Under different circumstances, in a past decade, the Royals’ decision to shed payroll this winter would likely be viewed with skepticism and derision. It still might, of course, at least to some degree, but Royals general manager Dayton Moore sees the tactic as less of a cost-cutting maneuver and more of a crucial first step in what will be a wholesale rebuild of the team’s major-league roster.
The Royals are under no directive from ownership to slash payroll, Moore says. They do, however, see a leaner budget as making sense in the present as they attempt to build for the future.
“I’d like to scale back as much as we could,” Moore said this week at the Walt Disney World Swan and Dolphin Resort. “(We’ll) give young players a chance. Be flexible. Have some flexibility to do some things as they present themselves.”
So, yes, one year after the Royals’ payroll approached a club-record $150 million, club officials arrived at this week’s winter meetings with more than $115 million in salary commitments for 2018 and a strong desire to pare down. The mission to subtract could manifest itself in a number of different moves. It also comes with the club still publicly pursuing free agent Eric Hosmer, a first baseman who could command a contract worth more than $100 million.
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Moore has described the desire to re-sign Hosmer as an exception — “(It’s) different because he’s our player,” he said — but as incongruous and inconsistent as the pursuit appears to be, it offers just one piece of the financial puzzle this winter.
Here are some others: In an effort to gain flexibility, the club will seek to unload the remaining contracts of pitchers Jason Hammel and Joakim Soria — though they could elect to hold onto them and move them before the trade deadline next summer. Hammel is owed $9 million in 2018 and a $2 million buyout on a mutual option in 2019, while Soria is guaranteed a total of $10 million over the same span. The remaining money will likely depress the trade value for each player down to nothing, industry sources indicated, yet the Royals are motivated to move some of the money owed.
In addition, the club is listening to offers for reliever Kelvin Herrera, who is projected to make $8.3 million in arbitration and could net value in return, and starting pitcher Danny Duffy, who will make $14 million this season and is owed $60 million across the next four seasons.
The desire to move Duffy, of course, would not be based on the need to cut salary. The club is simply exploring the possibility as a way to infuse young talent into a thin minor-league system and kick-start another rebuilding process.
As he sat inside his suite on Wednesday afternoon, Moore said he also continued to receive interest in second baseman Whit Merrifield and reliever Scott Alexander. Both players remain cheap and under club control for five seasons, so moving them would not save money. Yet the contract status of each player increases their value in the trade market, and with the Royals facing three to four seasons of rebuilding (translation: losing), they might not fit into the future. That could compel the club to move them now for younger prospects.
But whatever happens, the Royals will likely be stuck with two expensive contracts that will be difficult — if not impossible — to move. Left fielder Alex Gordon, 33, is due $40 million across the next two seasons — not including a $4 million buyout in 2020 — on a back-loaded four-year, $72 million deal. Ian Kennedy, 32, is guaranteed $49 million through 2020. Both contracts were signed before the 2016 season, as the franchise chased another World Series championship. Yet as the club’s payroll ballooned to record highs in 2016 and 2017, the Royals managed just 81 and 80 wins. respectively.
“We have really extended ourselves over the last couple of years with regards to our payroll,” Moore said. “And it hasn’t paid the expected dividends.”
As the winter meetings began on Monday, Moore indicated that the Royals spent $65 million over budget in the last two seasons. The larger payrolls were subsidized by ownership, he said. The trend could not continue, especially as a number of key players reached free agency and the Royals missed the playoffs for a second season.
Club officials have described the Royals’ annual “break-even” point in payroll, based on 2 million in attendance, as close to $115 million. The team has averaged close to 2.5 million fans the last three years, not including the playoffs.
While the Royals’ financials are not publicly available, the club has gained more than $850 million in franchise value since David Glass bought the team for $96 million in 2000. The team was valued as worth $950 million in 2017, according to Forbes Magazine.
While major-league payroll will decline sharply, the Royals will also see increased spending in the draft and international market this year. Major League Baseball caps draft spending by giving teams allotted pools based on where they pick. But the Royals could have five picks in the top 50 this year and spend $12 to $15 million in draft signing bonuses. They spent just $7 million last year, Moore said. The club will also have more than $5 million to spend on international signing bonuses.
For now, Moore says, this is the plan this winter: The club will seek to gain financial flexibility as it enters a new era in 2018. It will conserve resources for the future, he said. It will eschew any significant additions — outside of Hosmer — and focus on modest, short-term signings with little risk.
It could also potentially receive another financial boost when the club’s current under-market television deal expires in 2019. The deal is currently the lowest in Major League Baseball, and negotiations will continue across the next two years. The club’s record-breaking ratings could dwindle if the product on the field suffers as expected. Yet club officials believe the value of the next television contract will ultimately hinge on Kansas City’s market size and its number of televisions — not the ratings.
At some point, Moore said, the Royals will be in position to spend at the levels they did in 2016 and 2017. But for now, they will take a different approach as a rebuild begins.
“One of the things that oftentimes gets overlooked is Mr. Glass is not telling us that we have to move contracts for the purpose of getting our payroll under control,” Moore said. “He expects us to make good baseball deals — the best that we can with every move that we make.”