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Transaction Lab: Midwest Securities

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Today we take a look at a pair of recent contract extensions shelled out by Midwest teams. After only one year as an every day player, the Twins took a leap of faith and signed Denard Span to a 5 year, $16.5 million contract with a $8.5 million net club option for 2015--what would be his first FA year.

Span represents the prototypical lead-off hitting center fielder. He owns a career .300/.385/.414 line, he's hit more triples (17) than home runs (14), he's walked in over 10 per cent of his PA's, and he's stolen 42 bases in 60 attempts (70% success rate). He's a solid at worst defender in center and a plus defender at the corners.

After trading Carlos Gomez this past off season, the Twins are basically committed to an outfield of Delmon Young/Jason Kube, Denard Span, and Michael Cuddyer for awhile. Their best prospect, Aaron Hicks, is an outfielder, but the Twins are being extremely cautious with him, sending him to single A for his third professional season (age 20). The Twins control Span's first year of free agency in the form of a club option, so while technically a contract extension, this is more of a risk/reward play than anything else. So, was it a good one?

Unless Span exceeds projected expectations, I think the answer is no. We'll take a look using the pre-FA extensions metrics (explained here).

Denard Span. 5 years, $16.5 million. VORC: $3.1 million. VOMC: $3.5 million. BFYBF: 0.19.

Actual extension:

 

 

Year-to-year:

 

 

Market rate:

 

 

Not that Span is any more prone to this, but if he breaks his leg and never posts another above-average season, he's still owed $16.5 million through 2015. For the assumption of this risk, the Twins gained about $3 million in surplus value. It's simply not a great trade off.

Minnesota's aforementioned trading partner, Milwaukee, also recently extended a young player in Yovani Gallardo. Gallardo has elite stuff, with a low-to-mid 90's fastball that features decent tail and good sink, two above-average breaking balls (a slider and a curve ball), and an average change up that he has thrown infrequently thus far. Last year he struck out 204 batters in 185 and 2/3 innings, but ranked second in the NL with 94 walks.

Going forward, Gallardo is a good athlete, which generally bodes well for control. He's also show good control in every other step of the way, so I view the 94 walks as an aberration (or at least a non-issue, long term). He's also 24 years old in 2010, which means he'll likely continue to improve. The Fans project a 3.83 FIP from Gallardo in 2010, but ZiPS projects a 3.69 FIP, CHONE projects a 3.62 FIP, and Bill James projects a 3.52 FIP. I'm inclined to side with the CHONE/Bill James end of the spectrum on this one.

Under the terms of the extension, Gallardo is owed $30.1 million through 2014 with a net $12.4 million option for 2015--what would've been his second year eligible for free agency. In addition to gaining a sense of financial certainty through Gallardo's arbitration years, the Brewers gain control of his first two free agent years. Let's take a look at how much money the Brewers saved.

Yovani Gallardo. 5 years, $30.1 million. VORC: $11.4 million. VOMC: $10.6 million. BFYBF: 0.38.

Actual extension:

 

 

Year-to-year:

 

 

Market rate:

 

 

When I first heard Gallardo was getting a 5 year deal (before I heard the salary amount), my back of the spreadsheet calculation/prediction was about $41 million guaranteed for the five years. VOMC confirms this, they saved about $10 million, making this one of the five or so best pre-FA contract extensions signed since November 1, 2009. The risk of a pitcher suffering a career ending injury is probably greater than that of a hitter, but if Gallardo stays healthy and as effective as I expect him to be, this deal is going to make the Brewers look very smart when it's all said and done.