A Reds Ownership Agenda, Part I: Player Extensions

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Welcome to my Reds talk. In three posts over the next few days, I’ll outline an aggressive future agenda for Reds ownership. Today’s post deals with the need to negotiate extensions with key players. The second post will cover the manager job and his coaching staff. The finale will spell out the desperate need for ownership to seize this moment to rebuild faith with fans. Smart, bold action taken now can shape the 2022 season and beyond. But it’ll also reverberate in 2021.

The looming roster challenge and opportunity

The current Reds roster is constructed with a sharp cliff in player personnel, one the team will confront in three years. At the end of the 2023 season, the contracts of Joey Votto, Nick Castellanos, Mike Moustakas and Sonny Gray will expire. At that exact time, team control ends for Jesse Winker, Tyler Mahle, Luis Castillo and Amir Garrett.

That’s not to say there won’t be changes, maybe big ones, along the way. Players will be added and subtracted by trade. Nick Castellanos can opt out of his Reds contract at the end of this season. The new collective bargaining agreement might tweak service time rules. But as things stand today, you can’t assume any of those players will be in a Reds uniform in 2024. That confluence in timing presents both an enormous challenge and opportunity for Reds ownership.

Step one in addressing it is agreeing to contract extensions with Winker and Mahle, maybe Castillo and possibly one or two others.

How extensions get done

The standard duration for extensions cover several of the player’s arbitration seasons plus a number of years after the player would have reached free agency. A player’s arbitration seasons are when he has the right to a neutral arbitrator judging the fairness of the club’s salary offer. After a certain amount of service time, Major League players qualify for at least three seasons where their salary can be determined that way. A small group of players have four arbitration seasons, called Super Two status

To reach an extension, the two sides figure out how much the player will produce on the field and have earned in arbitration for each covered year. For example, the Reds and Johnny Cueto were about to enter into arbitration in 2011. The Reds had offered $3 million and Cueto was asking for $3.9 million. The arbitrator would have chosen one of those numbers. Instead, the extension contract they worked out (full details below) paid Cueto $3.4 million.

The two sides negotiate value like that for each covered year. Think of it as working out a common WAR (wins above replacement) estimate and value. Once that number is established, the player takes a discount for the free agent years.

What’s in it for the player?

Security. The standard MLB player contract is guaranteed. That means if the player suffers an injury or a decline in performance, he still gets paid, as long as he doesn’t retire. In the two examples that will be detailed below, Johnny Cueto signed for $27 million and Jay Bruce for $50 million. Don’t feel sorry for Johnny. By the time he’s done with his current contract, he’ll have earned $162 million from Beisbol. An offer of guaranteed life-changing wealth is hard to turn down, even if it’s not at full pay. That’s why a player would give up valuable years of free agency at a discounted price.

What’s in it for the team?

The discounted salary in the player free agent years. The contract also locks up a talented player for a longer time. The club calculates the money and talent is worth the risk on health and performance. That’s why a club would take the long-term risk when they already have team control over that player for several years.

The timing

Extensions can be negotiated and reached any time while the player is under team control. But deals like this work best when the player still has multiple years of service time left with the team. As players get closer to becoming a free agent, the smaller discount he’ll take.

A good example of the latter is the $105 million extension the Reds signed with Homer Bailey. In February 2014, Bailey was coming off two seasons of pitching more than 200 innings. In 2013, he’d been one of the top-20 starters in MLB. But by that point Bailey was only one year away from free agency and a big contract. So Bailey didn’t give the Reds much of a discount. Bailey had submitted a salary of $11.6 million for arbitration and the Reds had offered $8.7 million. Under the extension contract, Bailey agreed to $9 million for 2014, his remaining arbitration season. The rest of the agreement covered his free agent years and the Reds paid full price.

The point being: The earlier an extension deal gets done, the larger amount of security gets traded for a greater salary discount.

The Cueto and Bruce models

The extension agreements that this Reds ownership group signed with Johnny Cueto in 2013 and Jay Bruce in 2012 are models for how they should proceed now. Note: The WAR figures used here are based on the average of FanGraphs WAR and Baseball-Reference WAR. Research indicated one WAR cost $8-10 million on the free agent market. 

