Fire Gardy

With Livan Hernandez pitching tonight, the Liriano Situation continues to refuse to get out of my head. Today I want to talk about the financial implications of calling him up versus keeping him down.

Everyone assumes that Liriano is toiling away in Rochester for financial reasons. At first glance, that makes sense for two reasons. One, Livan Hernandez has a “big” money contract, of $5M (though it will shoot to $7M when he hits 200 innings pitched); you can’t send him down to the minors or cut him, without “eating” the contract. Two, Liriano’s Super-2 status is in question, and if we call him up right now he may hit arbitration a year earlier than we’d otherwise hope — a pitcher of Liriano’s ability would probably demand plenty in arbitration.

First, I’ll consider Livan’s contract. I hate the concept of avoiding having to “eat” someone’s contract. You signed the deal in the offseason. At that point, it’s guaranteed, whether Livan wins the Cy Young, gets injured and can’t pitch, or sucks and can’t pitch. If he’d gotten injured, we’d have to “eat” the contract just as we would if he were incapable of getting people out. The point is, we’re paying the money anyway. Forget about it. The goal is to put the best team on the field and win as many games as possible. Livan Hernandez is simply not doing that, and we have an option to replace him. This is a non-reason. The contract has already been eaten.

Second, I’ll try to break down Liriano’s arbitration situation. Under the rules of the collective bargaining agreement, before a player becomes a free agent, they have three “reserved” years (where they make whatever the team wants to pay them, typically close to the minimum), followed by three “arbitration” years (where the team is expected to pay them what they would otherwise make on the open free agent market, but other teams cannot bid). A player can convert the last reserved year into an arbitration year if he has Super-2 status, which means that he has more than 2 and less than 3 years of service time, and is in the top 17% of service time among other players with between 2 and 3 years of service. Liriano has 2.031 years of service time (since 2007 counted toward his service time despite the fact that he wasn’t on the team, which I personally think is a travesty). It is possible, though not guaranteed, that he’ll be eligible for Super-2 arbitration at the end of the season. (Contrary to apparently popular opinion, there isn’t a “date” on which we can call him up and be guaranteed one way or the other. It depends largely on the amount of service time of other young players in their 3rd year.)

This consideration would affect what it will cost the Twins for the next 4 years of Liriano. Next year could be $400K (if he’s reserved), or anywhere from $1M-4M (if he’s arbitration-eligible). Also, the arbitrators consider what a player made the previous year, so the more he makes each year in arbitration, the more he’ll make the next year. One possibility is that Liriano could cost $400K/$2M/$5M/$8M. Another is that he makes $1M/$3M/$7M/$10M. Obviously these are just guesses, but at the very least gives us a ballpark for discussion. If Liriano has Super-2 status at the end of the season, it could cost the Twins in the ballpark of $5-6M over the course of the next 4 seasons.

But another financial consideration is what it’s worth to make the playoffs in any given year. It’s extra ticket revenue (all sell-out crowds at higher prices than normal), extra TV revenue (more than a normal game), extra concessions and parking revenue, just all kinds of money. Other people have put the monetary value to a franchise of making the playoffs in any given year at multiple millions of dollars.

Replacing Livan Hernandez (the worst pitcher in the majors, if you measure quality by any of: ERA, K/9, opponent hits, opponent batting average, opponent OBP, opponent SLG, opponent OPS, etc) with Francisco Liriano (very likely above average) could easily be worth a few wins over the course of the second half of the season. It could be the difference between making the playoffs and coming up just short. From a winning-this-year perspective, calling up Liriano is the correct decision. If it helps make the playoffs, calling up Liriano is the correct short-term financial decision also. If the front office is thinking 4 years into the future, calling up Liriano today might not be the correct financial decision — but it’s likely pretty close.

From Baseball Prospectus:

It’s hard to believe that Minnesota would hold Liriano back strictly for financial service-time benefit, considering that each marginal win gained over the second half of the season has arguably more value for the Twins than any other franchise, given how the windfall of a playoff berth very much hangs in the balance for them.

The guys at Baseball Prospectus are able to analyze this stuff better than I am, but we seem to be in agreement here. The marginal value of Liriano over Livan, to the Twins, is huge. Also, there is no guarantee that Liriano will stay healthy and dominant over the next 4 years and make all that money in arbitration. I would venture to say, considering all that, that calling up Liriano is the correct financial decision.

From Rosenthal’s latest:

“If that (financial motivation) was even a factor, you tell me why we brought him up in April,” Smith said. “It was never a factor. When guys are ready, we bring ‘em up. With many small-market clubs, it’s just the opposite — we get players up here so quickly. They all reach their (service) levels sooner rather than later.”

If that were actually true, the alternative is that they think they’re doing what’s best for the team, winning-wise, both this year and in the future. I don’t think there’s anyone in the world that would prefer Livan over Liriano. I find it hard to believe that the Twins actually think this.

But given the financial considerations involved, maybe the Twins should factor in financial motivations. Not only from a “minimizing cost” perspective, but also including a “maximizing revenue” perspective in such a way that they see the entire picture. It would make the team better today, and give the organization the best chance to make the most money this year and for the next 4 years.

An interesting twist to this story is that Liriano’s agent, Greg Genske, is also Livan’s agent. Genske filed a grievance with the players’ association that effectively demands that one of his clients be called up to the majors at the expense of another of his clients. I’ve never heard of this happening before, but it certainly seems that there’s some conflict of interest for Genske in this case. He may be doing the right thing for Liriano, but the MLBPA can’t be happy about what his actions will do for Livan Hernandez. (That wouldn’t matter at all if Genske didn’t represent both players.)