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Manny Machado’s ripple effects, Part 1: The Money

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Now that we know that Manny Machado will be joining the Padres, let’s consider the impacts that his signing will have on current and future finances.

MLB: NLDS-Atlanta Braves at Los Angeles Dodgers Jayne Kamin-Oncea-USA TODAY Sports

The San Diego Padres are in the process of signing Manny Machado to a 10-year, $300M contract. To say that this is a big deal is an understatement. #PadresTwitter was thrown into chaos and celebrations continued late into the night. Meanwhile, the Phillies and White Sox fan bases are devastated and stunned that this little po-dunk organization made such a huge move. Ink hasn’t been put to paper yet, but some of the far-reaching effects of this move are already coming into focus. In the first part of a two-article series, here are some ruminations about the impact of this signing on the finances of the Padres and the rest of the league.

Largest free agent contract in US sports history

Yes, you read that right, the San Diego Padres are at the top of this mountain. One would have expected that one of the “big market” teams like the Yankees or the Red Sox or the Dodgers or the Giants might have cut a check that big. This isn’t just the biggest free agent in team history, or even in Major League Baseball history, but all of North American sports. Perhaps this is an indication that San Diego isn’t really all that small. There’s a good chance that this record will be beat in a matter of days when Bryce Harper finally puts pen to paper, but for now, our San Diego Padres hold an unlikely title.

The Padres have signed the largest free agent contracts each of the last two offseasons

Colorado Rockies v San Diego Padres
Remember when the Eric Hosmer contract seemed big? What about the Wil Myers deal? That’s pocket change now.
Photo by Denis Poroy/Getty Images

Last year’s $144M Eric Hosmer signing was the largest free agent deal of the 2017-2018 offseason. Now the team has signed the biggest deal of the 2018-2019 offseason. This is actually the third offseason to feature a team-record-breaking deal, as Wil Myers’ extension in the 2016-2017 offseason was the organization’s biggest contract at the time. The team’s willingness to spend is supported by an unusually young roster outside of a few highly-paid veterans. That’s a testament to AJ Preller’s efforts to build the strongest farm system in all of baseball. These contract signings are a testament to ownership’s willingness to spend, which is a departure from what we’ve seen for a long, long time.

So much for “debt reduction”

It wasn’t all that long ago that we were talking about paying down loans and the escalating costs of maintaining Petco Park. When Kevin Acee took a peek into the team’s books, the story seemed to be that the Padres were about to turn a corner and that funds would be freed up for future spending. Nobody expected the spending to start right away, but here we are. I guess that debt wasn’t really all that crippling after all. This makes the timing and tone of the Acee article a bit more baffling. Was it a “red herring” to get other teams off the Padres’ trail?

Maybe Ron Fowler isn’t in charge after all

MLB: Colorado Rockies at San Diego Padres
“I said we weren’t spending that kind of money. Who authorized this? What happened to “debt reduction?”
Orlando Ramirez-USA TODAY Sports

Toward the end of last season, people were looking ahead to the free agent class for potential matches with the Padres team needs. It didn’t take much digging to see that Manny Machado checked all of the right boxes for the Padres, but would the team be willing to open up the checkbook for a mammoth contract? When team Executive Chairman Ron Fowler was questioned on the topic, he stated that the team wouldn’t engage in a bidding war over a player looking for a contract in the range of ten years and $300M. (I wish I could find an exact quote, but the guys on 1090 were playing it yesterday and Ron used those exact figures.) Here we are now, and the Padres are in the process of signing a player for exactly those dollars. It’s been noted that Padres GM AJ Preller reports to Peter Seidler, not Ron Fowler, but Fowler is the ownership representative who engages the media and the public most often. Prior to this signing, it seemed like Fowler was the captain of this ship. Now that isn’t so certain, but does it really matter? Fowler may be the man who goes on the radio, but now we know that he’s not the one calling all the shots.

Opt-out is a real possiblity

89th MLB All-Star Game, presented by Mastercard
Hmm... Dan Lozano says the Chiba Lotte Marines want to pay me $50M a year... I like ramen...
Photo by Rob Carr/Getty Images

While the exact terms of the deal haven’t been announced, several reliable sources have reported that this deal will have an opt-out clause after five years. It’s also been reported that the distribution of the $300M is essentially flat across the ten years, so this won’t be a heavily front- or back-loaded contract. Machado will be 31 in 2024 when he will make the decision whether to opt out of the second half of this deal. While this contract qualifies as a monster, when compared to adjusted values of several other mega-contracts, it’s not as monstrous as some of the deals handed out between 2001-2014 such as both Alex Rodriguez contracts or the deal that Albert Pujols is still cashing checks on. The market is so depressed right now that people are talking about a potential work stoppage before MLB and the MLBPA negotiate the next Collective Bargaining Agreement in 2023. The market may make a significant correction by then and the new CBA could change the marketplace as well. What I’m getting at is that $30M might not be worth as much when Manny has the option to leave this contract, and an even better deal might be out there for him. If that’s the case, the team will still have a steady stream of “hot talent lava” coming up through the minors, so replacing a 31-year-old Manny Machado might not be a crippling factor for a team that should be in the midst of a string of contending seasons.

Future Payroll Projections

Baseball-Reference does a great job of laying out future payroll estimates. Again, the deal hasn’t been laid out in detail, but we can add $30M to each season through at least 2024. The 2019 payroll is projected to just barely tick over $100M even after the addition of this contract. Assuming B-R’s estimations for pre-arbitration and arbitration salaries are reasonable, the Padres’ future salary projections will still remain below league average through all of the next five years except for 2022, which is projected for a payroll around $160M. The Padres aren’t a “small market team” according to data published by Forbes, where the team’s $266M annual revenue was tied for 18th, but the team’s on-field payroll has lingered in the bottom 20% since this ownership took over. That is clearly changing. With some clever bookkeeping, the team can afford the Machado contract plus more obligations while still remaining profitable for the foreseeable future.

Padres fans have to look way back at Bruce Hurst and Steve Garvey for prior examples of “big name” free agent signings, which reach back before many fans were born. There is no modern case for us to look at which compares to this deal, so as a fan base we are collectively left without context. $300,000,000.00 is a sum of money that my brain can’t perceive. For a team whose payroll has only surpassed $100M a couple of times in its history, it’s an enormous expenditure that represents one step on a path toward serious contention. This process has only begun. Ownership must continue to support the roster to make this investment reap the ultimate reward of a pennant or maybe even a ring.