Wednesday Rockpile: Examining Carlos Gonzalez and his Extension

About a month ago when Troy Tulowitzki signed his 10 year, $157 million mega-extension, I opined that the deal represented a major paradigm shift for the organization (and a positive one at that). The news Monday afternoon that the man preceding Tulowitzki in the lineup, Carlos Gonzalez, was signing a long-term deal with the Rockies (reportedly 7 years, $80 million) did nothing but reinforce that opinion. All signs point toward Colorado's revenues increasing as stars like CarGo and Tulo bring in more fans (who will buy more merchandise) and hopefully a more lucrative TV deal. The goal is a powerhouse of a franchise built on the principles of character, team, and integrity.

Much as I did with Troy Tulowitzki, I'll evaluate both the player and the contract, noting that the way in which Gonzalez's extension affects the Rockies amplifies the effect of the Tulowitzki deal (that is to say that my their effect on the franchise not only similar but also additive). To simplify things, I'll break down my analysis of the CarGo extension into on the field and financial portions.

On the Field

The same reason that people might not have liked Troy Tulowitzki's deal apply to Gonzalez's extension as well: namely the size of the contract and the risk incurred by its length. CarGo's clean injury history, youth, and athleticism reduce the perceived risk of the deal considerably, but other concerns about Gonzalez as a player seem to permeate the online discussion that I've seen. The primary detractors of the deal (and they aren't so much detractors as they are not completely enthused with it) point to two things with CarGo: his limited sample size of success and the seemingly inflated peripherals with which he achieved such success.

The first item definitely gives me pause -- after all, at the trade deadline in 2009 I projected CarGo to be a league average player -- in 2014 -- due to his considerable early struggles and risk of a flameout. While Gonzalez is certainly an above average player with perennial All-Star potential, one has to remember that he's only had one full season of greatness. To refresh your memory, here's a piece I wrote about CarGo's amazing 2010 at the plate.

The second item deals with Gonzalez's weaknesses as a player and is even more concerning to me than his limited sample size. His high K% (career 24.5%) and low BB% (career 6.4%) show me that there is still some work to be done with his plate discipline -- especially with those sliders in the dirt. Furthermore, CarGo's 2010 .384 BABIP suggests that he is a candidate for regression in 2011, though how much is anyone's guess. Gonzalez's excellent career 20.7% line drive rate as well as his exceptional speed would seem to indicate that he will have a higher BABIP than the average player, but something like .350 would probably be more realistic to expect in 2011.

In any case, your opinion of the deal depends mostly on how much you believe in 2010 as an indicator of CarGo's future performance. The fans at Fangraphs project a 5.1 WAR 2011 for Gonzalez, believing him to be a slightly above average fielder but a lesser hitter than he was in 2010. I'd take the over on that projection, since I believe a) that fielding metrics don't capture Coors Field very well, meaning that the value of Gonzalez's (Gold Glove) defense in all three outfield positions is probably underestimated (as it is here in this otherwise fair comparison between the Gonzalez extension and the 6/$51M deal inked by Jay Bruce) and b) that there has been an overcorrection within the sabermetric community due to Gonzalez's insane H/R splits and high BABIP. Gonzalez was the best hitter in baseball during the second half of the season, and to ignore that fact is to seriously underestimate his potential.

Furthermore, I see Gonzalez as the perfect Coors Field hitter, with excellent gap power that allows him to spray out extra base hits seemingly at will. In other words, he's more valuable at Coors Field than he would be at other parks. As a result, I see CarGo providing an average of 5.5 WAR per season to the Rockies over the life of the contract. He might not be worth it each year, and an injury could certainly gum up the works, but the potential is there for much more. After the jump, I'll explain why that makes this extension a fantastic deal financially.

Off-Topic.

Financial Impact

Before I go into this analysis further, it's important to note that I don't have an exact breakdown of the contract for this analysis. For CarGo's 2011 salary I'm going off the $1 million base plus $3 million bonus salary estimates quoted by Troy Renck today. Also included in that link is an indication that CarGo's three free agent years will be bought out at a rate of about $20 million per year, leaving about $16 million to be spread out through the arbitration years. For simplicity's sake, I've estimated 2012-2014 salaries of $4 million, $6 million, and $6 million.

Providing that this deal does indeed go through (and it should by next week), this extension has a significant impact on the Rockies' budget in the long-term, much like Tulowitzki's deal did. Here is the impact of the deal to the Rockies' long-term salary commitments:

That's a jump up from the $190.65 million figure I quoted after the Tulo/DLR signings. It represents a considerable investment in the future of the franchise by the Monforts.

