The Padres Must Sign Luis Robert (Part 2) – The Financials Behind The Imperative

Robert

Yesterday, I discussed just why the Padres would want a player like Luis Robert.  He’s young, he’s good, and he’s the kind of potential impact player small market teams need to take chances on to succeed.  Let’s move on to why dollars and cents are not an excuse for failing to sign Robert.

The Financial Argument for Signing Luis Robert

Let’s start with a quote from Dennis Lin:

Sources indicate that the Padres, having already committed $80 million, may be approaching their limit

First off, rest assured that the “source” is an executive in the Padres front office if not Ron Fowler himself.  This quote is a nearly direct rejection of the Padres signing Robert.  It’s also based on the heavily marketed belief that the Padres “opened up their wallets” to spend the $80M on international prospects, as if it was over and above their maximal Major League payroll.  Before we really dig in, let me preface this by saying that the Padres ownership is spending.  They are spending up to what their revenues show they should spend on player payroll and acquisition and still making a tidy profit.  Not above it, but up to what revenue supports.  So far, even during the rebuild, they are spending what is saved on Major League payroll on amateur talent.  That is more than we could say for Jeff Moorad’s “rebuild” where he just pocketed the massive profits that a $40M payroll brought with it.  So credit where it’s due, but as we’ll see, the money is there to not let their foot off the pedal.

Just some background on the Padres’ financials: according to Forbes, the Padres earned an operating income of $22M even though their total player acquisition/payroll costs were $143M ($90M MLB payroll, $40M intl bonuses, $13M amateur draft bonuses).  The team was still profitable even AFTER all of the international signings in 2016.  While the ownership group should be applauded for spending roughly what they should given revenues, the notion that they somehow “opened their wallets” is false.  This is the level of spending that fans should expect and that revenues support.

The common misconception is that the Padres ownership spent $80M on international players as an additional expense on top of a full Major League payroll.  This wasn’t the case.  After selling off a few salaries last season (Cashner’s primarily), I calculated what the team ACTUALLY paid out in salary last season.  The Padres paid $90.3M in Major League salary in 2016.  The international signing costs are split into bonus and penalty (the team incurs a 100% penalty for bonuses exceeding their allotted bonus pool).  The penalty isn’t paid until the close of the J2 signing period, which is June 2017.  The bonuses are incurred at the time of signing.  So accounting-wise, the international signing bonuses were incurred primarily in 2016, and are included in the total Forbes player expense of $143M.  In 2017, total MLB player payroll including dead money to former players is $69M.  Even if you decrement 10% of revenue for the inevitable attendance decrease from being a terrible team, that leaves roughly $23M available to spend on international (until June 15 when this J2 period ends), after allotting $40M to 2016/2017 international signing penalties, $12M to the 2017 amateur draft bonus pool, and $6M to the hard capped 2017 international bonus pool.

In 2018, the Padres have an even better payroll situation after Melvin Upton’s $16.5M salary falls off the books.  The Padres are projected to field, after arbitration and even assuming resigning their three $3M per year veteran starters, an MLB payroll of $50M.  Add in $15M for the assumed tank-worthy #1 overall draft pick and $6M for the hard capped 2018 international bonus pool and maintaining steady revenues to the 2017 down year and you’ve got roughly $79M to spend up to their break-even point.  In case you’re wondering 2019 looks even better as Shields’ $11M per year falls off the books, but for the purposes of this, we won’t even dip into that years’ possible massive profits.

So where does that leave us in regards to Luis Robert?  Rumors are that initial offers for Robert were in the $10M range, with an additional $10M in penalties.  Even if the bidding doubled this to $20M bonus and $20M penalty, the Padres have $23M in money available to spend and still break even in 2017.  To cover the penalty, the Padres have $79M to allot to it in 2018.  If we’re really being crazy, if bidding got particularly heated, the Padres have the ability to float the money in 2017 and repay themselves out of the massive 2018 windfall (not to mention a potentially even bigger 2019 windfall).

In the end, the notion that Dennis Lin floated that the Padres are tapped out is just false when you consider the current and future profit windfall that tanking has given ownership.  As noted in Part 1, Robert is a rare talent that, other than Otani, is the best international player available.  If there is an excuse for a possible failure to sign Robert, it’s not financial.  If anything, given where payroll is and will be in foreseeable future, the Padres may be the best positioned financially to splurge on Robert and close out the most successful J2 signing period in history.

In Part 3 tomorrow, the final chapter, I’ll dig into the strategic reasons that the Padres MUST sign Luis Robert.

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One response to “The Padres Must Sign Luis Robert (Part 2) – The Financials Behind The Imperative

  1. Pingback: This Week in Padres Twitter – 5/19/17 | Gwynntelligence·

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