Hamels, Phillies Agree to 6-Year, $144 Million Extension

A contract extension seemed inevitable as negotiations between Cole Hamels and the Phillies picked up steam in the last week, and it finally reached a conclusion late last night at about the same time the Miami Marlins and Los Angeles Dodgers came to terms on a Hanley Ramirez trade. With a week separating the Phillies from the trading deadline, they were running out of time to decide what to do with their 28-year-old ace. In the end, though, everything went as expected: the Phillies made sure the most important part of their future will be around through at least 2018, and Hamels negotiated a contract in the C.C. Sabathia-Johan Santana-Matt Cain stratosphere.

Assuming Hamels’ contract isn’t obscenely back-loaded — we don’t know the payment distribution yet — he will become the fourth Phillie to earn $20 million or more in 2013, joining Cliff Lee ($25 million), Roy Halladay, and Ryan Howard ($20 million each). The luxury tax threshold will remain at $178 million, which means that, at an average annual value of $93 million, the Phillies will have over 50 percent of their payroll tied up to those four players. With the ability to trade any or all of Hunter Pence, Shane Victorino, Joe Blanton, and Placido Polanco, the Phillies will have plenty of holes to fill for 2013 and they’ll need to get creative trying to fit the other 21 players under the remaining $90 million or so before hitting the luxury tax.

Other than that, the Phillies should feel very good about this contract. It is true that such lengthy, expensive deals to pitchers are risky, but Hamels is about as safe a bet as you can make with a pitcher. He has a very clean injury history, with just three trips to the disabled list in his career and only one since 2008 (August 13-29, 2011; shoulder inflammation). His skill set isn’t one that will deteriorate over time as his fastball-change combination relies not on peak velocity but on the velocity differential between the two pitches. Additionally, Hamels has excellent control (career 6% walk rate) and has a naturally-suppressed BABIP (career .280).

The rate of Hamels’ deterioration will heavily influence the success or failure of this contract. At 28 years old, we assume he still has plenty of good years ahead of him, but it is clearly not a guarantee. Hamels could suffer a freak injury that abruptly ends his career, or suffer a minor one that nags at him and accelerates the rate at which he declines. No, it’s not likely, but still something that could happen and it is assumed risk when handing out lengthy, expensive contracts. Baseball Prospectus, in their ten-year forecast, projects Hamels at 3.4 WARP on average through 2017 and 2.7 in 2018. It should be noted that Hamels was worth, on average, about 3.4 WARP from 2007-11, so they don’t see him eroding very much at all over the years.

It’s easy to see why most won’t project Hamels to decline very rapidly at all. The most obvious reason is that the contract starts with his age 29 season and ends with his age 34 season. By comparison, Ryan Howard‘s five-year, $125 million deal started in his age 32 season and will end in his age 36 season. Another reason is that Hamels has been one of the most consistent pitchers in baseball going back to 2007. There are only nine other pitchers who have thrown more than Hamels’ 1,159 and two-thirds innings and 176 starts since 2007. But Hamels has also been consistently elite, posting an ERA between 2.79 and 3.39 in every season aside from his fluky-bad 2009. His xFIP has ranged from 3.02 to 3.63 and his SIERA from 3.03 to 3.66.

While at the same time being very reliable, Hamels has also made noticeable improvements. In 2010, when he added a cut fastball and improved his curve, he set a career high strikeout rate (25%). The next season, he set a career-low walk rate (5%), a career-best K/BB (4.4), and spiked his ground ball rate (52%). Who knows what tricks Hamels will pull out in the future, but we know for a fact that he is capable of evolution, which will only make his aging process even more elegant.

This contract extension is arguably the best move of GM Ruben Amaro’s career and one that will be met with near-universal praise. Phillies fans should be thrilled that Hamels will continue to don red pinstripes through at least 2018, continuing his legacy, and the Phillies will be in a prime position to attempt to compete again as soon as 2013. In a time when the Phillies are sellers for the first time since 2006, today is a very good day for the Phillies and their fans. Cole Hamels will be around for a long, long time.

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20 comments

  1. hk

    July 25, 2012 10:31 AM

    “The luxury tax threshold will remain at $178 million, which means that at a minimum of $85 million, the Phillies will have at least 48 percent of their payroll tied up to those four players.”

    I believe that the luxury tax is calculated based on AAV of contracts, which would make it $93M on the books for those four. $25M for Howard + $24M for Hamels (regardless of whether or not it is back-loaded) + $24M for Lee + $20M for Halladay.

  2. EBITDA73

    July 25, 2012 10:43 AM

    Glad to have Cole around for a while but very concerned with RAJ’s ability to rebuild/retool a contender with so many holes, no youth to plug them with and much less spending money. A task like that will require a skill level that I’m just not sure RAJ has.

  3. Bill Baer

    July 25, 2012 10:46 AM

    I’m really curious to see what they’ll do at third base. One of their potentially multiple trades in the next week should bring in a solid option at the hot corner.

  4. SABR

    July 25, 2012 10:46 AM

    hk – you are right that it is AAV, but for Howard and Cole the numbers are lower, as they signed extensions and MLB views that as one long contract. So Cole’s is actually 7/159 (6/144 and 1/15 this year), or an AAV of 22.7. And Howard is 8/179 (5/125 and 3/54) for an AAV of 22.3. Together they are 45 per year, not 49.

