Nationals taking novel approach to payroll
Washington deferring pay to players to increase payroll flexibility
By now, more than a decade into their ownership of the Washington Nationals, we know enough about the Lerner family - in broad strokes, at least - that it's hardly surprising to learn that people throughout baseball find that they operate their franchise in ways that don't conform to industry norms. They are not so much unnecessarily contrarian as fiercely independent. Adhering to someone else's way of doing business didn't make Ted Lerner a billionaire, thank you very much.
They cannot, in the most exacting definition of the word, be considered “cheap,” because their payroll this season probably will exceed $165 million, and that's enough to compete comfortably in the top 10 in the game. But they are, financially and otherwise, still a curiosity, not least because they can take a relatively simple, small signing of a veteran reliever to a one-year deal - and have that one year trickle into 2019.
“They're unique,” said one agent who has worked with the Nationals over the years. “They're the only team that operates like this.”
Let's get down in the weeds for a while, but with an overarching understanding: Some people across baseball believe the way the Nationals structure their offers to free agents not only limits the pool of talent from which they must choose, but could restrict how they construct their roster in the future. We don't know why for sure: Asked to comment through a spokeswoman, Nats ownership declined to answer even broad questions about the way they operate.
But we know that Joe Blanton, that veteran reliever who showed up to camp Tuesday, is under contract through just this season but will be paid through 2019. We know righthander Max Scherzer will pitch for the Nationals through 2021, and be paid through 2028. We know Stephen Strasburg, Daniel Murphy and Matt Wieters all have contracts that call for payments beyond their playing days here.
So it's a well-established practice by now. With the Nats, it's not just, “Who'd you sign and for how much?” Always – always – follow with, “How much of that money is deferred?”
The question people ask around baseball: Why? The question fans should ask: What are the implications?
The first is murky, because the Lerners won't answer. But those that do business with them have some informed suspicions.
Turn first to the legal issue, the fact that the Nationals are arguing in a court case that the Baltimore Orioles are not paying them their rightful fees from their agreement with the Mid-Atlantic Sports Network, a convoluted deal negotiated through Major League Baseball before the Lerners owned the team. In a court filing last year, the Nats, for the first time, suggested the idea that they're being shorted is prohibiting them from competing for talent.
“Without this added and steady income, the Nationals cannot bring full economic confidence to investments in multi-year player contracts to keep up with the fierce competition for top players,” Nationals principal Ed Cohen, a son-in-law of patriarch Ted Lerner, argued in a filing. More than a year later, that remains the strongest language linking the MASN situation to the way the team operates.
So one strategy could be: Look what this MASN debacle is making us do! We're kicking money down the road to points when we hope to have more money coming in.
But here's betting that, assuming any of us live long enough to see the MASN dispute settled, the Nats don't change their strategy. Which leads to the other possibility: Ted Lerner built his real estate empire from scratch by making one patient, sound financial decision after another. The Lerners could well figure that the, say, $3 million they're not paying a pitcher this year can be invested in something else. If it yields even 5 percent, well, hey, that's an extra $150,000, and who wouldn't want an extra $150,000, even if you're worth nearly $5 billion?
Whatever the reasoning, it's certainly a topic of discussion within the game. Signing Blanton made so much sense for the Nationals: an established right-hander addressing the club's biggest area of need, someone who has a 2.14 ERA since he became a reliever at the all-star break in 2015. One year and $4 million, with $1 million available in incentives for innings pitched?
More than fair for the player. Helps the team. End of story.
Except the Nationals will pay Blanton only $1 million in 2017, plus any bonuses he earns. They will pay him $1 million in 2018, when he could be playing for another team, and they will pay him $2 million in 2019, when he will be 38 and - who knows? - could well be retired.
Go down the roster. Wieters will make $10.5 million to play for Washington in 2017. That $10.5 million, though, will be paid out over three seasons. Last winter, Murphy signed a three-year, $37.5 million deal. Except after the contract expires following 2018, the Nats still will owe Murphy $3 million in deferrals.
The previous offseason, the Nats signed Scherzer to a deal that, on the surface, was for seven years and $210 million. But its complicated structure includes not only a $50 million signing bonus that is doled out at various points over the life of the contract, but it includes three seasons - 2019, 2020 and 2021 - in which Scherzer is supposed to make $35 million annually, but all of that money, $105 million total, is deferred to future dates (and replaced in those years by some of the signing bonus).
Dig into the seven-year, $175 million extension signed by Strasburg last summer, and it gets even more complicated. Strasburg makes $15 million this season and again next. His salary for 2019, the third year of the deal, is listed at $35 million - but $30 million is deferred without interest. In 2020, he makes $25 million - but $10 million is deferred without interest. In 2024, the first year the deal is over, Strasburg will receive $10 million - the first of seven straight years he'll haul that in.
This is, of course, financial semantics. But it's meaningful in a couple of ways.
Consider that MLB's “competitive balance tax” - a payroll threshold beyond which a team is charged a premium that amounts to a luxury tax - rises annually, from $195 million in 2017 to $210 million in 2021. That's the last year Scherzer will be under contract. What we don't know: what that tax threshold will be when a new collective bargaining agreement is negotiated, covering 2022 and beyond. What we do know: Scherzer will be paid seven years after his contract expires, when he's 44.
And all that money counts against whatever the luxury tax threshold is in that given year. In a future season in which the Nats are paying both Scherzer and Strasburg - either of whom could be playing for another team or retired - the Nats could have, say, a $20 million payroll hit for players who don't play for them.
Would that impact how much they'd be willing to spend on future rosters? We don't know.
The issue, though, is this: If no other team in baseball operates this way, and if some player targets spurn deferred money instead of paid up front, then the Nats inherently compromise the talent pool from which they can pick. We know, for instance, that outfielder Yoenis Cespedes preferred what was billed as a threeyear, $75 million deal from the Mets last year - a deal he could opt out of after one season, when he was paid $27.5 million - over a five-year, $110 million offer from the Nats. The Nats' money would have been paid out over a decade; thus, in real dollars, it would have been worth less than $110 million.
Ready for actual baseball at this point? That's reasonable. Ignore all this as business people running a business. But remember when you're wondering how the 2027 Nats will fare, and you're considering how much money they'll have to spend, that the entire pursuit will be affected - and could be compromised - by the fact that they'll still be paying players who moved on long before.