As a regular reader, you know that I generally (almost always) discourage talking about the big league team here. This site was started with a very targeted purpose, to focus solely on the minor leagues. There are some situations where it is important to discuss the big league team, ie, how current prospects fit in to the big league team, or if a player gets injured and the speculation is to who replaces him. But in general, I don’t really care about the latest Phillies game with regard to this site. We’re here to focus on the Phillies minor league system. That said, when I see something consistently get brought up over and over again, and it does tie in somewhat directly with the minor league system, I feel it does warrant attention and discussion. This is the case with the idea of Jayson Werth’s future in the Phillies organization. In my opinion, the “analysis” of Werth’s future beyond 2010 has been somewhat shoddy. So I’m going to do my best to explain why I think its far more likely that Werth re-signs here than goes elsewhere. After that, you can make a judgment, but hopefully when someone brings it up and uses the incorrect assumptions, you correct them and maybe show them this post. I’m going to try and be as detailed as possible. Check below for more
There have been two common assumptions made after the Ryan Howard extension. I’m going to debunk them at the same time.
Assumption 1: Ryan Howard’s extension means there is no money left for Werth.
Assumption 2: The Phillies are maxed out with payroll.
Ryan Howard was already signed for 2011, and his contract extension that he signed (5/$125) does not kick in until 2012. The Phillies already had financial certainty with Howard for 2011. In fact, the Phillies have financial certainty for most of their roster in 2011.
Looking at this, the Phillies will have about $133.5M committed to 18 players. I believe based on service time, JA Happ will be short of Super 2 status and will be eligible to be renewed. Kyle Kendrick will be arb eligible if he remains in the majors all season, but with Moyer being paid what he’s paid in 2010, it seems plausible that the Phillies would send Kendrick down if Happ comes back strong. Even still, should Kendrick qualify as a Super 2, he isn’t going to be making a whole lot more than the minimum. This projection assumes the Phillies pick up Castro’s option, which seems like a decent bet. I’ve put Ross Gload in as an OF, which seems like the best placement for him, because he can’t play 3B like Dobbs can now. But the Phillies could use Castro to cover 3B, use Gload in the OF and carry an extra OF for the league minimum, maybe a Quintin Berry type. That means that essentially the only players not figured into this projection are the starting RF and 4 relievers. All 5 SP would be set, the back of the bullpen would be set. If the Phillies keep Herndon all year, he could be the long man for the league minimum. Young relievers like Stutes, Bastardo, Escalona and others all figure in here at the league minimum. Francisco’s arbitration might be interesting, but because hes not playing every day, its going to limit his numbers and limit his leverage. I have a hard time believing he’ll make more than $1.5M next year. Add all of this up, and you are probably at like $136M with just the RF spot to fill. If you took all of these figures and then added Werth’s 2010 salary ($7M), you get like $143M, which is about 4.5M more than the current payroll, and the current payroll involves dead money on the books for Adam Eaton, Geoff Jenkins, and Pedro Feliz.
The Phillies were recently ranked the 6th most valuable team in baseball, at $537M. This is, of course, a huge return on investment from the 1981 purchase of the team for $30M. You can see all the details in the Forbes article here. I want to focus on two metrics here, the revenue and the payroll. Forbes’ methods for determining this information is, as best as I can tell, an educated guess. Privately held corporations aren’t generally in the habit of telling everyone how they make all of their money, where they spend their money, etc etc. But I think these numbers are fair enough estimates. The 2010 numbers listed on the Forbes site for revenue are projections, I believe, but will be fine for this exercise. Here is a quick chart I put together, based on these numbers
Let’s look at a few things in this chart. The Phillies saw a big jump in revenue from 2008 to 2009 for obvious reasons. The Phillies were coming off a World Series title. They drew 3.422M fans in 2008, 97.1% of capacity, but upped that to 3.600M in 2009, 102.2% of capacity when you factor in SRO tickets. The average attendance in 2009 was 44,453. In 2010, the Phillies lead MLB by a wide margin in average attendance, drawing 45,034 per game, and the sellout streak continues. The projected “dip” in revenue increase is likely based on slightly less merchandise sold relative to the 2009 season when all of the 2008 World Series gear was factored in. Then again, I don’t believe the Forbes numbers account for potential playoff game revenue in 2010. The standard back of the envelope calculations I’ve seen place the value of a home playoff game at approximately $1M. The Phillies played 8 home playoff games in 2009, so you can posit that those 8 games meant an extra $8M in revenue. Not all of this is money made, since you have to pay workers additional salary, etc etc, but its still a big chunk of money.
