About Those Backloaded Contracts

It’s been a great offseason for the San Diego Padres. That is, of course, unless you write for FanGraphs (I kid, I kid). For the most part, even the most critical fans are fully on board with the sweeping changes that have transpired in AJ Preller’s first offseason as general manager. You know the story — the Padres have added the star power of Matt Kemp and Justin Upton. They’ve added young, controllable talent like Derek Norris and Wil Myers. And, just this week, they signed one of the best free agents in this year’s class, James Shields, to a franchise-altering deal.

Even if you’re skeptical about some of the specific moves or the general path Preller’s taken to reshape the roster (and it’s a fair position to have), it’s hard not to be excited about the prospect of a legitimate playoff run in the near future. And it’s hard to argue against the idea that they’ve improved the team a significant amount compared to last year’s roster. The fact that ownership signed off on both taking on a big chunk of Matt Kemp’s contract and paying a record-breaking amount of money to James Shields through free agency is an added bonus.

But, but … there’s always a but. It’s also hard not to be just a liiiiitle bit skeptical about the long-term plan. Discerning readers have probably already noticed that both Kemp’s and Shields’ contracts are heavily backloaded, which has allowed the Padres to, so far, avoid breaking the $100 million mark for the 2015 Opening Day payroll. As I remarked on Twitter the other night:

My point, without the restrictions of Twitter’s characters limit, is that while the Padres have added two highly paid players in Kemp and Shields, they’ve structured their deals so that they won’t owe either player much in 2015. The Dodgers will pay $18 million of Kemp’s salary in 2015, then just $3.5 million for the next four years. Kemp will get just over $3 million this year from San Diego, a touch more than newly acquired reliever Shawn Kelley, but the Padres will be on the hook for just over $18 million of his yearly salary from 2016 through 2019. James Shields’ four-year, $75 million contract was structured much the same way — Shields will make just $10 million this year and a whopping $21 million for the following three years.

As a result, according to Roster Resource, the 2015 projected payroll sits just under $99 million. It’s a remarkable feat that Preller’s made so many high-profile moves without adding significantly to the payroll. Remember, though, there’s some creative accounting thrown into the mix which has, at least in part, allowed that to happen.

With Kemp and Shields set for big salary bumps next year, what does the 2016 payroll look like? On Twitter, Wonko* estimated it at $96 million, and he included Joaquin Benoit‘s option being picked up/triggered. That seems like … a lot, but Kemp and Shields will earn a combined total near $40 million alone. Even if the Padres aren’t saddled with Benoit’s $8 million option, the projected 2016 payroll still sits somewhere in the neighborhood of $90 million, leaving little flexibility to replace the production from Justin Upton, Ian Kennedy, Benoit, and a number of lesser players without significantly increasing payroll. There’s hope, of course, that the farm can fill some of the void. Hunter Renfroe and/or Rymer Liriano might be able to replace Upton’s bat on the cheap and maybe a starting pitcher like Matt Wisler will emerge to take on Kennedy’s rotation spot, though declines can be expected at both positions.

*Wonko talked more about the backloaded contracts here.

The curious part about the structuring of Kemp’s and Shields’ contracts is, well, why? Why not simply pay them an amount in 2015 that’s similar to 2016? Why such a discount up front, especially when, in both cases, it’s only a one year discount? The pessimist in me says that the Padres are still afraid to spend too much, at least not without the guaranteed revenue stream that comes with putting a consistent winner on the field. So what happens if this year’s team flops, winning only 80 games and exiting the playoff race early? Will the Padres keep the core in tact, or will they deal off some of the big contracts and start from scratch?

The reason I’m asking so many questions is, of course, because I don’t know the answers. These are legitimate questions that will be answered in time.

For an extreme example, though, you might recall the 2012 Miami Marlins. As part of the opening of their new (publicly funded) stadium, they beefed up their Opening Day payroll to $102 million, keyed by the free agent signings of Jose Reyes, Mark Buehrle, and Heath Bell. By the winter of 2012, after the Marlins had won just 69 games that season, most of Miami’s highest paid players (Reyes, Buehrle, Josh Johnson, Hanley Ramirez) were sold off, shrinking their payroll to, at one point, $31 million.

Like the Padres, the Marlins structured some of their contracts in a similarly backloaded fashion:

Year Jose Reyes (six years, $106M) Mark Buehrle (four years, $58M)
2012 $10M $7M
2013 $10M $12M
2014 $16M $19M
2015 $22M $20M
2016 $22M
2017 $22M

Look, I’m not comparing the Padres ownership group to Marlins* owner Jeffrey Loria, perhaps the most sinister owner in all of sports. But it does seem fair to at least wonder what will happen if things don’t break right this season for San Diego. My guess is that if the Padres find success in 2015 — say, a playoff berth — the payroll will continue to rise going forward. Maybe 2016’s figure will jump to $110 or even $120 million, depending on how the finances break out, leaving Preller with flexibility to reload after the departures. If this year’s team doesn’t perform up to exceptions, however, there will probably be some type of scale-back, even if it doesn’t involve trading the big contracts of Kemp and Shields. The Padres have positioned themselves so that, if winning doesn’t materialize right away, they can’t get stuck with a payroll they can’t handle.

*(The Marlins, for what it’s worth, recently heavily backloaded Giancarlo Stanton’s massive 13-year, $325 million extension. He’ll make just $15.5 million over the next two seasons, but $32 million annually by 2023. What’s the over/under on the amount of that contract paid by the Marlins? $50 million?)

That isn’t necessarily a bad thing. Perhaps the only thing worse than ownership that won’t spend enough is ownership that spends too much, hampering the future of the organization by signing too many high-priced, overrated free agents without a solid core in place. (See: 2012 Marlins.) If the Padres weren’t going to significantly increase payroll this year, maybe the best option was to add some high-priced talent while deferring some of the bill to future years. That way if the plan works and on-field success follows, there’s money there to continue on the same path. If the plan doesn’t work, there’s still an opportunity to backpedal without completing blowing everything up Marlins-style. We’ll see.

For now, the Padres projected ’15 payroll comes in right around 20th in the league, based on the estimates I used last month. That’s still some $20-plus million off the league average, so there’s plenty of room for the payroll to continue to grow. Hopefully, with a successful season both on the field and at the box office, that ‘s what will happen.

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  • Billy Lybarger

    Now with the news that James Shields can opt out after the ’16 season, I really wonder what the longer term plan of this team is.

    • Geoff Hancock

      If he opts out he leaves $41m on the table and he’ll be 35. I can’t imagine there’s going to be a better offer on the table somewhere for him.

      • Hard to say. In two years, baseball salaries will likely be even higher. A lot probably depends on how well Shields pitches over the next two seasons.

        He might not necessarily get a significantly larger offer, but it does give him a chance to leave if he doesn’t like the situation in San Diego.

  • Geoff Hancock

    I wonder how much the ownership is banking on increase in attendance, increase in ticket sales (for what it’s worth, I’ve yet to find a game that had Park at the Park tickets available making the cheapest ticket around $17.50, not $7-8), more non-baseball events (Taylor Swift), etc to off set some of this.

    • David L

      Park at the Park/ Standing Room tickets aren’t usually released until 2 weeks before the game.

      • Geoff Hancock

        Ah, thanks for the heads up!

    • I think that’s a large part of the plan too. More revenue should allow them to increase payroll further, lessening the burden of Shields’ and Kemp’s contracts after this year.