Ubaldo Jimenez deal simply made more sense for Orioles

No player in Cleveland had a bigger turn-around than Ubaldo

No player in Cleveland had a bigger turn-around than Ubaldo

Ubaldo Jimenez dealing

Within the context of MLB free agency, four years and $48 million sounds about right for 30-year-old Ubaldo Jimenez. Within the context of MLB economics, it probably just was a more palatable deal for the Baltimore Orioles than the Cleveland Indians.

You see, even though the Orioles had to sacrifice the No. 17 overall pick1, they’re in a peculiar situation with potentially waning oodles of money to spend and in a division that requires spending. The Indians, although seven games better than the O’s in 2013, already have likely reached their spending limit for the coming season. Indications had been a bound for months that a Jimenez return was unlikely – the two sides reportedly hadn’t talked in weeks.

But the financial flexibility difference between Baltimore and Cleveland, although both face significant pressure for 2014, has a lot to do with TV and its associated boom of sports-related revenue.

Baltimore’s TV advantage

Grantland’s Jonah Keri wrote about the Orioles just less than two weeks ago. His must-read mega-article, titled “For the Birds,” reviewed the franchise’s recent resurgence in the crazy competitive AL East. Most fascinating and relevant, however, was his focus on their co-owned regional sports network with the neighboring Washington Nationals.

When the Nats moved in 2005, O’s owner Peter Angelos worked out a deal with MLB that allowed the former Expos team2 to move into his protected market space. That deal led to the creation of the Mid-Atlantic Sports Network (MASN) with terms substantially favoring Angelos’ team. Per Keri’s research:

The terms dictated that each franchise would receive the same amount in rights fees, but that Baltimore would control a 90 percent share of MASN and any MASN-owned spinoff networks at the start; the Nationals would pick up an additional 1 percent stake each year after an initial two-year wait, until eventually reaching a 33 percent cap.

In 2013, MASN was owned 16 percent by the Nationals and 84 percent by the Orioles. The network is at an overall revenue disadvantage because its subscription fees are lower than the industry average and likely can’t be renewed anytime soon. But the math still is outrageous and benefits the majority owner.

MASN’s projected 2013 revenues were $179 million. Of that, a set $29 million was paid out in rights fees to both teams.3 The other $121 million is a different story, however. MLB regards RSN ownership as a “separate business venture that’s not subject to the usual revenue-sharing rules.” By controlling 84 percent of the network, the Orioles are pocketing a huge amount of that money – another estimated $101.6 million in gross revenue.

Obviously, Angelos would greatly prefer the rights fee payments to be as low as possible to both teams since they’re required to be equal. The more money mostly arbitrarily kept away from revenue-sharing taxing, the more there is (for mostly his franchise) to pocket directly. Of course, there also are the equal disbursements of national TV money – about $25 million per team in 2013 and expected to double starting in 2014. But we’re still talking about an $80 million annual Orioles advantage over the Nationals.

Keri shared how the Nats, owned by the Lerner family, have attempted to renegotiate the terms to no avail. It’s seen as somewhat inevitable that the two sides will be forced to set a more agreeable long-term deal. Major League Baseball is reportedly sending the Nationals an undisclosed amount annually to “bridge the gap, and to prevent the Lerners from taking matters to court, until the deal becomes more balanced.”

For context from the Indians’ perspective, they receive $40 million in annual rights fees from FOX Sports Ohio. That’s already about $90 million shy of Washington’s total RSN-related revenue. The Indians did receive $200-250 million in the late 2012 sale of SportsTimeOhio. With the lack of RSN ownership stake however, they’re not taking in anymore annually flowing separate money that can be free from taxes.

In order to close this TV-related revenue gap, Cleveland would need to receive about $90 million more in net revenue-sharing over Baltimore. That’s even before any other team revenue measures. Per Bloomberg’s team valuations, that net revenue-sharing difference is only an estimated $10 million. The STO sale only made a slight dent in this long-run gross revenue and franchise valuation discrepancy.

The Orioles’ place in free agency

Where did this situation then leave for the Orioles? Keri said they probably had two “defensible strategies” to please their impatient yet growing fan base after their third-place 2013 season. One, they could trade some of their young talent that might be difficult to extend long-term. This would boost an already strong farm system and help to provide for many more years of possible contention.

