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Building the Framework of a Lucas Giolito Extension

by Jordan Lazowski

In recent offseasons, the White Sox have locked up Tim Anderson, Eloy Jimenez, Luis Robert, Aaron Bummer, and Yoan Moncada to long-term deals that bought out their rookie contracts and set the White Sox on the track towards sustained success in a prolonged window. Because of what has clearly become the M.O. of the front office, fans have naturally started to ask whose extension might come next? The natural answer: Lucas Giolito. But what would that deal look like?

Giolito has previously stated no desire to sign a long-term contract, stating if he does his job, the money will “figure itself out.” That doesn’t mean his opinion won’t change heading into the 2021 season with a lockout looming and the thought of guaranteed money looking ever more attractive to the 26-year-old ace of the staff.

We will start with a general overview of contract structure, why extensions for young players have become prominent, and look at some of the deals that might serve as the framework for a potential Giolito deal before I propose one of my own.

With that, let’s begin.

A Primer on Contracts

Just to make sure we are all working with the same framework here – here’s how a rookie contract in MLB works. MLB players are eligible for free agency after accruing six full years of service time. Typically, those six years are broken down into three pre-arbitration years, in which a player makes around league minimum, and three arbitration years, in which players and the team can negotiate salaries based on the salaries of comparable players with comparable contracts. For reference, Giolito (as shown below) is heading into his first of three arbitration years and will be a free agent after the 2023 season (the salary below is a projection).

In explaining the structure of a contract, you can see the two types of “manipulations” of service time many teams participate in. The first is your classic “service time manipulation.” Because players only need to be on the roster for 172 of the 183 days of an MLB season to accrue a year of service, teams will often wait until after the date at which the maximum amount of days a player can accrue in their first season is 171. By doing so, the team ensures that the player reaches the threshold for free agency one season later in their career, essentially “gaining” a year of team control. Here’s a visual for this:

As you can see, both Player A and B essentially spent the same amount of time in the majors. However, because Player A spent one less day in the majors than the required number to gain a full year of service, his team has one more year of control until he eclipses that 6-year mark. This is why you will see teams wait until a couple of weeks into the season to bring up their top prospects – this became most notable (and most egregious) in the Kris Bryant case. In fact, Bryant is Player A in the example above.

The second form of manipulation is far more difficult to mess with – the Super Two cutoff. A Super Two player is a player who has more than two but fewer than three years of MLB service time but ranks in the top 22 percent of service time. These players are pooled with players who are arbitration-eligible even with less than three years of service time, thus accelerating the player’s arbitration clock and giving him an extra year of arbitration (and one less year of making league minimum). This is harder to manipulate because it would require a couple of years of foresight as to what the cutoff for the top 22 percent of service time days might be. However, if teams are willing to wait until mid-June or early-July on some of their top prospects instead of just two weeks at the beginning of the season, they can accomplish this – it’s certainly not an impossible feat.

Why is all of this important? Because arbitration years and the number of years left of team control are incredibly important when considering extensions for players on rookie contracts. These contract extensions are meant to buy out the remainder of a player’s rookie contract, and perhaps a year or two of free agency. By signing this deal, the player likely makes more than he would in arbitration, but less than he would on the open market in free agency. However, given that the contract is guaranteed, the player is free from the worries of regression/injury/poor performance that would cost him financially in arbitration and free agency. It’s a fail-safe of sorts for a player that allows the team more control over their guys.

Now, enough about the structure of contracts. It’s time to look at the precedent that has been set that could help create the framework for a discussion this offseason between Lucas Giolito and the White Sox

Blake Snell: 5 Years/$50M

Breakdown: $1M ($3M Signing Bonus) / $7M / $10.5M / $12.5M / $16M

Coming off of his 2018 Cy Young Award-winning campaign, Blake Snell was none too happy about his $16K pay raise heading into the final season of his pre-arbitration rookie contract. He also made this well-known in the media. Not-too-surprisingly, Snell and the Rays would soon agree upon a 5 year/$50M deal that bought out his final pre-arbitration season, all three arbitration years, and one year of free agency. So, through this extension, the Rays gained one year of control on Snell. This deal was signed heading into his age-26 season (2019) and was incentive-laden (could earn an additional $2M based on top 3 Cy Young Award finishes).

When comparing Snell to Giolito at this point in their career, Snell’s resume was just a bit stronger due to his Cy Young Award win – though we as fans might not always value these things, they are a crucial part of the arbitration process. Additionally, Snell had one additional year of team control compared to Giolito’s current contract. Finally, because of Snell’s understandable public displeasure at being paid at league minimum as the reigning Cy Young, this added pressure to the Rays to get the deal done.

