Breaking Down the Angels' Financials

Recently, there has been some discussion about the Angels off season activity, including their quixotic signing of Scott Downs as well as predicting what they will do next. I wanted to break down the financial situation of the Angels and illustrate why them signing Cliff Lee is both financially prudent and a the greatest possible competitive upgrade.

The first important realization is that the Angels cannot compete going forward with the group of players they currently have over the next three years. Last year the Angels had a 79-83 Pythagorean record and were 8 WAR below average, with Oakland at 85-77 and about 4.5 WAR above average, and Texas pacing the division at 92-70 and leading the division at 11.5 WAR. That number is just a baseline for next year, as the Angels made lasting improvements at the trade deadline by acquiring Alberto Callaspo and Danny Haren, from the Royals and Diamondbacks respectively, improvements which the other clubs did not.

Looking at the Angels position viz the A's, a glance at last years Pythagorean record gives the illusion that the A's are actually a better team than the Angels. We are not. First, Kendry Morales, who was on pace for his second straight 4+ WAR season when he broke his leg in a freak celebrating a walk off HR will return. That should be a 2. 5 WAR improvement. They will have a 5 WAR Haren all year instead of a 2 WAR proven winner in Saunders. Also, the Angels have the ability to not have a complete black hole at 3b, with Macier Izturis or Callaspo not being Brandon Wood. That change creates 4 WAR swing from -1.8 to 2 WAR. Just by making those upgrades the team should be 9.5 wins better, or 1.5 wins above true talent league average. Those moves make up almost all of the difference between the A's and the Angels. Furthermore, Oakland's defense regresses a full win and theirs improves by .5 WAR. With the A's and the Angels at this point they are within the standard deviation of reasonable luck. But, it still puts the Angels behind Texas.

How are the Angels going to improve the about 8 WAR they need in order to catch Texas? They have three choices: free agency, trades, or the farm. I am only going to address two of them. Free agency and the farm.

Lets look at their farm to see what they can expect to come up the pipeline. This is Sickles review of the 2010 Top 20 where I removed the players who were traded and the players who didn't play this year because of injury:

1) Mike Trout, OF, Grade B+: .362/.454/.526 with 45 steals for Low-A Cedar Rapids, .282/.368/.427 in 25 games for High-A Rancho Cucamonga, six steals. Power is still developing, but speed , OBP, and defense are excellent.

2) Hank Conger, C, Grade B+: .278/.370/.414 in 86 games for Triple-A Salt Lake City. Actually hitting much better on the road (.868 OPS) than at home (.707). Has caught 29% of runners, but made 12 errors in 63 defensive games. Not breaking through like I'd hoped.

3) Trevor Reckling, LHP, Grade B: Horrible at Salt Lake (8.53 ERA, 46/50 K/BB in 70 innings, 99 hits). Better after moving back to Double-A Arkansas (3.54 ERA, 39/21 K/BB in 48 innings), but he already showed he could handle that level last year. Stock has dropped substantially.

4) Garrett Richards, RHP, Grade B: 3.55 ERA, 121/36 K/BB in 119 innings between Cedar Rapids and Rancho, 109 hits, 2.10 GO/AO. A solid season.

5) Peter Bourjos, OF, Grade B-: .314/.364/.498 in 102 games for Salt Lake, 27 steals, 13 homers, 13 triples. 5-for-27 (.185) in eight major league games so far. Not much left to prove in the minors.

6) Fabio Martinez Mesa, RHP, Grade B-: 3.92 ERA, 141/76 K/BB in 103 innings for Cedar Rapids, 80 hits. Excellent K/IP and H/IP marks confirm quality stuff scouting reports, but has to get the walks down.

8) Jordan Walden, RHP, Grade B-: 3.26 ERA, 38/22 K/BB in 47 innings between Arkansas and Salt Lake, 46 hits. Doing OK after conversion to relief due to durability problems. Need to see the walks come down.

11) Randal Grichuk, OF, Grade B-: .244/.286/.489 in 34 games for Cedar Rapids, .327/.365/.714 in 12 games in the AZL for rehab of sprained thumb. Excellent power potential, bad plate discipline.

12) Trevor Bell, RHP, Grade C+: 3.00 ERA, 19/6 K/BB in 30 innings for Salt Lake, 6.03 ERA in 34 major league innings, 52 hits, 27/9 K/BB. Still has a chance to be a useful pitcher eventually, but may get stuck as a Quadruple-A type.

