Giant's Post-Bonds Era Preparation: The Lowdown

With all the injuries and slumps this season that has forced the San Francisco Giants to use Neifi Perez, Ruben Rivera, and Pedro Feliz much more often than fans would have preferred and has pushed the bullpen to the brink of xhaustion, Giants fans have been wondering what the Giants can do to improve things. However, the official line from Giants management is that the budget is maxed out, even for mid-season deals. Their budget situation and potential free agents are examined in this article.

With all the injuries and slumps this season that has forced the San Francisco Giants to use Neifi Perez, Ruben Rivera, and Pedro Feliz much more often than fans would have preferred and has pushed the bullpen to the brink of exhaustion, Giants fans have been wondering what the Giants can do to improve things. However, the official line from Giants management is that the budget is maxed out, even for mid-season deals.

That brought me to the uncomfortable question of what happens to our roster when the Giant's long term contracted players get big raises next season. In fact, ESPN recently reported in a Peter Gammons column a couple of months ago that the Giants had 12 players signed for $77M in 2004, just $3M away from this year's official budget figure. Not even enough for a K-Mart Blue Light special or AARP-eligible superstar.

To examine the question of what the San Francisco Giant's payroll will be, I tapped a number of great resources. There is the well-known MLB contract database that, ironically, is on a server based in the U.K. Another great source is ESPN. It posts salaries for the whole team as of the start of the season plus last year's salary under the players' profile. This helps me corroborate what is posted on the U.K. contract site and allows me to make educated guesses where the U.K. site is off. Lastly, I used Google to find articles and press releases on the contracts of players.

Can't Tell the Players Without a Scorecard

From my research, I believe the twelve players are: Edgardo Alfonzo ($6.5M), Barry Bonds ($18M), Jason Christensen ($2.3M), Jose Cruz Jr. ($4.0M), Ray Durham ($7.2M), Marquis Grissom ($2.125M), Robb Nen ($9.0M), Neifi Perez ($2.8M), Felix Rodriguez ($5.0M), Kirk Rueter ($5.0M), Jason Schmidt ($9.9M) and J.T. Snow ($6.5M). This included prorated bonus payments made in 2004 but not any pay raises that may occur because of bonus clauses. These sum to $77M or so. If the Giants stick to an $80M budget, we would have $3M to get 13 players.

However, Giants Fanatics will know some nuances to this situation:

1) Snow's salary is at the team's option and he could receive a $750K buyout
2) Rodriguez's contract has a complicated option where the $5M contract is at the team's option and if they decline their option, then he has a player's option for a $3M contract
3) Cruz's contract is a mutual option where both sides must accept the option or else he is a free agent, with a $250K buyout if the Giant's decline their option.

If all three are declined (and assuming FRod accepts his option) that frees up $11.5M in payroll. So we are now up to $14.5M for 16 players.

Rookies are cheap but not that cheap anymore ($300K each), so even if the Giant's just filled in 15 rookies at the minimum, that leaves only $10M to sign a superstar player. However, we also have a number of other players paid more than the minimum, though still inexpensive. They are Ainsworth, Moss, Foppert, Jensen, Nathan, and Torrealba. The Giants can probably fill in from the minors for the remaining positions.

Ladies and Gentlemen, Your 2004 San Francisco Giants!

Here is the roster as I see it for 2004 as things stand now:

Starting Pitchers: Ainsworth, Foppert, Moss, Rueter, and Schmidt;
Relief Pitchers: Christensen, Nathan, Nen, and Rodriguez;
Starting Infield: Torrealba, Durham, Neifi Perez, and Alfonzo;
Starting Outfield: Bonds and Grissom
Reserves: Galarraga

Then the Giants can fill in other positions via the minors or a cheap free agent ($500K to $1M; there were plenty this past off season):

Relief Pitcher: Zerbe/Blank as other lefty and Brower/Jensen/Jerome Williams as long relief;
Starting 1B: Niekro probably, Snow maybe at $500K
Reserve C: Trey Lundsford
Reserve 2B/SS: Cody Ransom
Reserve OF: Ellison (Defense), Linden (Offense)
Reserve IF/OF: Feliz or cheapo veteran (any other ex-Expo available?)