So, not a perfect fit, but the precedent is still clear: use these extensions to buy out one year of free agency and the remainder of the rookie contract.

Luis Severino: 4 Years/$40M

Breakdown: $4M ($2M Bonus) / $10M / $10.25M / $11M / $15M Club Option

Severino’s extension was announced on the same day that he and the Yankees were prepared to have an arbitration hearing – not a coincidence at all. Severino was a Super Two case as described above, meaning his deal bought out four years of team control – all arbitration years – with the potential fifth-year option (or $2.75M buyout) that would buy out a year of Severino’s free agency. Severino’s deal was reached heading into his age-25 season after two consecutive top 10 Cy Young Award finishes (3rd and 9th).

Severino and Giolito are also pretty close comparison points for a contract extension in terms of the numbers they posted:

Slight edge goes to Severino in ERA, ERA+, BB%, and K/BB. Giolito gets the edge in K%, OPS, and wOBA. The difference in Giolito and Severino – and why it’s not as good a match as others – is the age and contract status. Severino was a year younger than Giolito at the time of signing his contract, and although Severino was also entering his first year of arbitration, he had four years of team control remaining (Giolito only has three). So far, the contract has largely favored Severino – he has missed the last two seasons due to Tommy John Surgery. Because the contracts are guaranteed, he makes more money than he typically would have if he entered arbitration while injured. Severino’s case is a good one in favor of players signing long-term contracts.

But, yet again, despite not being a perfect match, precedent is displayed: approximately $10M in AAV (Average Annual Value) seems to be a good benchmark for players with historical success.

German Marquez: 5 Years/$43M

Breakdown: $1M ($1.5M Bonus) / $4.5M / $7.5M / $11M / $15M / $16M Club Option

German Marquez signed his contract extension after the 2019 season had already begun. With the resume of a 5th Place Rookie of the Year season and a more impressive sophomore campaign, Marquez established himself as one of the best young starters in the game. As a result, he earned this extension that bought out one year of pre-arbitration, three years of arbitration-eligibility, and one year of free agency. In the contract is a clause that turns the Club Option into a Mutual Option if Marquez were to finish top 3 in Cy Young voting twice during the tenure of his contract – a clause that gives Marquez more control heading into the end of his contract with at least a $2.5M buyout guaranteed. His contract was largely shaped by Blake Snell’s extension that we discussed above.

The $43MM figure promised to Marquez is the second-largest guarantee ever received by an arbitration-eligible pitcher with between two and three years of MLB service time. Where Giolito and Marquez differ is a bit clearer here – Marquez was entering just his age-24 season when he signed the contract, allowing for a longer contract for a bit cheaper than $10M in AAV due to his relative youth and inexperience.

But still, precedent is followed AND set here: the five-year deal came from Snell. The less than $10M AAV is made up for with incentives in the option attached to the deal. So, if you can’t guarantee $10M AAV, make sure the incentives make up the small difference – and then some.

With these contracts discussed above, we start to see the framework for what a Giolito extension might look like. None of them are that perfect of a match, but they provide precedent and recent examples that both Giolito and the Sox should walk into any negotiation knowing about. Now, to get to the main event: the closest model for a Giolito extension.

Aaron Nola: 4 Years/$45M

Breakdown: $4M ($2M Bonus) / $8M / $11.75M / $15M / $16M Club Option

Aaron Nola is the closest comparison point to a potential Lucas Giolito contract extension. A former top draft pick, Nola had put up back-to-back campaigns in 2017 and 2018 in which he ranked top 10 in fWAR for pitchers while garnering Cy Young votes in 2018. After 2018, with three years left on his rookie contract and heading into his age-26 season, Aaron Nola and the Phillies inked a 4 year/$45M extension that bought out the final 3 years (arbitration years) of Nola’s contract, as well as one year of free agency. So far, the verdict on this one is positive for Nola, a player who regressed a bit in his 2019 campaign but returned to form in 2020 without losing any salary in arbitration. Another point in favor of players signing these extensions.

Lucas Giolito, on the other hand, also currently has three years left on his rookie contract and will enter his age-26 season in 2021. We all know the story of Giolito: from the worst starter in baseball to a premier pitcher in 2019 and 2020. He garnered Cy Young votes in 2019 – and perhaps might get a few in 2020 – while ranking 10th in pitcher fWAR in 2019 and T-12th in 2020 (just 0.1 fWAR behind another top 10 finish).