Johnny Cueto In January 2011, the Reds signed a four-year deal with Johnny Cueto. Cueto had three years of service left with the Reds, all arbitration seasons. The deal covered those three years (2011-2013), plus one of Cueto’s free agency years (2014), plus a team option year (2015). It paid Cueto these amounts: 

• $3.4 million (2011) replaced arbitration
• $5.4 million (2012) replaced arbitration
• $7.4 million (2013) replaced arbitration
• $10 million (2014) replaced free agency
• $10 million (2015) team option

Cueto was terrific most of that time. From 2011-2014, Cueto produced 14.5 WAR. So the Reds spent $16.2 million for what would have cost them $130 million in free agency. You bet the Reds exercised Cueto’s 2015 team option for $10 million. Cueto had produced $50 million in open-market value in 2014. 

Jay Bruce In December 2010, the Reds signed a six-year agreement with Jay Bruce. Bruce had four years of service time left with the Reds, all with the right to arbitration due to his Super Two status. Bruce was coming off a 4.9 WAR season in 2010. The deal covered those four years (2011-2014) plus two of free agency (2015-2016). Here’s what the Reds paid Bruce: 

• $2.8 million (2011) replaced arbitration
• $5.1 million (2012) replaced arbitration
• $7.6 million (2013) replaced arbitration
• $10.1 million (2014) replaced arbitration
• $12.1 million (2015) replaced free agency
• $12.6 million (2016) replaced free agency

From 2011-2015, Bruce produced 9.5 WAR. At $9 million/WAR on the free agent market, Bruce produced $80+ million in value over those five seasons at a cost of about $38 million.

The extensions Reds ownership worked out with Jay Bruce and Johnny Cueto worked for both sides. The Reds got deeply discounted player value in what would have been their free agent years. Bruce and Cueto got inter-generational financial security for themselves and family. The players also weren’t done getting paid. Bruce started signing free agent deals at the age of 29 and earned another $64 million. He retired a few weeks ago. Cueto, who also was 29 when he signed his first post-Reds contract, added another $121 million to his career earnings.

More recently, the Reds reached a couple other extensions that are still running.  They fall at opposite ends of the cost spectrum. 

Tucker Barnhart In 2017, the Reds signed Tucker Barnhart to a 4-year, $16 million deal that covered three years of arbitration (2018-2020) and a year of free agency (2021). The Reds also have a team option of $7.5 million for 2022. Barnhart has been a 1-WAR player the past few seasons, in addition to providing value to the pitching staff through game calling. But with Barnhart’s improved hitting in 2021, he will easily surpass 1 WAR (he almost has already) and force the Reds to give serious thought to picking up that option.

Eugenio Suarez In 2018, the Reds reached a 7-year deal with Eugenio Suarez that runs through 2024 with a team option in 2025. The total guaranteed amount was $66 million and bought out four years of Suarez’s free agency in addition to his arbitration years. He’s making ~$11 million this year and the next three. That’s a bargain if Suarez is a 4-WAR player like he was each year from 2017-2019. But so far in 2021, he’s in the negative value range.

Opportunities to extend current Reds

How does a team decide which players to extend? The players have to project to be significant producers for many years. After all, the team will control the player for several years even without an extension. The club needs confidence the player will offer value four or five years out. The Reds have several who meet that criteria and are logical candidates for contract extensions.

Tyler Mahle Mahle (26) is in his first arbitration season, making $2.2 million. The right-handed starting pitcher could become a free agent in 2024. Mahle has taken another big step in his development in 2021, proving his worth as a long-term investment. Mahle may be reluctant to discount his free agency years because he’s growing into a candidate for a lucrative contract. But it’s still three years before he can shop around. Pitchers have to give serious consideration to the risk of injury, like missing an entire season for Tommy John surgery or having shoulder problems that threaten a career or role as a starter (see: Iglesias, Raisel).