So anyway, back to the chart. Forbes was assuming a growth in revenue of about 8% from 2009 to 2010. When I tried to estimate the 2011 revenue, I figured I slight bump up, 0.3%, to 252 million. This would assume an uptick in attendance. The Phillies are averaging 45,034 per game this year. 67 more home games, at 45,000 per, would be 3,015,000 + the 630,488 they have already drawn = 3,645,488 in attendance, or about 103% capacity. When you factor in an extra 645,000 tickets sold, if you assume a very conservative $25 per ticket when factoring in concessions, parking and other ballpark spending, you get $16,125,000. Again, not all of this will be pocketed, there will be expenses to be paid. But its not an insignificant chunk of money. Add in another 5-8 home playoff games, and you’re looking at an extra $25M or so before tax/expenses on top of the Forbes projected figure. So when I project a very slight 0.3% increase in revenue growth, I think I’m in line.
The next key factor to look at is the growth in payroll. In 2006, the Phillies cut payroll by 1.9%, but then raised payroll by 3.7% in 2007, 4.4% in 2008, and a whopping 11.7% in 2009 then 7.9% in 2010. Numerically, this went from 106 to 104, then up to 108, up to 113, up to 128 and up to 138. Forbes listed the Phillies payroll as 143M in 2010, but this does not factor in the money coming from Toronto to offset Halladay’s pay, so I’ve gone with the correct figure, which is essentially almost $139M. When estimating the 2011 payroll, I increased the payroll by the same rate revenue was projected to increase, and I’ll explain that more in one second.
The single biggest takeaway on this chart is the payroll as a percentage of revenue. Teams don’t just set an arbitrary number and say “Payroll will be $50M” or “Payroll will be $150M”. There have been many articles written that indicate teams will set their payroll as X percentage of the revenue they bring in. By looking at this chart, its obvious that the Phillies generally aim to set payroll at 60% of gross revenue. Since 2005, payroll as a percentage of revenue has consistently sat with one percentage point, right in the 59.5% range. To me, this is the biggest tell when thinking about future payroll. The Phillies are minting money right now. The stadium is literally overflowing with fans, they continue to raise the prices of things like parking, merchandise and tickets. They will continue to look for areas to exploit revenue, whether it be in the licensing of club seating or possibly pursuing a Phillies-exclusive network. But the message here is simple. Teams that establish themselves as a brand, which the Phillies are doing, are able to market that brand much more effectively than a team that is just considered a team, not a brand. The Pittsburgh Pirates are a team. The Philadelphia Phillies are a brand. While its tough to find more places to fit fans into the park, the immense popularity and success of the team means that the Phillies will be able to continue to raise ticket prices, especially for the more exclusive seats, and this will continue to pad the revenue totals. The game of baseball saw a dip last season as the broader economy dipped, but with things maybe beginning to turn around, and with a projected rebound over the next 5-10 years, there’s no reason to assume MLB will see declining revenues, whether it be in the TV money or anything else related to the sport.
Now that we’ve established that the Phillies payroll will remain basically 60% of their projected revenue for the year, we can figure out what next year’s payroll will look like. I’ve projected the payroll for 2011 to sit at $151M. The only other consideration for the Phillies, outside of the payroll as a percentage of revenue, is MLB’s imposed luxury tax, which must be paid if your payroll exceeds a certain amount. That amount is estimated to be in the neighborhood of $175M in 2011, something the Phillies will obviously not have to worry about. My projection of $151M assumes a revenue growth of 8.2% from 2010 to 2011. The Phillies revenue increase from 2008 to 2009, ie, coming off a World Series win, was 12.5%. Last year, coming off a World Series loss, it was 7.9%. If the Phillies win the World Series in 2010, a 12.5% increase in revenue from 2010’s projected number of $233M would be $262M. Should that happen, the Phillies could conceivably run out a payroll of up to $157M and still be in that 59.5% range. Let’s quickly look at the other side. Right now I’m assuming revenue growth of 8.2% from 2010 to 2011. What if revenue growth slows to, say, 4.5%? If revenue were to increase by 4.5% from 2010 to 2011, 2011 projected revenue would be about $244M. That would bring the target payroll down to, say, $146M, which would be 59.8% of revenue. How about we split the difference from 4.5% growth and 8.3% growth and assume 6.0% growth. That would bring revenue to $247M, and the reaction would be payroll rising to $148M, which would be 59.9% of revenue. So here is the takeaway chart you have to focus on
If 2011 projected revenue growth is
4.5% –> Payroll of $146M
6.0% –> Payroll of $148M
8.2% –> Payroll of $151M
12.5% –> Payroll of $157M
So the range of outcomes is about $11M, based on the projected revenue growth for the team. If they make another deep run, win another pennant, and sell out CBP from here on out, there is no reason the payroll won’t realistically be $150M next year. Of course there is a lot of luck involved. Bad weather can drive down attendance, a few injuries could derail the team. But I think the “worst case scenario” involves that 4.5% number, which means a 2011 payroll of about $146M.