With these we fill 24 positions at about $77M with RF/CF as the remaining position to be filled. If the Giants stick close to their budget of $80M next year, then Jose Cruz Jr. is probably the best the Giants can do in that price range for RF unless the Giant's management change how they handle their payroll.

Giant's Management's Payroll Philosophy in Practice

Since the current ownership/management took over, but before Pac Bell Park (PBP), they operated with losses in all but one year according to data I found on the Internet collected by a Professor Fort from Financial World and Forbes. It has ranged from breakeven to as high as a $10M loss during the strike year, though they did have a $9M operating loss in 1999, the year leading up to PBP. The average operating loss during those years was nearly $5M per year. So they have shown a willingness to take an operating loss of up to $10M per year at the peak and $5M per year on the average. In addition, it appears that the playoffs add in additional profits. In 1997, despite the short series, it was the one-year when the Giants eked bout a profit of $0.2M while at Candlestick Park.

In PBP, given a $20M loan payment that comes out after operating profits - resulting in interest of about $17M paid - it looks like they made about $10M profit in 2000 and a broke even in 2001. For 2002, in an article in the Washington Post, Magowan said that the Giants would break even for the year with a seven game series. According to , the Giants had an operating profit of $13.9M in 2002, resulting in a loss of approximately $2M after deducting the PBP loan interest, now about $16M, just a little less than the break even in 2001. Perhaps they had enough cash on hand to earn enough interest to offset this $2M loss. In any case, the increase of $15M in the 2002 payroll appears to be mostly offset by revenue increases resulting from ticket price hikes and playoff profits. So the $80M budget and $82M committed to already for 2003 probably accounts for an operating loss in the $10M range already, which is the maximum that the ownership has been willing to absorb so far.

Convincing Giant's Management and Ownership to Take Larger Losses

Actually, it should be pretty easy to convince them: in fact, there are approximately 340 million reasons, which is about the total dollars the Giants owe on their stadium in principal and interest on their stadium loan still. The history of attendance with the Giant's is simply that contenders attract and non-contenders don't. The Giants need to make sure they are contenders while making the loan payments and keep their ballpark filled near capacity in order to pay back the loan payments. They cannot afford to have a shoddy team for even one year as that risks having a less than full ballpark, creating an awful cycle of lowered revenues, lower payroll, lower performance, and back to lowered revenues.

How better to keep the Giants contenders for the next decade than by getting one of the best players in the game on the team to at least 2010. That was what motivated the Giants to sign Barry Bonds before the 1993 season. Now that Bonds, though still one of the best, if not the best in the game, is clearly near the end of his career, the time is now to find his successor superstar player in the next year or two.

In addition, there are other sources of cash so that the Giants can run higher losses without dipping into their owners' pockets again. There are the deferred monies that Bonds, Rueter, and Cruz has agreed to. That becomes a bucket of available cash to cover any losses now, though they will then need to plan for the eventual payment in the future. However, this is muted now by the latest Collective Bargaining Agreement's rule that deferred payments be covered, at least partially, by the net present value of the deferred amount, but there is still some cash flow improvement via this route. In addition, new members of the ownership group have contributed cash to their coffers that could also help fund losses for a year or two. Lastly, with the increased value of the franchise and the long record of baseball teams being sold for a profit and the low interest rates right now, it may be able borrow against that increase in equity for low interest costs. Or they may be able to bring in more owners and more cash if their debt is already too high. Either way, they can obtain cash that can help pay for the salary now without dipping into the current owners pockets right now.

This is where a key insight into this baseball situation comes from economics. The rule is that all fixed costs are variable in the long run. This is very true in baseball. In 2005, the Giants lose Christensen's, Grissom's, Nen's, and Perez's salaries, freeing almost $16M. In 2006, we only have four players on contract, losing Rodriguez and Rueter, freeing another $8M. All the Giants need to do, then, is to adjust the contract value for any superstar free agent we sign, so that it is lower in 2004, 5, and maybe 6, and make up for the shortfalls with higher salaries in the later years, like Schmidt's. In addition, they need to sign or bring up players that will enable the Giants to have a lower payroll budget in order to cover the deferred payments. This way, the Giant's management can manage the payroll, profits and cash flow to their satisfaction while obtaining their next generation superstar player.