Unlike the Tulo extension, however, CarGo's deal also has an effect on Colorado's spending this year. In fact, this extension combined with the acquisition of Matt Lindstrom and replacement of Mike McKenry with Jose Morales brings my projected 2011 Opening Day Payroll to $87,918,000 -- which is very similar to Colorado's 2010 end of year payroll ($87,974,390). Barring another bullpen addition, this should pretty much be Colorado's 2011 ODP.

For some more information as to how I arrived at this number (particularly with arbitration award projections), please reference my November State of the Rockies article.

Now, onto an analysis of the contract itself. Here it is in table form, broken out by my projected 5.5 WAR per season and the salary estimates above:

To refresh your memory, the yellow box represents surplus value, or the degree to which Gonzalez will outperform his contract over its life. Yes, that number is huge. I'll explain this a little bit more below.

For this chart, I used $5 million as a value for a win on the free agent market. Likely by 2017 this number will be much higher due to inflation, so locking in a salary now for a potential superstar player as the Rockies did could pay serious dividends going forward. In addition, future money is less expensive to a team than money spent now due to the time value of money. When looking at the deal, it's very important to look at it in three pieces and examine it using opportunity cost (which is how the money could be spent differently and is an additional cost besides salary).

The pre-arbitration phase of the deal is the near-term: paying CarGo $4 million when Colorado could have paid only $425,000 or so.  By paying CarGo an extra $3.6 million (most of which is a signing bonus), Colorado uses much of their payroll flexibility for the 2011 season, perhaps forgoing potential improvements to the bullpen. In any case, CarGo should be a bargain for the salary he's being paid this year.

The arbitration phase of the deal, from 2012-2014, is the medium term, during which Gonzalez would have been eligible for salary arbitration. During this phase Colorado will be paying Gonzalez around $16 million over three years, which is an incredible deal. This is especially true if you subscribe to the theory that during their arbitration years players are paid 40%, 60%, and then 80% of their market worth. A 5.5 win player on the open market should theoretically be worth about $28 million per year -- which equates to arbitration payments of $11.2 million, $16.7 million, and $22.3 million during those three seasons. I'm certainly fine if readers balk at the $28 million figure, because it seems pretty high at first blush. Even if you reduce that figure to a more palatable $20 million per annum, a 5.5 win player going through arbitration should be paid $8 million, $12 million, and $16 million during those three seasons. That's a $20 million surplus of payroll flexibility gained by the Rockies instead of going year to year with Gonzalez.

To underscore my point: even if CarGo regresses to a league average player (2 WAR) over the next four years, he will have produced a surplus value of $20 million to Colorado. Actually, if Gonzalez is only a 2 WAR player for the length of the contract (pretty close to the worst case scenario), Colorado only loses about $10 million on the deal, less if inflation comes into play (and it will).

The free agency phase of the deal, from 2015-2017 is the long term, during which Gonzalez would have been paid at the rate at which the market valued him. Again depending on how much you believe a 5.5 win player is valued on the open market, Gonzalez's services could have been had for anywhere between $18 and $30 million per year. The $20 million figure the Rockie have locked in not only provides cost certainty (important when you consider that Tulowitzki will also be making $20 million) but also represents a probable (and considerable) discount  towards the Rockies.

In terms of payroll flexibility during the final phase, the cost certainty is nice but the risk is there that CarGo could regress and/or become injured, meaning that a large percentage of Colorado's payroll would be tied down in dead money. At the same time, by signing two potential superstars long-term the Rockies are diversifying their risk. Namely, the chances that both bust and become dead money are very low, with the surplus value of one covering any deficiency of the other in value. Add in Ubaldo Jimenez (ostensibly after next year), and Colorado's money will be tied to three pretty strong pillars for the foreseeable future.

Of course I think that this is a great deal for the Rockies, but at the same time I believe that it's also a pretty darn good deal for the 25 year old Gonzalez, who shouldn't ever have to worry about money again. The trade off of financial security at the risk of future earnings potential is the way that pretty much all of these pre-arbitration contract extensions work -- and in this case it seems to be a great deal for both sides. In fact, if all goes according to plan I foresee the Rockies dominating the West throughout this new decade.

2011 Hall of Fame Balloting

Look today for 2011 Baseball Hall of Fame voting results. I went over my HOF ballot two weeks ago, voting for nine players. I'm cautiously optimistic that Larry Walker will at least garner the 5% of ballots required to remain on the ballot for next year.

ESPN's Jayson Stark is voting for Walker. He's also voting for Jack Morris. Go figure.

The Hardball Times predicted today's HOF results on Monday. They see both Blyleven and Alomar getting in with Larkin and Morris getting in next year.