The Padres Waive Type A

The Padres have a strict budget to adhere to thanks to possibly the worst television deal in baseball and an ownership transfer that may last through 2013. Because of that, Jed Hoyer’s team has to approach free agency with creativity if they hope to compete against teams with financial flexibility for the same players. Factor in how their ballpark limits offensive production and Hoyer has to do a great job of selling his team for desirable players to buy in. As it turns out, Hoyer is already using a clever solution by promising not to offer arbitration if his newly inked free agents reach Type A status, according to Corey Brock of MLB.com.

Jack Moore wrote about another small market team’s dealings with free agent compensation yesterday. Unlike Alex Anthopolous, Hoyer is not intent on adding draft picks – at least not with this class of free agents. By promising Aaron Harang, Orlando Hudson, and Brad Hawpe that Type A status essentially disappears in their cases, he has given the players a win-win situation to embrace. At the same time, Victor Wang estimates the value of the Type A package return (two draft picks) at $7.8 million. Multiply that by three and Hoyer seems to be gambling with nearly $24 million in projected surplus value.

But Hoyer’s not taking a loss anywhere near that figure. In fact, he might make a profit. Each of the newly-signed player’s contracts run through at least the 2011 season. From there, Hudson’s 2012 is guaranteed and the other two have mutual options. Since only Hudson and Hawpe earned compensatory status this offseason (both were Type Bs) it would take a Herculean effort for any of the three to reach the Type A threshold before the end of the 2012 season.

It will not take an epic season for these players to be worth the draft picks in surplus value. Harang will be paid under $4 million this season. If he pitches to a three-win season, he would be worth more than the $7.8 million in one season alone, but he would not be able to qualify for Type A status. The other players are in similar boats, as Hawpe makes $2 million this season and Hudson $9.5 million over the next two seasons.

The table above shows the guaranteed money each player will take home, how many wins they would need to be worth over the length of their guaranteed contracts in order to exceed $7.8 million in surplus value, and how many wins they’ve averaged over the last three seasons (using a 5-4-3 weight for hitters and 5-3-2 for pitchers). If the players live up to those WAR requirements, they would earn the equivalent of the Type A return, but would not qualify for Type A themselves, meaning Type B status could still bring back an additional $2.6 million in the form of a supplemental pick. If the players somehow do earn Type A status, then it is safe to assume they’ve more than exceeded the minimum surplus value of the two draft picks.

Two other things to keep in mind with this strategy and the Padres’ cash issues. Having too many high picks and not enough of a budget to select the best players at each pick creates a law of marginal returns situation for teams like San Diego. By waiving the Type A compensation, the Padres could then be artificially lowering the player’s desired contract demands, especially if competitors are unwilling and the player has concerns about being the next Juan Cruz.

The technique appears on so many various levels that it becomes difficult to discuss without throwing superlatives out left and right. Hoyer and the San Diego front office may lack in financial resources, but they appear to have wit for days.




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12 Responses to “The Padres Waive Type A”

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  1. Jared says:

    Can someone explain what the weighting for WAR represents?

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  2. chuckb says:

    It’s also worth noting that Hawpe’s likely move to 1B (and possible platoon, thus avoiding those nasty southpaws) will probably increase his overall value considering how poor is OF defense is and how poorly he’s fared vs. lefties throughout his career.

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  3. Barkey Walker says:

    It took me several minutes to get this, ” If he pitches to a three-win season, he would be worth more than the $7.8 million in one season alone” At first I was thinking, am I on the right page, talking about pitchers W-L record? Then I was thinking, how can a 3-x season possibly be worth $7.8 million? then I finally added, “above replacement”.

    BTW, is there a post on FG about how FG calculates pitcher WAR?

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  4. Ari Collins says:

    Another reason it’s a good gamble is that the whole compensation system might be scrapped by next year anyway.

    Good article. Thinking along these lines does indeed make Hoyer look pretty damn smart.

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  5. KyleL says:

    Isn’t also worth noting that they could very well do away with free agent compensation in the new CBA after next season? So it very well may not make any difference at all with Hudson, and if Hawpe and Harang’s options are picked up it likely wont make any difference with them either.

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  6. Mike Green says:

    Good article. I do wonder if Hoyer could have not done better than the package he got from the Sox for Gonzalez.

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  7. Andrew Schroter says:

    Re better package from the Red Sox. Jeff Hoyer has said that the packege the Red Sox offered was superior to any other team’s. He did not want to gamble on waiting until July 31, as I recall he stated in the post-trade press conference.

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  8. I don’t know if I would call Toronto a “Small Market Team” but that’s just me.

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    • Theo says:

      It shouldn’t just be you: it is not, at all, a small market team. In fact, it’s the seventh largest market in North America, larger than Dallas, Boston, Atlanta, and many others.

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  9. cpebbles says:

    I’m skeptical that most free agents would properly value the free agent compensation enough to make this worth a team’s while. In fact, I’m fairly certain that the majority of free agents undervalue the effects of free agent compensation, making this strategy more likely to hurt a team than help it. If you’re offering Orlando Hudson (On the cusp of Type A status) one year at $6 million with an agreement not to offer arbitration, I’m pretty sure he’s going to sign for $10 million without an agreement, even though you’d expect him to come out ahead on your offer.

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