If these resumes sound incredibly familiar, it’s because they are. Additionally, compare Nola’s full seasons before his extensions – 2017 and 2018 – with Giolito’s two comeback campaigns when he certainly became a different pitcher, and the similarities continue:

I mean, when you look at some of these results, the similarities are striking. Note that I only chose stats that didn’t need to be extrapolated over 162 games – which is why WAR is not included except in the narrative above.

Long story short, though I walked through some other case studies before arriving at my final conclusion, I think that given the fact that Giolito is in the exact same spot that Nola was – with strikingly similar numbers – when Nola signed his extension, Nola is the best representative of a comparison point for any potential Giolito extension talks. Former top prospects and draft picks who had seen their share of success through their pre-arbitration years and were worthy of extensions that would buy out one year on the open market at least. Same age, same contract status, similar numbers; indeed, a pretty easy framework to build with.

The Giolito Proposal: 4 Years/$48M

Breakdown: $4.5M ($2M Bonus) / $9M / $12M / $16M / $18M Club Option

I’ve armed both Giolito and the White Sox here with information about the precedent set for these types of contract extensions. Though it has been about two years since some of these deals were signed, Giolito and the White Sox would both likely look at these contracts as a starting point and potential resolution point. Though I’d be willing to go higher if necessary, I think the 4 year/$48M deal outlined above is exactly what the Sox should be looking at.

Given that it will be just over two years since the Nola extension, it’s natural to expect that the framework can remain the same with Giolito. Additionally, given that their contract statuses were exactly the same at this point, buying out all of Giolito’s arbitration years – especially one as uncertain as this season as detailed by MLB Trade Rumors – I think Giolito would appreciate the security of a solid return in 2021. I mean, projections of Giolito are anywhere from $2.5-$5.3M, so offering him a total of $6.5M this year would be attractive for him. The $18M club option in 2025 will likely bear resemblance to the Qualifying Offer value for that season as well, seeing as I have a hard time believing it will ever go much higher than the $18.9M it is currently at. And, again, with a potential lockout looming after 2021, guaranteed money is a good thing.

Additionally, this contract makes Giolito the highest earner in terms of AAV ($12M) while also giving him the largest Club Option of all the other extensions. Pitching certainly hasn’t gotten easier in the past two years, and Giolito’s success should have him earning more than those who signed extensions before him. However, his track record is so strikingly similar to other negotiated extensions that it’s pretty hard for me to deviate far from the model that’s already been established. I would be willing to go as high as 4 years/$52M for Giolito in this current framework; if an additional $4M is all it takes, sign me up. However, this framework is so well-established that I have a hard time believing a deal would be strikingly different from the above.

Now, the question remains: is it fair? Would Giolito accept it? I don’t know. I think he knows his worth, and more importantly, knows how unsure the arbitration market can be. But if you’re thinking of fairness from a mathematical standpoint, Tom Tango outlines his research that shows in recent years, players typically get 25%/40%/60% of their market value in their three arbitration years. If you take Fangraphs’ assumption that each full win above replacement is theoretically worth $8M on the open market, and assume Giolito continues to project at a 5-WAR pitcher (as Fangraphs’ ZiPS has done for 2021 and 2022 at least), Giolito’s theoretical contract would look something like 4 years/$78M with the following structure: $10M / $16M / $24M / $24M / $25M Club Option ($4M Buyout). Now, I doubt Giolito makes those types of numbers in arbitration – players typically do not make THAT much money in those negotiations. But that just serves to show that the arbitration system isn’t exactly fair to players when you consider their true market value, and especially how much of a bargain signing Giolito to an extension could be for the White Sox.

Again, it all comes back to the risk-reward that each party is willing to assume. The Sox have done so in the past with pitchers such as Buehrle, Sale, and Quintana – and have done so with similar contract lengths. An extension of this sort is not out of the ordinary for the Sox. Giolito considers himself part of the Sox’ long-term core, and the security of this will no doubt be attractive.

With the White Sox looking to extend their contention window as far as possible, locking down young arms will be just as important as young bats for the White Sox. Lucas Giolito is the only arm thus far that has really established himself at the major league level, and he should be rewarded for this. At the same time, this deal gives the team the flexibility to pursue the necessary reinforcements behind Giolito to bring the White Sox to the next level.

So, here you are, Rick Hahn and Lucas Giolito. Glad I could help. Lucas, I look forward to seeing you on the South Side for a long time. If either of you need help negotiating this deal, feel free to give me a call.

Thoughts? Comments? Have your own extension ideas? Let me know! @jlazowski14

Featured Photo: Brandon Anderson (@b_son4) / Twitter

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