Jesse Winker Winker (27) is also in his first arbitration season, making $3.15 million. As with Mahle, Winker can become a free agent in 2024. Winker is having a great 2021 season, proving he can hit left-handed pitching. By some metrics, he was the team’s best hitter in 2020. Winker has worked to improve his speed and defense to increase his worth in other aspects of the game. He would be a great long-term investment for the Reds. But he’s had hot streaks before and then slumped. Winker might want to hedge against that by signing a long-term deal now.

A couple other borderline extension candidates are Luis Castillo (28) and Nick Senzel (25). The trouble with reaching a deal is coming to an agreement on what the player will produce in the future. Each has considerable uncertainty.

Luis Castillo Castillo, who is making $4.2 million in his first arbitration year and on the same free agency schedule as Mahle and Winker, would have had a much better case a couple months ago. Now, he’ll need more starts like Tuesday night before the Reds would be interested in an investment. Castillo’s start to 2021 throws cold water on his inevitable ace status, at least for now.

Nick Senzel Senzel’s inability to stay on the field makes it hard to put a value on what kind of player he’ll be three or four years from now. The two sides might find it hard to reach agreement on how much he’s worth until he has another year or two of stats. Senzel can’t become a free agent until 2026.

For the Reds to make a deal with either Castillo or Senzel, the player would have to be willing to sell free agent year(s) at a steep discount. Each may want to wait while they establish greater value.

Michael Lorenzen A player in Michael Lorenzen’s (29) contract status normally wouldn’t be a candidate for an extension. He, making $4,437,500 in his fourth year of arbitration. (Lorenzen was a Super Two.) Lorenzen becomes a free agent in 2022, so he’s already negotiated his last contract with the Reds, if that’s what he wants. In most circumstances on this timeline, the club wouldn’t have much security to offer beyond his guaranteed 2021 salary. In four months or so, Lorenzen can negotiate with all 30 teams.

But because of Lorenzen’s shoulder injury and how it and his uncertain role as reliever or starter might play out in 2021, there might be a unique opportunity to reach a deal that benefits both sides.

The Reds had green-lit a starting job for Lorenzen heading into 2021. It would be an opportunity for the muscular reliever to prove he could convert his expansive pitch portfolio into a successful starter. It’s not clear he’ll have a chance to do that now.

Suppose the Reds offered Lorenzen a one-year deal with a one-year team option. The Reds could offer Lorenzen a bump in pay for 2022. The number would be commensurate for a starting pitcher, but not the full amount he could have earned if he had been healthy all season. Say the offer for 2022 was $6-8 million. That’s not bad for a guy still sitting on the disabled list in June. The team option for 2023 would have to be generous, maybe in the range of $12-14 million with a small buyout. That way, if Lorenzen succeeds in 2022 as a starter, the Reds get a good one-year deal for 2023. 

Conclusion

Can the Reds afford extensions like those proposed here?

Yes, absolutely.

For one thing, they aren’t expensive. Especially compared to the unpredictable free agent market. Think about the Reds’ failure to sign a shortstop the past offseason, one of the original sins of 2021. Extensions would be structured to pay Tyler Mahle, Jesse Winker and others about what they would have made in arbitration. So through 2023, they wouldn’t add anything to payroll relative to current projections. The new money — the discounted free agent years — would start in 2024. For Nick Senzel, even later.

That timing works, because in 2024, the Reds will have $58 million from Votto, Castellanos, Moustakas and Gray off the books.

That said, even if the Reds take my advice, it doesn’t mean the deals will happen. It takes two sides. The player has to put significant value on financial security. He has to want to play for the Reds. He has to ignore the whispers about gigantic free agent contracts. Generosity of money and spirit from Reds ownership are essential parts of that. 

Waiting makes agreement more expensive and difficult. Every hit by Jesse Winker and out recorded by Tyler Mahle make those players more expensive to lock up. You could make an easy case the Reds have already missed the optimal window on these deals, before the players’ first year of arbitration started.

But that’s water under the Brent Spence, the time for ownership action is now. Reds fans will be watching. Contract extensions aren’t rare occurrences for this ownership group. Neither are missed opportunities.