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I'm All That And A Dime Sack, Where the Paper At? - Breaking Down the Romero Deal

As has been discussed, the Jays signed former 5 6th overall pick Ricky Romero to a contract extension.
Under the deal, Romero will receive a $1.25 m signing bonus, a very modest salary increase next season ($750,000), $5 million in 2012, which would've been his first year of arbitration, and $7.5 m annually between 2013 and 2015, which includes his final two arbitration-eligible and his first free-agent seasons.  The club option is a $13 million dollar team option with a $600,000 buyout. 

Romero's deal represents both the largest ever for a pitcher with under two years of service (though Romero is only about 6 weeks short of two full seasons) and matches Yovani Gallardo's deal for the largest deal for a hurler with under three years service time. 

While the deal isn't a bank-breaker, there's no question it is a significant investment for a team like the Jays.  But is it a good investment? After all, the Jays had Romero under contract for the league minimum next season and then three more years at arbitration-level salary, which is considerably less than market value.  Especially given the inherent risk in young pitchers, would they have been better off riding it out and taking Ricky year to year?

The general rule for arbitration is that players get 40% of their market value in the first year, 60% in the second year, and 80% in the final year.  Let's assume Romero does not improve at all but also does not regress (something of a conservative assumption as Ricky is only 25 and has improved already this season but there is always a risk of regression) and so puts up numbers consistent with the average of his 2009 and this season.  That puts his market value at $13 m/season or so.  So we're looking at $5.2 m for Romero's first season in arbitration (which offsets the modest 2010 raise), $7.8 in 2013, and $10.4 in his final arbitration season.  Therefore, just based on the arbitration years, we're looking at a likely win for the Jays overall, even given the signing bonus. 

Then you have the first free agent season.  That's obviously a huge win for the Jays - they're paying him $7.5 m for a season in which he would otherwise be earning market value.  Not only that, but you'd never get just the first free agent season for a player like Ricky without a long-term deal, at any price.  So it's not only the fact that he's earning far less than market value that season, but it's also the fact that the Jays have access to a pitcher of Ricky's caliber for his first free-agent season at all, a season that will be right in the middle of his prime and will come without a long-term commitment that he would surely get on the open market. Then you have the club option at $13 m (a good hint that the Jays value Ricky at the same level that I'm valuing him for purposes of this analysis) which the Jays can take or inexpensively buy out.  All in all, this deal has the potential to save the Jays considerable money over the next several seasons and also retains Romero for a free agent season in which the Jays plan to contend. 

Now, of course, there are the ever-present two risks - regression and injury.  Let's look at regression first.  I have to admit, I don't necessarily expect low 3 ERAs for Ricky for the next 5 seasons in the AL East.  The margin for error is just too small and even great pitchers have blips.  But all in all, I don't think a significant long-term regression is likely to occur.  Romero has cut his walk rate considerably this season while improving his K rate significantly.  His home runs are a little lower than you'd expect, but all in all his ERA is right in line with his xFIP and actually a little higher than his FIP (due to the HR rate).  He's done all this while maintaining excellent ground ball rates.  Ricky's changeup, which was his main weapon last season, has actually taken a bit of a back seat this season to his other excellent pitches, and Romero has the huge advantage of having many above-average pitches that he can control.  His fastball, curve, change, and slider are all significant net pluses for him this season, which is a great sign for him going forward.  He is missing bats consistently and when hitters are making contact, he's keeping it on the ground.  Although Rosenthal notes that his record against the Red Sox and the Yankees isn't as good as against the rest of the league, it's hard to be too concerned about that.  Even if Ricky does regress a bit in terms of his ability to miss bats, his groundball tendencies coupled with the Jays' defense-first focus will soften that blow.

Next is injury, and definitely there's always a risk with a young pitcher.  However, with Romero there's less reason to be concerned than most.  His mechanics are generally solid and his release point is consistent.  He relies more on the change than on a slider or a cutter or curve, which reduces overall wear and tear on his arm.  And he's already thrown 180 innings in a season and is poised to surpass that handily this year.  Now there's always a risk that he misses considerable time due to injury, but the risk is perhaps less than most (certainly no more than most) and the Jays have a value cushion built into the deal that would soften that blow.  The only real reason to oppose the deal based on injury concern would force you to basically oppose any deal to a young pitcher under team control, which just isn't tenable, financially or otherwise, for a team in the Jays' situation. 

If you like, you can look around the league and probably the best comp for Romero's deal is Jon Lester, who essentially has the exact same deal and got it at basically the exact same time in his career (after about two full seasons, though Lester was a bit younger as he had only just turned 25 and Ricky turned 25 in November).  Romero hasn't had a 144 ERA+ season like Lester did the season before he signed his deal, but Romero has had two more or less full seasons while Lester just had the one, and Ricky's peripherals this year are better than Lester's were in 2008.  That Lester has been fantastic since signing his deal argues in favour of the Romero deal, not the other way around.

The Jays drafted Romero 5th overall and have always been invested in him.  The East L.A. native isn't flashy in the least but has a fantastic makeup and is reportedly a very hard worker and great teammate.  On days when neither is pitching, you will typically see him in the dugout next to Shaun Marcum and the two appear to go back and forth between joking around and carefully analyzing the at-bats.  Romero is already a leader of the Jays' young staff and obviously this deal will cement his place as a cornerstone of the pitching staff going forward.  It's hard to imagine the Jays trading Romero, but if they decide to go in that direction due to their wealth of young pitching, this deal and his proven success would make Romero an extremely attractive trade chip.  It's not a steal (and I'm not sure that would be a good thing anyway) but this is a very solid deal for both Ricky and the Jays.  Congrats to the East LA kid on making good, and congrats to AA for another smart deal. 

The title is from Notorious BIG's "Gimme the Loot," and no, the irony of using a Biggie song to talk about a kid from LA is not lost on me.