13) Ryan Chaffee, RHP, Grade C+: 6.93 ERA, 56/36 K/BB in 74 innings for Rancho, 102 hits, 1.67 GO/AO. I thought he was a big breakthrough candidate but he's been awful. Still gets grounders, but strikeouts way down from last year.

14) Tyler Chatwood, RHP, Grade C+: 1.77 ERA, 70/36 K/BB in 81 innings for Rancho, 2.93 GO/AO. Has remained effective after promotion to Double-A, 3.27 ERA, 25/20 K/BB in 52 innings for Arkansas, 53 hits, 1.73 GO/AO. I don't like the deterioration in his strikeout rate at the higher level.

15) Jean Segura, 2B, Grade C+: .307/.353/.443 with 40 steals for Cedar Rapids. No complaints here, stock is rising.

16) Alexia Amarista, 2B, Grade C+: .310/.352/.429 with 22 steals in 110 games between Rancho (72 games), Arkansas (36 games) and Salt Lake (two games), production fairly steady between levels.

17) Michael Kohn, RHP, Grade C+: 2.15 ERA, 57/25 K/BB in 46 innings between Arkansas and Salt Lake, 11 saves, 28 hits. Three runs in 5.2 major league innings thus far, with 5/4 K/BB. Should be a useful relief arm.

18) Carlos Ramirez, C, Grade C+: .228//341/.395 for Cedar Rapids, however this breaks down to .176/.308/.289 in the first half and .329/.410/.603 in the second half. Murders lefties (1.142 OPS). Good defense.

19) Tyler Kehrer, LHP, Grade C+: 5.08 ERA, 77/55 K/BB in 89 innings for Cedar Rapids, 85 hits. Decent strikeout rate and gets some ground balls, but too many walks are hurting him.

It looks a lot like the A's system, a pretty unmitigated disaster, plus Mike Trout, who is possibly the best prospect in all of the minors. That one elite bat really changes the whole dynamic of the system, though, when compared to the A's. Out of this system I think the Angels can reasonably expect to get a Catcher (Conger), two OFers in Bourjos and Trout, a 2bman (Amarista), perhaps a viable DH in Trumbo and a fair number of Bullpen arms a few of which can fill in as a 5th starter. Further down the line you can get the 2010 draft class in with players like Kaleb Cowart and Chevez Clarke, whom I was high on predraft but aren't likely to make an impact for 4 years. Overall, really isn't much to see potentially one above average regular (Trout) in the whole farm.

Now, lets look at the budget situation. A year ago I wrote about the Scott Kazmir acquisition's effect on the Angels budget saying:

Considering the dismal state of the economy, it is likely that the Angels payroll will be down to $110m next year. That would provide just slightly less than $30m before the Kazmir acquisition. The Angels would be lacking two starting pitchers, a starting right fielder, a starting designated hitter, back up first and third baseman, a starting third baseman, a left handed reliever, and a setup man. Kazmir's $8m represents a little more than a fourth of that sum, leaving only about $22m remaining to fill all of those positions. That makes it nearly impossible to see a return for Chone Figgins, who will likely command $7.5-$10m a season for at least three years, when Brandon Wood is a viable replacement at the hot corner. Similarly John Lackey will receive around $15-17m a year for at least 4 years and likely more, which makes his return unlikely as well since the rest of those needs would have to be filled at $5m-$7m total. There are also back of the rotation candidates within the system, Dustin Mosely, Shane Loux, and others, who despite not being very good are cheap replacements, though the Angels are clearly lacking depth.

Right field and DH do not have suitable internal replacement. Gary Mathews Jr is a below replacement rate player and Reggie Wiltis is not a major league starter. While there a plenty of DH bats available, which should depress their prices. Further, Juan Rivera has had plenty of experience in RF, which puts left fielders in play as free agents.

This suggests that getting one big bat for the outfield and letting DH be a position that players rotate through to provide rest and better catcher defense with Napoli getting lots of DH at bats with Mathis behind the plate. If the Angels sign a bat for $16m+ plus they can probably only afford at most a good bullpen arm (such as resigning Darren Oliver) and a back up 1b/3b veteran.

