Financial Considerations: shedding payroll and finding bargains

This is part II on a series of baseball economics, player salaries and payrolls. The first was the overview.

Congratulations on being hired as the new General Manager of the 2010 Kansas City Royals.  The outgoing GM left quite a mess–a $70 million payroll, a 97-loss season and a number of unhappy fans–and now its your mess.*

*Of course, we mean no offense to Dayton Moore, the current GM of Royals, or the team’s owner, David Glass, but we’re looking to work with a team that’s in a bad way right now–Moore’s plan is for the long-term future and we respect that.

Fortunately, though, because you have a good track record with drafting, you are the new hope.  The fans and media appreciated your hiring.  The new owner has faith in you.  He has given you complete autonomy and a decent budget.  He promises to never meddle in your affairs (unlike certain team owners in, say, Houston or New York). It will be a long road to recovery and he understands this, promising you a four-year plan.

You have brought in a few people you trust as your advisors, head of scouting and development and other positions and you are satisfied with the scouts, some of whom you brought in and others whom you feel did a good job scouting for the team before you got there. You feel you have the right people in place for the right jobs. Now that we’re all set up, we’re going to jump right into payroll and finances.

Since the owner has asked you that the budget not exceed $70 million for the year (including what’s spent in the draft), our first order of business is getting some money to pay for the draft.

Let’s be clear on one thing: trading high salary players and fire sales are not inherently bad for a franchise.  Though the saying is that peak years are ages 27-32, something I’ve even said on this exact blog, that’s not true, apparently.  In fact, the average age of baseball teams seems to have almost no correlation with success, though the very youngest teams have a harder time posting above-.500 records and pythag records.

But what’s more important isn’t that you have the team with the right age, it’s that you have the best players in the game. You’re not going to do that by signing free agents at will–because most of the best players aren’t available by free agency.  Pujols, Utley, Hanley, Lincecum, et al, are pretty much set with their team and if they did become available, you would most certainly be outbid.  The team’s infrastructure needs to be rebuilt and escorting young, talented players through the minors and into the majors is the cheapest route.

With that in mind, it’s best to trade your best (and most expensive) players and siphoning off other contributors in an effort to rebuild the team’s talent cheaply.

Though the farm system is dry right now, save for a few middling prospects who can play as replacement players and some high ceiling players who are raw and years away, the most important thing is to shed payroll and find available bargains to play positions or pitch. This is your current roster and what they’re owed through 2014.

The obvious things that stand out are the money owed to Jose Guillen and Gil Meche. But because both did so terribly last year, getting rid of both or either will end up costing you either in money or the high-reward prospects.  Best to hold onto them and trade them during the season if they can raise their value.

Several players can be traded now and the roster has a surplus of outfielders. It’s more important to trade the guys who can be shipped without having to pay the rest of their salaries, though. We’re gonna assume you end up dumping David Dejesus to the New York Knights for a few AAA-ceiling pitchers and Farnsworth to the Astros, who just recently overpaid for middling reliever Brandon Lyon, for cash.

Now this is the hard part: you’re going into 2010 with the intent to lose.  You will attend press conferences and inform the media and the public that this is step 1 of a multi-step plan that will bring the Royals back to prominence. You will not waver on this.  You will trot out a terrible line-up every day, with the exception of Zack Greinke, and you will explain every time someone asks about your plan that the team is looking for sustained success in the long-term. In the meantime, you’re going to be calling the general managers around trying to see what you can get in return for Guillen, Meche and other players who provide value with high price tags.

To replace Dejesus and Farnsworth, you’ll bring up a few prospects and sign a couple of over-the-hill stars to minor-league contracts.  This period in late January-early February is important because you can sign guys who are severely undervalued for a cheap, one-year contract and expect to ship ’em off if they perform well or average at the trade deadline for a prospect or two and some more cash, which will go straight to the draft piggy bank.  For the sake of argument, we’ll say you were able to sign Felipe Lopez and Kiko Calero for $4 million (3 and 1, respectively) with the intent to trade them at the deadline–and a tacit promise that, if they perform, they’ll get to a World Series contender at the trade deadline.

From there, you diversify the rest of your remaining money, about $6 million, into scouting and the draft.  Some of it goes into international scouting, some of it into college and high school scouting and the rest of it is saved into signing the players you will pick up along the way.  Your goal now is to produce critically detailed reports of all of the possible players to pick up via draft and international free agency.  Which is coming up next.

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