Financial Situation Part II: Service Time Mistakes

About a month ago, I posted an analysis of the Royals' financial commitments and arbitration timetables for the young players. This post will build upon the previous one, so here's a link to the former post, titled "Royals' Future Payrolls" or read the brief summary below.

Royals' Future Payrolls

In summary, the Royals are in good shape next year, with $25-30 million to spend if Glass allows Baird to have a payroll of $50 million. In 2007, the Royals get hit harder by arbitration, with Affeldt in his third year, Brown and Hernandez in their second year, and MacDougal, Gobble, Snyder, and Carrasco in their first years of arbitration. So, the Royals will have to spend some money on players' arbitration in 2007, with these 7 players in arbitration. But, that's not all unfortunately. Meet the 2007 class of Super Twos (unless these players are sent to the minors):

Leading off: David DeJesus with 2 years and 146 days of service time


On the Mound: Zack Greinke with 2 years and 135 days of service time


Relieving Greinke: Mike Wood with 2 years and 140 days of service time

Photos: kcroyals.com

Super Twos are players who rank in the top 17% of players with between 2 and 3 years of service time. Super Twos qualify for arbitration a year early and get 4 arbitration years instead of 3. It's difficult to predict where the cutoff will land, but it's usually between 130 and 140 days and the lowest it has fallen to is 128 days. So, based on the historical cutoff, it appears that David DeJesus and Mike Wood will be Super Twos and Greinke has a pretty good chance (60-70%) of being a Super Two as well. After the 2006 season, the Royals will have 9 or 10 arbitration-eligible players. The Royals' realistic timetable for becoming a contender again is the 2007 season. With all of these players headed to arbitration, it may be tough for the Royals to sign key players to improve the team in the 2006-2007 offseason.

After the 2007 season, the Royals core of youth hits arbitration, with Sisco, Gotay, Bautista, Teahan, and Buck entering arbitration as well. If Burgos and Nunez remain on the big league club for the rest of the season, they will likely qualify for Super Two status after the 2007 season. However, Sweeney's contract will no longer be a burden, so that should help pay for young players' pay raises.

The Royals' payroll flexibility next year will likely last just one year. With 9 or 10 players entering arbitration in 2007, the Royals will be somewhat restricted in how much money they can spend in free agency this year. Ideally, the best contracts would be either one-year deals or two-year deals with an option for the third year. The one-year deals would improve the team next year with the extra money available, perhaps giving the Royals some trade bait near the trade deadline as well as some much needed help. The two-year deals with an option would be good for a solid starter who could help stabilize the rotation. The Royals will probably need to split the $25-30 million in half between both types of contracts, figuring an increase of $10-15 million in payroll in 2007 due to arbitration increases.

How do you avoid the Super Two mistake? Well, keeping a player like Greinke in the minors for one more week would have significantly reduced the risk of him reaching arbitration a year early. An extra week or two in the minors can make a difference in a lot of cases. It might be worth sending Burgos and Nunez down to the minors for a while. It's paying attention to small details like Super Two status that can be the difference between keeping a player for the entire arbitration period or just a couple years of it. It becomes more difficult to negotiate a long-term deal with a player who will be a Super Two because they know that they'll have four arbitration years instead of three. I read a lot of complaints about how expensive Affeldt and MacDougal will be next year after arbitration. Just wait until 2007 and 2008! Arbitration is still much cheaper than free agency. Beltran earned a total of $18.5 million over 3 years of arbitration, especially compared to the contract he signed with the Mets at $17 million per year.

The key to building a cost-effective, successful franchise that gets the most out of their payroll and limited service time of their players is to keep young players in the minors until they are ready to contribute on the big league team. By developing players in the majors, the Royals are only getting these players closer to arbitration and using up service time. Hopefully, the Royals will have a strong core of young players that don't become free agents until the end of the decade and can be a contender from 2007-2010. But, that will only happen if the Royals manage their payroll effective and avoid starting players' arbitration clocks any sooner than necessary. It also couldn't hurt if the Royals can develop some starting pitching too!