sets the precedent for arbitration three, which sets the precedent for the unfortunate event (for a player) of arbitration four if the player is in super two.

The Royals traded their series of teams options for guaranteed money, a move that removes flexibility in exchange for some certainty. And while there is probably some value in certainty, there is more value in flexibility.

It’s not that Merrifield’s new deal would be unmanageable for any team to pay, quite the contrary. It’s just that Merrifield’s salaries were always going to be manageable to pay, guaranteed money or playing the arbitration game.

Another way to look at it is this:

The Royals paid ~$4M in 2019-2021 to save ~$4M in 2022, theoretically when they might need that savings if the team is competing then. Let’s note that if the team is competing in 2022 and they wouldn’t have spent that $4M if not for the Merrifield savings, then it’s time to sell the team to someone else.

Having covered those first four years, time to look at that final fifth year, a $10.5M team option. Make no mistake, team options are team friendly in a vacuum. Consult my handy chart of team-friendliness guide to options.

The team option in Merrifield’s contract starts out as team friendly. As long as the buyout is reasonable ($750K in Merrifield’s case; reasonable), then team options only get picked up if the team thinks the player is worth more on the open market (if the player is worth less or close to that value, they wouldn’t).

Now notice I said this is just in a vacuum. The cost of the team option is the other factor. If Merrifield’s team option was $50M, that would render it useless, and depending on the buyout (if it were a $7M buyout) it could actually be negative value for a team. So the question is: what is age-34 Whit Merrifield possibly going to be worth.

Assuming the aging curve holds true (and on the deeper right side of the curve I think there is much less room for argument against it than at age 29 or 30), Merrifield would be worth ~2 wins.

David Freese came off a 2-win age 35 season and signed a 1/$4.5M deal with the Dodgers. Ian Kinsler at age 36 and projected for ~2 wins just signed a 2/$8M deal with the Padres. Nick Markakis just wrapped up a 2.6-win season with the Braves at age 34 and returned to them on a 1/$4M deal (2020 team option for $6M with a $2M buyout making it 1/$6M). Steve Pearce just got 1/$6.3M to return to the Red Sox for his age 36 season. Daniel Murphy received 2/$24M to go to Colorado for his age 34 and 35 season. Asdrubal Cabrera hauled in 1/$3.5M from the Rangers for his age 33 season.

So guys in Merrifield’s general age range and expected output are getting somewhere in the $6Mish range, with Daniel Murphy on the high-end at $12M (Murphy was worth four wins at age 32, so if Merrifield does that then the values change of course). Even with general contract inflation, $10.5M seems to be about the max Merrifield can hope for for that single age 34 season. Meaning a team will either pay him $10.5M to play (which assumes they think he’s worth roughly more than that) or $2M to go away (which assumes they think he’s worth roughly less than that).

It seems that at best the extra year of team control would be roughly equal to his market value at that point in the future (that we can see now at least), meaning the extra year of team control at $10.5M doesn’t really add much in value from the team side of things. It is a win for Merrifield, who either gets $10.5M for that one year or gets to hit free agency with $2M in his pocket.

The only other argument would be if at age 34 Merrifield would command a multi-year deal that would top noticeably more than $10.5M. That is possible but is that something you would bet on happening? It seems more likely if he were to get a multi-year deal, it would be something like 2/$12M or so, which isn’t really any different than 1/$10M in the idea that you’d have to pay that extra year to sign him.

In all, this deal is a great one for Merrifield overall, and neutral for the Royals. They basically paid Merrifield what he’d get in arbitration anyways, and that extra year of control probably just comes at market value likely.

Here is the key point: Merrifield’s value was always about team control, not money. He was always going to be paid at a substantial discount relative to value. This deal doesn’t really change that. And while it does add an extra possible year of team control, it doesn’t necessarily do so at a deep discount rate, making this deal about neutral for the Royals.

From the payout schedule of the contract though, you can infer that the Royals expect (or at least think they might) to need extra payroll space in 2022. This likely is when they expect to be in a competitive window, where they can spend that savings on a free agent. Whether that’s a realistic timeline is another 2,000 words to be written at some point in the future.