  5. hk

    July 25, 2012 10:52 AM

    There is also the possibility that the team will exceed the maximum and pay the tax for one year. The maximum rises to $189M in 2014, so it would be possible that they pay a lot (including the tax) to fill the holes in 2013 and stay under the tax in 2014 and beyond. I know that the tax penalties are serious for repeat payers, but not nearly as significant if you only exceed it for one year.

  6. SABR

    July 25, 2012 11:04 AM

    hk – that seems like a distinct possibility. The higher spending teams are really at a disadvantage in the new rules, given that wage inflation occurs in the market with the luxury tax level remains flat for three years at a time. The first year tax is 17.5% of any amount over 178M, while years 2,3,4+ are 30,40 and 50%. Also, another significant change to the rules is that once you go under, you get a clean slate, so going over one year is not nearly as painful as it used to be.

    Also, in case anyone is wondering the total cap hit for the “core four” of lee, halladay, hamels and howard is 87.5M per year, leaving roughly $90M for the other 21 guys in 2013 and $101M in 2014.

  7. hk

    July 25, 2012 11:12 AM

    SABR,

    Right, so if they hypothetically go to $188M in 2013, they’ll pay an additional 17.5% of the $10M by which they exceed the limit (or an additional $1.75M). Then, in 2014, if they stay at $188M, they’ll pay no tax and would start over at a lower tax rate if they exceed the limit in 2015.

  8. ChrisD

    July 25, 2012 11:40 AM

    If it’s AAV, why don’ t they pull the NHL trick of tacking on a $3 million season he’ll never really play?

  9. hk

    July 25, 2012 11:41 AM

    SABR,

    I thought that they missed the deadline for including Cole’s 2012 salary with his extension. If you are correct, does Cole’s 7/159 also increase their AAV for this year for tax purposes? If so, this extension adds nearly $8M to their tax number this year making it likely that they will exceed this year and possibly making it less likely that they’ll exceed next year (which wuold be at 30%).

  10. Ryan

    July 25, 2012 12:15 PM

    Assuming that we get someone better to start at 3rd…would you pickup Polanco’s option and use him as a super utility player for next season? Personally, I would trade Pence for help at 3rd and bring up DBrown.

    Also, how do we bolster the bullpen for next season? Rely on Stutes, Aumont, DeFratus, and/or Bastardo to step up and keep it cheap or try to pickup a veteran 8th inning guy?

  11. Phylan

    July 25, 2012 12:18 PM

    FWIW Dave Montgomery just said that they’re willing to go over the luxury tax threshold in 2013.

  12. SABR

    July 25, 2012 12:30 PM

    hk – sorry you are right, I forgot about that loophole. His AAV will be $24M and is still $15M for 2012.

  13. Phillie697

    July 25, 2012 12:40 PM

    Alright RAJ, now the ball is in your court to surprise me. One thing I have to say about RAJ is his history with trades aren’t half bad, even if his financial sense is that of a mad man.

  14. JB Allen

    July 25, 2012 12:50 PM

    Bill – I’m happy Hamels is staying, but could you explain your confidence in the Phillies’ ability to compete in 2013? Baseball Reference has Philadelphia’s 2013 Dollars Committed at $112.3, and that’s not counting Hamels’ contract. Do you think the Phillies will retool, suffer less bad luck/injuries, or both?

  15. Noah

    July 25, 2012 03:33 PM

    Third base might just be the most interesting area for them to figure out. If Polly could be had for not much I wouldn’t mind it next year at third or as a utility guy. But would be nice if they trade him and get younger. I wonder what there take on the bullpen is going to be. Scares me they are going to try to bring in a bunch of overpriced veterans that are no better than what they’ve got.

  16. NavyJoe

    July 25, 2012 05:03 PM

    Noah,

    Do you realize that Polly has been, literally, the worst offensive third baseman in all of baseball this year?

  17. Cutter

    July 26, 2012 08:01 AM

    When a team is as top-heavy as the 2013 Phillies will be, it basically comes down to this: Will their stars play to the level of their salaries?

    We saw what can happen in 2011 when the answer to that question is yes. And unfortunately, 2012 has shown us what happens when that answer is no.

    If Halladay, Lee, Hamels, Howard, Utley, Rollins, and Papelbon play to their capabilities, the Phillies should be a playoff team in 2013.

    If several of those guys get injured again or have disappointing years, then we may get a repeat of 2012.

    Unfortunately, those guys – aside from Hamels – are all older players who have suffered injuries in recent seasons.

  18. Noah

    July 26, 2012 08:40 AM

    @NavyJoe I realize he’s not an offensive juggernaut but he is still very good on defense. I’d only advocate it if he could be had cheaply and ideally as a utility guy not the everyday third baseman.

  19. Ryne Duren

    July 28, 2012 09:19 AM

    they should have traded him to the orioles the minute they inquired about him! they could have brought up an inexperienced AA player ( cody asche) to play! i don’t know how good defensively he is, but i’m assuming that if he’s at least slightly above ave. he definately couldn’t be any worse with the bat! i mean my god freddie was supposed to be a no hit guy and he still has more ribbies than polanco and how long has he been out? over a month? what’s that tell ya. and even rollins only has about 10 RBI more than freddie! so between rollins and poly the offense on the left side has got to be one of the reasons we are where we are! not the only reason for sure but a big contributing factor. a solid pen piece and some more production from 3rd and SS and we might not be where we are. left field also.

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