Slim Pickings: Free Agents Available in 2003 Offseason

The other side of the economic equation limits what the Giants can do, supply (of players that is). Vladimir Guerrero is THE premier free agent in the coming offseason. I have been discussing the Giants chances to get him in a separate series of articles (the elevator pitch is that if he becomes a free agent, the Giants have a great chance if they would only approach him for a creative deal as he's not money-hungry and he's loyal to Felipe Alou). But if MLB and Czar Bud get their acts together, a buyer is found who will keep Los Expos in Montreal, and Vlad signs with the Expos long term to stay in Montreal, the Giants will have to look elsewhere.

The top stars available in that case are: Javy Lopez (C), Fred McGriff (1B), Rafael Palmeiro (1B), Fernanado Vina (2B), Luis Castillo (2B), Armando Benitez, Kevin Millwood (SP), Bartolo Colon (SP), Andy Pettitte (SP), Miguel Tejada (SS), Juan Gonzalez (OF), and maybe Sammy Sosa, if he declines his option for next year (doubtful but you never know).

But what are they going to cost? I've dug up how last year's free agent crop fared in terms of salary from ESPN and CNN/SI and analyzed how they fared. Thome had the largest contract and the largest average annual salary at $14M/yr. The top tier of free agents got an annual salary in the range from $9M to Thome's $14M. The next tier of signed contracts amounted to $4M to $7.7M per year. The third tier got $2M to $3.75M. The vast majority got under $2M.

If we get a superstar, he should get something in the top tier so the Giants are looking at anywhere from $9M to $14M if they are going to sign one, probably a bit more for a young, under 30-star. Given the budget situation and what the Giants need positionally, only Vlad would make a lot of sense to go all out for, as none of the others look like the long term solution to the post-Bonds era (many are in their 30's; others not as proven to be a superstar). It looks like resigning Cruz, Worrell, and perhaps Aurilia and/or Santiago is probably the best the Giants can do this off-season because, if they want a superstar player, one other than Vlad isn't available in the 2003 off-season.

Why Not Wait? Free Agents Available in 2004 Offseason

However, there are a number of good and young players who would be good free agent acquisitions for the Giants in the 2004 offseason. These players include: Paul Konerko (1B), Derrek Lee (1B), Richie Sexton (1B), Carlos Delgado(1B), Jose Vidro (2B), Eric Chavez (3B), Troy Glaus (3B), Nomar Garciaparra (SS), Carlos Beltran (CF), Magglio Ordonez (CF), and Garret Anderson (CF). The top ones to chase would probably be Eric Chavez (50 HR potential has been cited), Troy Glaus (came close to 50 HR already), Carlos Beltran (strong CF with some power), and Magglio Ordonez (rated as being one of the most similar to Vladimir Guerrero in

In addition, waiting may make sense as they can operate near budget in 2004 then take a big loss in 2005 under this plan. Getting a star in the 2003 offseason would put the team under two years of heightened losses. Plus there would be more to pursue and thus less leverage against the Giants as we would have options too.

Of course, most of these free agent's current team will be trying hard to sign all these young studs to long-term contracts before they go free agent. Or they will be traded to a team that will try to sign the player to a long-term contract. There is no guarantee that any of these players will be available but usually there will be a few superstar players who become free agents because their former team just couldn't afford to pay them and they never got around to trading them or needed them for a pennant race. So if you are eyeing any player on your Giant's wish list, hope that their team does well (Go Montreal! :^).

Short Term Losses, Long Term Gains

In any case, to sign Barry Bonds' replacement, the Giants management would need to adjust their thinking about short-term losses. Adding a player like that would create a cow in the python situation and would require the ownership to take some large losses ($10-20M) in maybe 2004, definitely 2005 and maybe 2006. Obviously, we Giants fans want to see them get the next generation superstar but we aren't the ones funding the losses. However, the owners are the ones on the hook for the construction loan payments so they will need to keep their perspective on controlled losses now versus uncontrolled losses if the team doesn't draw - at home or on the road where they are usually a leader in attendance - with no superstar to replace, or transition with, Bonds.

Martin Lee writes 'A Biased Giant's Fan's View' for when the mood and muse strikes him. He has been a Giants fanatic since 1971 when he got his first glove from his dad (a catchers mitt that his dad immediately had to return for an outfielders mitt). He will believe to his dying days that Bobby Bonds was robbed of being the first 40-40 player. He is GoGiants on the Giants discussion board. His e-mail is if you would like to reach him.

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