What is a fair structure for a Yovani Gallardo deal?

At this point of the offseason, only one team has shown a legitimate interest in free-agent starter Yovani Gallardo. It seems fair to assume that the Baltimore Orioles are serious about signing the right-hander, accepting the loss of their first-round pick. The soon-to-be 30-year-old right-hander has the potential to be a suitable replacement for loss starter Wei-Yin Chen. Gallardo has seen a marked drop in his average fastball velocity and a corresponding drop in strikeout rate, but has still found a way to continue getting outs.

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Chen is a few months older than Gallardo and has also given up more home runs while throwing fewer innings over the past four years. He has a slightly better ERA+ than Gallardo, having pitched in a tougher league, but a worse FIP. Chen also typically fades in the second half of the season, and saw his ERA rise from 2.78 in the first half of 2015 to 4.09. He is a fly-ball pitcher who gives up nearly half a run more per game in the latter months of the season. None of this points to Chen being worth close to $100 million over six years if everything works out in his favor. Over the past four seasons, Chen has been solid, but has given no indication that something better than 3.50-3.75 ERA pitching is in his future. Chen also has a troubling GB/FB ratio of 0.64. Gallardo has posted a 0.90 GB/FB ratio, but has been over 1.00 for each of the past three seasons.

Chen’s contract with the Miami Marlins is actually interesting to consider from the Orioles’ point of view as they work towards a contract with Gallardo. Chen’s contract is essentially a two-year deal for $20.2 million with a bunch of opt-out clauses. The opt-out may be the sticking point for Gallardo and the Orioles. To date, the Orioles have had all kinds of watershed moments this offseason, handing out the first nine-figure deal in club history while also pushing payroll to unheard of territory. It may be time to embrace the opt-out clause.

If Gallardo wants the ability to opt-out after one year, as is the case with Scott Kazmir‘s deal with the Los Angeles Dodgers, the Orioles will likely refuse. Giving up a draft pick to get Gallardo will require the Orioles to get more than one guaranteed year. It’s understandable that Gallardo wants some flexibility so that he can test the free-agent waters again before he gets too old. An option after two years seems reasonable. If he is at the point where opting-out makes sense, that will be an indication that things have gone well for Gallardo and the Orioles. Make the third year a mutual option, and in an effort to sweeten the deal, tack on a performance-based incentive, bringing the possible length of the deal to four years.

A two-year deal with the possibility of two more years seems like a win-win for all parties involved. The Orioles should not agree to any type of deal that affords Gallardo the power to leave after just one season. If he pitches well for two years and elects to leave, so be it. The Orioles avoid the risks of paying him in a third year that could trend in the wrong direction. By the time two years are up, the Orioles may have managed to keep Dylan Bundy and Hunter Harvey healthy enough to pitch a full season in a big-league rotation.

A reasonable proposal would offer Gallardo a guaranteed $25 million over the next two years. The out years would have to be priced a bit higher to make the deal somewhat attractive. For the mutual option, is a reasonable assumption. The final year should be performance based. Rather than strictly basing it on an innings total, the club option should be based on a combination of ERA and innings pitched. The option would trigger with an ERA below 3.50 in at least 25 starts or automatically with 200 innings pitched, regardless of ERA. It seems unlikely that Gallardo will finish 200 innings in 2018, but if he does, that portends good things for 2019, the final year of his contract.

There you have it, a deal for up to four years with a maximum value of $55 million would be a fair deal for Yovani Gallardo and the Baltimore Orioles. Gallardo gets the flexibility he seeks, while the Orioles are able to hedge against risk in the later years of the contract. It remains a safe assumption that Gallardo will sign with the Orioles, barring some terrible MRI results, but the structure of the deal remains to be seen. This has the potential to be one of the most creative deals in Orioles’ history.

 

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