Second, they could actually spend aggressively in free agency to build on their success and perhaps not-for-long revenue advantage. First baseman Chris Davis (6.9 WAR in 2013) and third baseman Manny Machado (6.5) were among the AL’s most productive players last season4. Starting pitching was seen as a desperate organizational need5, as their top prospects are just now rising up the system. A free agency deal seemed logical in many ways.

They didn’t do that until yesterday, despite often being listed in the rumor mill. Their only significant previously move was a three-year, $5.75 million deal with 27-year-old Japanese pitcher Suk-min Yoon, who also can contend for the rotation. Even FanGraphs joked about the signing late last week: “Orioles do something.”

Ubaldo Jimenez is a durable starting pitcher with no significant long-term health issues. Starters like that often get paid very well in free agency. That is especially true for pitchers with a three-year history as a top 10 pitcher (2008-10) and a most recent repeat of that level of success in a five-month stretch. His other career struggles aren’t that drastic compared to the usual weaknesses of available pitching talent.

After the season, Jimenez declined his $8 million player option and then declined the team’s $14.1 million qualifying offer. Reports speculated that he was looking for that dollar figure for multiple years. Four years seemed par for the course for the final deal, with $12 million making sense as a slight reduction in that annual average value.

Ricky Nolasco (0.5 career WAA) and Jason Vargas (-1.1 career WAA) are purely average MLB starters that also signed four-year deals this offseason. Nolasco’s was for $49 million with Minnesota and Vargas’ “major baseball announcement” was a $32 million contract with Kansas City. They’re also each one year older than Jimenez.

The Indians did not pass along a qualifying offer to Scott Kazmir, who then signed a two-year $22 million deal with Oakland. It’s possible that offer – which I dismissed fairly quickly – could have been an appropriate one-year fix for the Indians.

In terms of Jimenez’s price, it seems about right, perhaps even lower than to be expected. As I’ve reviewed in the past, research from Lewie Pollis shows the average actual price of a WAR on the free agent market is about $7 million. A durable average starter should usually produce 2-3 WAR per season. The Orioles are only technically banking on him providing 7 WAR over the duration of the contract.

However, Pollis likely would contest with this article’s basic theory: That Jimenez’s contract makes more sense for Baltimore. Pollis has repeatedly shared that if a carton of milk (or a sack of potatoes) is $1, then why would anyone pay $2? And how could you get away with paying only 51 cents? In order to make WAR theory actually meaningful, wins and players have to be fungible. Teams can’t (or shouldn’t) pay at different levels per a likely ill-conceived notion of increased marginal benefits.

But at a certain point, the Orioles have more money to spend on a deal than the Indians. They have more pressure to do so. They have more ability to withstand the risk of guaranteeing all that money. Baltimore’s manager even said they’d get up to $100 million in the Jonah Keri article, an increase from $92 million last season. Without the Jimenez deal, they’d be way short of that expected jump

The Indians currently are at $80.7 million, a slight increase from last season already. With the unclear futures of Justin Masterson and Jason Kipnis, other players are likely higher long-term priorities with the national TV windfalls6. Cleveland’s immediate financial flexibility – even if the deal was a fair value with an interchangeable amount of wins and benefit – just isn’t the same as Baltimore’s.

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Footnotes:

  1. According to baseball-reference.com, the No. 17 pick has had a 65% success rate of reaching the majors and 8.3 WAR per major leaguer []
  2. Keri actually is a Montreal native and is wrapping up a book on his hometown team. Go check out the podcast he recently did with the great Indians site Let’s Go Tribe. []
  3. Of the respective $29 million allotments, 34 percent each gets thrown into the MLB revenue-sharing pot – that’s the standard RSN rights-fees tax. But for now, I’ll just be focusing on gross TV revenue. []
  4. For added context, those seasons would rank in top seven among Indians infielders in the franchise’s last 50 years. []
  5. Chris Tillman had a 4.4 WAR in 2013. He only turns 26 in April and the team’s ace. After that? Mostly mediocre. Other expected locks are pleasant surprises Miguel Gonzalez (2.0 WAR) and Wei-Yin Chen (1.8 WAR), plus Bud Norris (1.6 WAR), acquired at last year’s trade deadline. Jimenez’s presence can further delay the MLB clock for top prospect Kevin Gausman. []
  6. Assuming usually promoted theories of spending 50 percent of revenue on player salaries, it’s possible the Indians’ long-term payroll could indeed be closer to $90 million. That would factor in spending about $10-12 million of the extra TV money. That could easily be the case depending upon more long-term deals signed for 2015. []
  • Natedawg86

    Cody Anderson

  • BisonDeleSightings

    Great article, although the whole MASN part makes me very depressed about the Indians’ financial future.