Now rewind back to my payroll breakdown for 2011. I figured 17 roster spots at $133M. Add another 2 players with small raises (Kendrick, Francisco), and then young reliever with under 2 years of service time for the minimum. That brings you to 20 players under contract for somewhere in the neighborhood of $136M. Which means you need to fill 5 roster spots, 3 of which are bullpen spots, the starting RF spot, and a cheap corner infielder/outfielder, depending on the placement of Ross Gload on the spreadsheet. If you go on the assumption of a $146M payroll (worst case scenario) this gives the team $10M to fill those needs. If you figure on the more middle of the road projection (8.2% increase), you are looking at about $15M to fill those spots.
I think its best here to look at what Jayson Werth’s current contract looks like. He signed a 2 year deal in 2009 that looked like this
With a $1M signing bonus that was presumably split in half between both seasons.
So what did the Phillies and Werth do? They realized that they had payroll limitations in 2009, but they wanted to make a deal that would help both sides. So Werth asked for $4M in arbitration, the Phillies offered $3M. Instead of going 1 year, the Phillies compromised and gave Werth more AAV, but backloaded the deal, paying him only $2M in 2009 (when they offered $3M in arbitration) and Werth ended up getting a higher per year valued deal, just spread differently over the two years. Baseball, unlike football, has guaranteed contracts. So for these players, when negotiating, they are considering a number of factors.
1. When this deal expires, how old will I be?
2. What is the market for my services now, and what will it be the next time I’m potentially a free agent?
3. What is my current circumstance in terms of my team and my playing time
Lets try and answer these questions.
1. Werth turns 31 in a few weeks, so he’ll be 31 as he potentially hits the open market this winter. Last year, Matt Holliday was 29 and turned 30 in January, right around the time he signed his 7 year deal. Jason Bay turned 31 in September, and then signed his 4 year deal in December. So he’s a closer comp to Werth from an age perspective than Holliday.
2. Werth potentially enters the free agent market as the 2nd best outfielder available, behind the younger Carl Crawford. Some would argue Werth is more valuable, but in a way, they are similar players. Both are excellent hitters, Werth has more power but makes less contact and has less speed. Both are gold glove caliber defenders, but Werth plays the slightly tougher RF and has a better arm. Werth has better plate discipline, and is one of the most disciplined hitters in baseball. Crawford will turn 29 in August, so he will be 2 years younger (not quite) than Werth as both hit free agency.
3. He’s never had anything but positive things to say about Philadelphia, from what I can tell. He’s always been the first guy to profess his love for his teammates, deflecting away all of the compliments coming his way to praise his teammates. He’s become a vital part of the team, and more importantly, hasn’t caused any problems off the field. Since becoming a regular, he’s shed some of the concerns about his health.
Now you come down to the bottom line. What will it take to sign him? There are still some perceptions that Werth is an injury prone player, even though he’s been healthy for the last 3 seasons. Crawford does not have those concerns, just as Holliday didn’t have those concerns last winter, while the Red Sox somewhat openly questioned Jason Bay’s health, ultimately seeing him sign with the Mets. The Phillies, if you’ve noticed, have done a good job locking up their own guys. In the last few seasons, they have signed Jimmy Rollins, Ryan Howard, Chase Utley, Shane Victorino (who is technically one of their own, since he’s played the bulk of his ML career in the org), Carlos Ruiz, Ryan Madson, and Cole Hamels to multi-year contracts. The Phillies of old, who had to trade away their better players because they couldn’t afford them, or because the players didn’t want to be there, are a thing of the past. Though most fans seem to think the Phillies can’t afford Werth, or that he’s dying to be a free agent.
Last winter, Charlie Manuel openly admitted he wanted to keep Cliff Lee and Roy Halladay, and Amaro said no. I don’t see the Werth discussion going the same way. Everyone in the Phillies organization knows what Jayson Werth means to the team, starting at the top and going all the way down. Everyone around baseball knows. And that brings us to Domonic Brown, and how this whole thing impacts the Phillies in 2011 and beyond. Most of the lazy analysis has just been “Brown is their best prospect, hes an OF, Werth is an impending free agent, Brown replaces him even though hes a LHB, next topic”. I don’t see it like this at all. Brown is the Phillies best prospect, by a fair distance. He’s assaulting AA pitching right now in a big way. But there are a few things to think about here.