2011 is an even bigger problem if they have $16-$20m committed to an OF bat. The trade of Sean Rodriguez will require them to stick with Howie Kendrick through arbitration, and they will need a back up MI when Macir Izturis leaves after 2010. Closer also becomes a problem as Brian Fuentes is in an $11m option year that if exercised leaves no budget room for the rest of the bullpen which will need serious help with setup men, starting DH, negotiate extensions with arbitration eligible players, or to replace under performing or injured players.

Essentially the Kazmir trade throughly compromises their payroll flexibility, doing so for someone that is not likely to bring surplus value beyond his contract.

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After 2009 the Angels did not invest in an OF bat like I had suggested they would. Instead choosing to sign Fernando Rodney for their bullpen at $5.5m a year for 2 years, add Joel Pinero to the rotation at a cost of $8m a year for 2 years, resign Abreu at $9m a year for 2 years, and add Matsui for one year and $6m. In 09, I had said that the Angels were likely to keep their payroll down to about $110 million dollars. This was incorrect. They upped their payroll to $121m according to Cot's, though Baseball Reference seems to think they only spent $115m all season, which was more in line with my projections, though I trust Cot's numbers more. I do, however, take some solace in the fact that the Angels lost $10m and I think it is always bad practice to predict a payroll that will lead to loss of income for a franchise unless the owner states that that is acceptable.

Regardless of the fact that the Angels didn't acquire the one expensive OF bat that I expected, Angels did acquire $20m in commitments to position players for the 2011 year. Lets take a look at their payroll:

(Projected Arby awards are green and prospects on the depth chart are yellow)

Essentially, the Angels are in a similar situation that the A's are in; they have a competitive window that is rapidly closing with their current core. Look at the attached spreadsheet and you will see a lot of blank cells next year and the year after where the Angels have expiring commitments to both their home grown core and free agents. In 2013 the Angels have only 5 members of their current core under control. The players not mentioned in the spreadsheet are bit role-players in the bullpen. Additions from the farm included, the Angels are going to have to make extensions to some of their core or they will have to replace 4 starting position players and 3 starting pitchers with free agents or prospects by 2013.

How can they address these problems going forward? From the spreadsheet, it appears that the Angels have already over extended themselves. Despite jettisoning Fuentes' $9m salary and $5.25m in dead weight from the expiration of Justin Speier's colossally bad deal, they are projected to spend $132.4m. That figure is beyond both their 2010 payroll, and what is reasonable for a team that lost $10m at a lower payroll just last year. With these levels of expenditures the Angels can expect to lose money. They can cut bait with Mike Napoli and Reggie Wiltis to save $6m this year to give them some more flexibility.

The need to extend current players and going over budget would seem to preclude adding a big FA acquisition, but I wouldn't be so sure. If the Angels add a large contract they should be able to structure it to avoid a significant hit this year and pay for it in future years where their commitment to deadweight players like Gary Mathews Jr. expire. Next year for example, if the Angels signed Cliff Lee to a 7 year $168m deal, they could pay for it almost completely with the expiring contracts of Kazmir and GMJ. I expect that the Angels could take a $10 million hit to their pocket book to remain competitive and acquire a FA, while using the length of the deal to make up for it being short in the first year.With that being said a longer contract is probably better for the Angels financial health and Cliff Lee fits that profile, since his contract will likely be 6 to 7 years. Adrian Beltre would also fit that profile since he will have a 5 year contract.

The Angels would be far better with Lee. Instead of upgrading 2 WAR to 4-4.5 WAR by moving from Macier or Callaspo to Beltre for a 2.5 total WAR improvement at 15m a year for 5 years, Cliff Lee would be an instant 7.5 WAR upgrade to the Angels as he would replace the below replacement level production (-.8 WAR) of Scott Kazmir in the starting rotation. Furthermore, the Angels really have no quality starting pitching prospects to speak of in the pipeline, so Lee wouldn't block anyone. A 7 year back loaded $168m deal would come out to an average annual value of $24m a year, and for the first year would be worth far more than the league average free agent win price of 4.5m/WAR at $3m a pop per win. Honestly, its the fiscally responsible move for them to sign Lee. They, remarkably, would be paying below market rate of free agent wins for the early years of his contract. If the Angels signed Lee it would instantly vault them ahead of the Rangers since it takes about 3 War of production from them and increases the Angels projected WAR by 8. That would mean that the A's would be unable, even if they sign Beltre, to reasonably think they could catch the Angels, since WAR to actual performance has about a 5 game margin of error.

Getting Cliff Lee is both fiscally smart and will win the division for the Angels. Its a move they need to make.