  • mgbode

    Ubaldo did so much damage to his reputation that 3 months of Kazmir doing less nearly equalled (per year at least) 3 months of his best work (or near best).

    I think it’s a fair deal for both sides considering the recent market for SP. I would have liked the Tribe to have kept him, but obviously it wasn’t likely.

  • dwhit110

    Fascinating stuff, per usual Jacob.

    Losing out on Ubaldo doesn’t really sting for me. For his 2 1/2 seasons here, he was a below average pitcher for nearly 2 of those seasons and then put everything together from May moving forward in 2013. If he regresses again that’d be a lot of dead money for us to absorb over 4 seasons. Look at how badly it handicapped us to have a fairly useless Travis Hafner on the books a few seasons back.

  • Steve

    One of the best pieces here. Very informative. My only quibble is that you don’t have to go all Simmons with the footnotes. Most of those remarks would have fit well in the piece.

    MLB teams actually spend less than 50% of revenue on player salary, and I’d guess a couple of factors limit Cleveland’s ability to even hit the league average. Smaller markets likely can’t save much on the fixed costs. I’d be very interested in seeing teams’ spending percentage after a net of revenue and fixed costs. Also, as Shapiro is frequent to point out (too frequent for some fans), the team is dependent on season ticket sales, and with such a small number for the team, it’s difficult to project the next season’s revenue, making it a big risk to try to stretch your margins.

  • WFNYJacob

    Great point. Nearly referenced the Hafner deal in here too. Wrote briefly about that last month.

    http://waitingfornextyear.com/2014/01/notre-dame-college-adds-travis-hafner-to-baseball-staff/

    His massive four-year extension, signed in July 2007, captured his free agent-eligible 2009-2012 seasons at $57 million. He contributed just 6.3 WAR during those seasons.

    That’s not one of the worst free agent-year deals in MLB history at all. It’s only a little bit worse than expected — about 8-10 WAR. But it’s crippling for a team like Cleveland that can’t afford to miss that badly on the open market.

  • pnikhilrao

    I haven’t done a careful analysis of Ubaldo’s 2nd half performance of last summer, but I have a sneaking suspicion that his success — and the team’s — had a LOT to do with the weak schedule in August and September.

  • dwhit110

    And remember at the time, Jake Westbrook and CC Sabathia were heading to free agency as well and everyone was concerned about Sabathia’s weight and how he could be susceptible to injury over the longterm, and he was the guy that we decided to pass on.

    If we would have just given all of the money that we did to both Westbrook and Hafner to Sabathia instead and let the first two walk… Well, there’s a great “what if” for the Indians.

  • dwhit110

    And remember at the time, Jake Westbrook and CC Sabathia were heading to free agency as well and everyone was concerned about Sabathia’s weight and how he could be susceptible to injury over the longterm, and he was the guy that we decided to pass on.

    If we would have just given all of the money that we did to both Westbrook and Hafner to Sabathia instead and let the first two walk… Well, there’s a great “what if” for the Indians.

  • WFNYJacob

    In general, I’d say that athletically-independent sluggers are a bit safer of a bet than starting pitchers with oodles of innings. But yeah, an interesting though.

  • WFNYJacob

    In general, I’d say that athletically-independent sluggers are a bit safer of a bet than starting pitchers with oodles of innings. But yeah, an interesting though.

  • WFNYJacob

    The Indians strength of schedule was as tough as any team through the season’s first 120 games.

    It’s true that none of Jimenez’s final five starts were against playoff teams.

    But still, from April 29 to Sept. 3, he was 10-7 with a 2.97 ERA. He had 132 strikeouts in 130.1 IP. Opponents batted .237/.324/.371 against him. That’s easily All-Star production.

    The strength of schedule storyline is a wee bit overrated, in my opinion.

  • Steve

    “If we would have just given all of the money that we did to both Westbrook and Hafner to Sabathia instead”

    The Yankees would have offered even more.

  • Steve

    “If we would have just given all of the money that we did to both Westbrook and Hafner to Sabathia instead”

    The Yankees would have offered even more.

  • Steve

    The selective endpoint game can be a wee bit overrated too. He was good, but he had some help. He held opponents, who put up a cumulative .716 OPS, to a .684 OPS this season, but with the benefit of Progressive Field being a pitcher’s park that knocked about 20 points off the league average OPS.

