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Diamondbacks Cutting Payroll

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Mike Hazen has a precarious balancing act to pull off

YEMEN-ART-STREET-PERFORMANCE Photo by MOHAMMED HUWAIS/AFP via Getty Images

During Monday’s media session I asked Diamondbacks General Manager Mike Hazen a very direct question. In lieu of lost revenues due to the Pandemic, and the cost cutting moves he just made, is it fair to speculate that 2021 Payroll would likely be significantly lower than the $120+ million they were slated to pay out entering the 2020 season. He wasn’t having it, tersely responding:

I understand your question. I’m not in a position to speculate on that right now. We haven’t had those types of discussions. That comes at the end of the season.

It strains credibility to believe those types of discussions haven’t been had. We know for a fact that this team, like all the others, have suffered great losses in 2020, and project to have greatly reduced revenue in 2021 compared to 2019 as well.

It was reported in Sportico that

“the Arizona Diamondbacks said they stand to lose $100 million, (in 2020) plus $30–$50 million in 2021, even if they can eventually play in front of fans.”

Based on the moves made today, and the obvious impacts of the Pandemic, I’m going to try to work through what all this means. For the tl;dr crowd I will give the spoiler right here. As things stand today, I believe Hazen currently has less than $10M to work with during the upcoming off season. Which means more cost cutting moves could be on the horizon.

Disclaimer: This is a snapshot in time. Where they are today. New information, new circumstance could arise that will change this. But this is what it looks like today.

The rest of this article is how I arrived at this estimate.

ESTIMATING PAYROLL BUDGET

Forbes Magazine estimated that in 2019 the Diamondbacks had revenues of $278 million and an operating income of $27M. (earnings before interest, taxes, depreciation and amortization) Yes, the Forbes numbers are very rough estimates, that MLB clubs always disavow as being too high. But whenever a franchise is sold, it sells for at least as much and often more than the franchise values Forbes come up with. So they have to be somewhere in the ballpark.

If the Diamondbacks expect to lose $30-50M in 2021, that means they expect revenue to be $60-80M lower than 2019.

From tracking over the years, we know that Ken Kendrick owned teams have spent an average of 51% of revenue on player expenses , (with a range of 44% to 59%). Note player expenses here is referred to as payroll plus benefits. Benefits are estimated at $15M.

Based on this information, a simple estimate of what future payroll budget may look like then is this:

2021 Revenue = $200 to $220M x 50%. = $100M to $110M Projected Player expenses.

But we must reduce that by the 15M for benefits to get to PAYROLL budget projection of $85M to $95M

ESTIMATING 2021 COMMITMENTS

In 2021 Payroll expenses currently sit at $88M, without picking up Junior Guerra and Hector Rondon’s options. It drops to $83M if they don’t pick up Stephen Vogt’s and Merrill Kelly’s either.

In 2022 they currently sit at $81M, or $70M if they decline options on Kole Calhoun and Kelly.

Notes to review as you view the table below. If anything doesn’t look right to you, let me know in the comments and we’ll figure it out together.

  • This is based on a 26 man opening day roster
  • Many of the names you see are pre arb player “place holders”. It could very well be very different names that end up in those slots. Don’t focus on the name. Focus on the status. For purposes here, the status and therefore the dollar amount is what matters. If the team decided to promote Stuart Fairchild to replace Josh Rojas, it’s still a Pre Arb player making league minimum. If Taylor Clarke (Or Corbin Martin) is in the rotation and Caleb Smith is in the pen It doesn’t change the payroll estimate.
  • Signing bonuses are paid on a prorated basis. If some of the guys on contracts have numbers here that show up differently than you see on other websites, it’s because I am showing the prorated bonus money due within that season. This is the correct way to show it
  • I know that some of Madison Bumgarner’s salary is deferred, but that money must be funded separately so I include the full amount without deferral.
  • Option buyout is calculated as part of the payroll for the year being bought out for competitive balance tax , but the money is actually paid before the end of the previous season. So for example, if Hector Rondon’s 2021 option is not picked up, the $500K buyout would be paid to him at end of 2020, but the $500K goes into 2021 payroll ledger.
  • Speaking of options, I made the decision to assume that both Rondon’s ($4M) and Junior Guerra’s ($3.5M) options will not be picked up and they’ll be bought out. Neither has looked good enough to justify spending that money in this environment. It would be a big surprise if they did.
  • I show the possibility of Stephen Vogt and Merrill Kelly being bought out separately, just as a possible cost cutting option. Obviously there is uncertainty with Kelly’s injury. When you do this calculation you deduct their salary but need to add back in not only the option buyout, but also need to add back at least a league minimum salary to take that roster spot.
  • I include $2M budgeting for “replacement players” . This is for pro rated league minimum wages for players that are periodically called up and sent down to replace players that go on the IL. Every team must account for this in their planning.
  • The money paid to Houston for Zack Greinke must be accounted for.

POSITION PLAYER SALARY

PITCHER SALARY

BOTTOM LINE

SUMMARY:

With estimated minimum commitments of $83-88 M, and an estimated budget of $85-95 M the problem becomes obvious.

Either Ken Kendrick is going to need to provide Mike Hazen with payroll budget upwards of 57-60% of revenues, which he almost never does, or Mike Hazen is going to need to cut additional costs or make it work with pretty much what he has in the way of prospects and pre arb players.

My guess is they’ll stretch a little bit, and he’ll get some wiggle room around the edges. But I don’t expect a payroll over $100M in 2021, and don’t expect any big moves to trade for or sign any players requiring more than a few million in salary.

It seems clear 2021 is a rebuilding year. They’ll never call it that, or admit to it, but that’s what it’s going to be. The good news is by 2022 they have some flexibility, and hopefully the team’s revenues will have rebounded along with the rest of the country’s. The 2022 free agent class has a lot of really good players, and they should be able to partake. At the same time some of our better prospects should just be arriving at the MLB level, or coming off cups of coffee from the 2021 season.

So we’ll have to suck it up for the rest of this year and likely next year as well. We’ll need to trust in Hazen and his baseball ops team to get the ball rolling by 2022. Insert fingers crossed emoji here.