Signing Free Agents

Over the weekend, the slow offseason was punctured by a rumor that the Brewers submitted an offer to Yu Darvish. Various rumors around Brewersland suggest that the offer was serious, although as always these anonymous rumors require at least a grain of salt. Signing a player like Darvish immediately accomplishes several goals for the Brewers:

• (1) The front of the rotation is improved with a true, proven pitcher. (Although “aces” do not exist, if an ace were to exist, Darvish is about as close to an “ace” as it gets).

• (2) The competition in Chicago is slightly downgraded by “subtraction” (ex., if the Brewers and Cubs both were courting Darvish, the Brewers’ signing results in an abstract “loss of runs prevented” for the Cubs. This is a good thing).

• (3) Milwaukee is established as a free agent destination by virtue of their proximity to contending (this is another excellent thing).

There is nothing that is not exciting about a player like Darvish coming to Milwaukee. One of the most common fears expressed by Brewers fans and analysts is that the club could not afford Darvish’s contract, or that Darvish would divert resources in crucial roster crunch years. However, it is worth noting that this is not the case; in fact, if the Brewers were truly looking to compete with their southern rivals, the front office could be justified in adding another impact free agent (aside from Darvish) this offseason. This strategy would basically concede that the team cannot afford the elite class of 2019 free agents (which is probably true), since big markets are loudly sitting out this free agency round in order to land elite, expensive talents in 2019. That’s fine; should the Brewers land Jake Arrieta and Darvish, or Lorenzo Cain and Darvish, those are quite grand improvements for this roster.

It is worth visualizing just how strong the Brewers’ current financial standing is, in order to support multiple signings. First, a look at Forbes surveys from 2016 shows that even during the rebuilding year, the Brewers were increasing revenue, approaching the $240 million mark as a club. Given the club’s low payroll, this produced a substantial operating profit, which one can reasonably assume carried over to the 2017 scenario as well (due to the club’s low payroll in 2017, as well). Extrapolating the Forbes revenue trend, and setting aside negotiations for a new television deal after 2019, and using Cot’s Contracts figures, here is the Brewers’ five year payroll and revenue outlook:

Edit (9:00 AM): This analysis ignores future playoff revenue, since it is an unknown, as well as future MLB Advanced Media revenue, since it is unclear whether these payments will be annual or “one-off” based on MLBAM contracts.  A playoff run into the National League Division Series would likely increase annual revenue by [at least] 10 to 15 percent.

This is a team that is operating significantly in the black, or leveraging this robust financial health to purchase additional capital assets (such as the Carolina Mudcats, Spring Training upgrade, and Miller Park concessions renovations). I will not treat the normative argument about whether ownership should be investing in capital expenditures at this point, at the dearth of investing in labor. Using an “ideal” and “realistic” labor revenue allocation, as well as scenarios in which the forthcoming MLB Advanced Media payment and 2016-2017 profits are redistributed to payroll (either through debt or cash), here is the estimated “payroll ceiling” for the Brewers over the next five years:

Assessing guaranteed contracts alone, and averaging the various revenue scenarios, here’s one likely payroll space estimation for the Brewers:

This team is absolutely swimming in cash, and thanks to the relatively swift and severe rebuilding efforts by Doug Melvin and David Stearns, the club owes almost nothing in guaranteed contracts. Signing two elite free agents in this offseason, even to five year deals, will still allow the Brewers to meet these upcoming arbitration requirements by impact players (with tougher questions for players like Corey Knebel and Jimmy Nelson, who will be deep into arbitration):

Of course, even grouping these players together is not necessarily an adequate way to express the club’s actual future arbitration demands. For example, in 2021, if Domingo Santana, Lewis Brinson, and Brett Phillips are each in arbitration, Santana will be likely entering his final year of arbitration, while Phillips and Brinson will likely be entering their first years. Yet, if each of these players demopnstrate an ability to start at the MLB level, it will be interesting to see whether Milwaukee maintains their extremely deep outfield with this trio and Ryan Braun, or trades from this depth (which would free up more actual revenue for payroll).

The long and short of it is, the Brewers are a club with fantastic revenue trends, current profit potential, payroll space, and current and future contract demands. Should the club wish to take advantage of this slow free agency market, they absolutely have the resources and future outlook to make such a spending spree possible and worthwhile.