A. Brown is just 22, and turns 23 in September. He’s age appropriate for AA, and will be age appropriate for AAA next season. He has to be protected on the 40 man roster this winter (a no brainer, obviously), and will have to burn one of his 3 option years next year if he doesn’t open up as a starter for the big league team. But…
B. The Phillies track record, especially over the last few seasons, isn’t to throw guys into every day starting jobs when they are 23. Howard’s half season that saw him win ROY came at age 25. Chase Utley’s half season came at age 25, and his first full season didn’t come until age 26. What this did was give the Phillies essentially a finished product who was ready to play every day and didn’t need as much of a learning curve. The standard has changed from the Jimmy Rollins promotion, when he was given a full season in the big leagues at age 22. That team wasn’t very good. This current team is arguably one of the 3 best in baseball. The way you integrate your younger players into a team changes with the fortunes of the big league team.
C. The lefthandedness matters, but is somewhat overblown. The Phillies are a good hitting team, and actually hit lefties just as good if not better than righthanders. But where it does have a real impact is the last few innings of games, where managers are able to match up with relievers. By having a RHB in between Howard and Ibanez, it forces the other manager to either leave in the lefty to face Werth, or burn 2 guys, using a RHP for Werth and then having a lefty face Ibanez. If Brown were to replace Werth, you’d have to bat him at the bottom of the order and put Victorino between Howard and Ibanez, a place he doesn’t fit, as Polanco is rooted to the 2 spot it would seem, and Rollins will continue to hit leadoff.
Any way you look at any of these scenarios, Werth is a vital part of the lineup. Ibanez will likely be gone after the 2011 season, and that is the point where Brown would step right into the lineup and take his spot, both in the field and in the batting order. If the Phillies decide to make this move, Brown would have an entire season in AAA to get acclimated to left field after playing RF for most of his career.
To do this, the Phillies would need to configure Werth’s contract in a way that would both give him the AAV he is looking for, while giving themselves the freedom to operate and organize the rest of the roster. Going back to the scenario I mapped out. If the Phillies projected revenue does increase by my projected 8.2%, the estimated payroll will be $151M in 2011. That means that the Phillies have $15M to sign Jayson Werth, sign 3 relievers, and find a backup who can either play 3B or the OF, if Castro is deemed the backup 3B as well as backup MI. This can easily be done by structuring the contract in this manner
This means it is a 5 year deal at $80M total. You immediately look at this and say “my god, paying him $18, $19M, and $19M per year for the final 3 years could be a disaster”…..and you’re right. It could be. Or revenue could continue to rise, as prices continue to rise, and the team continues to win. 8 years ago, if you’d said the 2010 payroll would be $139M, and the country would be in the middle of a huge recession, most baseball people would have laughed. The Phillies have completely reformed their image, and have gone from doormats to dominant force in baseball. It really always makes sense to backload contracts for as long as you can. You hope that revenue continues to rise, and what looks big now ($19M for Werth in 2015), looks like an average deal in 2015. Lots of Phillies fans were surprised the Phillies gave Rollins a 5/40 deal in 2006. Now that deal looks like a big bargain. Utley’s 7/85 deal stacked up next to Holliday’s 7/120?
The bottom line is so simple. Payroll is determined based on team revenue. As revenue increases, payroll will increase, and the rate is essentially 60%. The Phillies are not “maxed out” on payroll at $139M, and the only way the payroll will remain at $139M is if there is some type of major setback for the team. The money to sign Jayson Werth is there. If Jayson Werth is willing to structure the deal to help the Phillies in 2011, like he structured his current deal to help the team in 2009, then there is nothing to me that indicates he will leave. If the Phillies try to lowball him and offer him something like 3/30, then sure, its likely that another team will come in and offer him the 4/65 or 5/80 deal. But I think the Phillies have proven over the last few seasons that they will lock up the players they deem to be worth the investment. Everyone will bring up Cliff Lee, but again it comes down to the payroll and revenue. Keeping Lee this year would have put them over their projected split between revenue and payroll. And then you can bring up Joe Blanton, but Blanton is cost controlled for the next 2 years, at likely half the amount that Lee will be making per year over a 5-6 year deal, and that is conservatively speaking.
If Jayson Werth wants to stay in Philadelphia as his first preference, and the Phillies continue to operate as they have over the last 5 years, then there is no reason at all that he won’t be back in Phillies white/red next year. The economics actually make perfect sense.