  • dwhit110

    Ha. Well sure, but you’re forgetting that we were handing these deals out in spring training before their final seasons, so $21M/yr over 5 years for Sabathia probably would have gotten a signature without him testing the market.

  • Petefranklin

    Ubaldo pitched pretty well in his contract year, as did Kazmir. In a year and a half I’m betting that both teams will regret their decisions, the O’s more so than the A’s. I really doubt that Jiminez has any real success without Tito being around.

  • Steve

    No chance. He was absolutely sure about testing the market.

  • Harv 21

    I think that’s exactly right. CC was a premier pitcher entering his prime and he was going to get the last dollar from a big market team. As is his right for winning the genetic lottery.

  • EyesAbove

    I’m still more disappointed that we didn’t re-sign Kazmir. I thought the contract he got from Oakland was reasonable.

    48 over 4 for Ubaldo? It seems reasonable when you consider market value for pitchers, but that price has too much potential for a Hafner-esque anchor on this team.

    I dont think he’ll be the same without Mickey either.

  • Ed Carroll

    Why? Jimenez has had success before Francona/Calloway (actually, FAR more success).

  • Ed Carroll

    CC had already signed a “hometown discount” contract, and he was going to test the market. If the Indians wanted to keep him, they would have probably had to have topped what the Yankees offered.

  • Ed Carroll

    Strength of schedule is massively overrated. Also, ignores what Ubaldo has shown he’s capable of throughout his career. 2012 was the outlier here, NOT 2013. But otherwise I think Jacob’s points are pretty spot-on.

  • WFNYJacob

    Thanks Steve. Appreciate the very kind words.

  • Petefranklin

    Not in the year and a half before. And the year before that in Denver.He was basically a half year wonder, and the only time he came close to that dominance was the last two thirds of last year. He still wasn’t dominate then, he could barely pitch into the 6th because he ran his pitch count so high. 12 mil a year should get you a guy who constantly pitches into the 7th and beyond.
    Why? Did you watch this team the last couple of years? Ubaldo is a huge head case.If they spend the saved $$$ on Masterson the club will have made a great decision.

  • Petefranklin

    I don’t know if it was all Mickey, but a new contract in the making can do wonders for lost souls.

  • Jason Hurley

    Speaking of a new contract, given what a headcase Jimenez can be, I wouldn’t be shocked to see him melt-down now that he’s got some more weight on his shoulders.

  • EyesAbove

    He suddenly found himself in the 2nd half of a contract year, I don’t think thats a coincidence either. The other part of the reason why I’m not heartbroken over this.

  • Ed Carroll

    The “year before that in Denver” was 2010. Ubaldo had 221.2 IP, 2.88 ERA (3.10 FIP), started 33 games with an 8.69 K/9 rate, and was worth 6.5 fWAR. That’s actually his BEST year. Before that, he posted 5.6 fWAR in 2009, 3.9 fWAR in 2008, and was still a win above replacement in 2007, his rookie year. Since his rookie year, he’s never pitched fewer than 176 IP, never started fewer than 31 games, and outside of his rookie year and the admittedly awful 2012, has NEVER posted a fWAR lower than 3.2, which was his 2013 season.

    $12 million a year on the free agent market should get you a player worth just shy of two wins (a win is approximately $7 million on the free agent market). If Ubaldo replicates his 2013 season, which was NOT a career year for him, he’s an absolute bargain for Baltimore.

    Yes, he tends to fluctuate from game-to-game, but so does Masterson, and it doesn’t really matter when the results are there, as they always have been. There’s no factual basis for much of your comment.

  • Steve

    “Massively overrated” is some weasily phrasing. We’ve got the actual numbers. Once you account for the fact that Ubaldo faced a weaker than average set of hitters and pitched in a pitchers park, he’s still good, above average, but he’s not as dominant as Jacob is trying to portray him with that 2.97 number.

  • Ed Carroll

    Steve, if you’re on twitter you need to let me know, cause I gotta follow you now. Nice work calling out my BS ;) Yes, we certainly can account for Ubaldo’s strength of schedule, and what I was trying to avoid (and you didn’t do) was simply looking at the W-L records of the club he faced.

    Respect, sir. Respect. :)

  • Steve

    I’m on just to follow news.

    And Ubaldo is one of those guys that draws a wide variety of viewpoints, and like you, I’m just trying to figure out where the truth actually lies.