Baltimore’s Dexter Fowler Opportunity

While nothing is officially done yet, it seems reasonable to assume the Orioles are going to sign Yovani Gallardo, with reports that a deal just needs some tweaks before it is finalized. The Orioles are reportedly giving Gallardo a three year deal, but more significantly, they’re sacrificing their first round pick (#14 overall) since he rejected the Rangers qualifying offer at the beginning of the off-season. After losing Wei-Yin Chen, the Orioles certainly had a hole in their rotation, and so after months of talking about replacing him internally, they’ve apparently decided that Gallardo’s price has come down enough to justify surrendering the draft choice in order to sign him.

Given the Orioles position as a bottom-tier AL club, in a league where all 15 teams are trying to win in 2016, giving up the 14th pick to sign an average pitcher in decline is a questionable move. Currently, our forecasts have the Orioles as a 78 win team, and while adding Gallardo will help, he realistically can’t be expected to push them much past 79 or 80 wins. This is still a team with some significant flaws, and while they’re good enough to contend if things break their way, Gallardo isn’t really a put-them-over-the-top kind of acquisition.

But signing Gallardo does present a potential opportunity. By surrendering the 14th pick to upgrade their rotation, they’ve also lowered their acquisition cost of making a second move, and Gallardo isn’t the only free agent on the market still tied to draft pick compensation. In fact, there’s one more free agent out there who makes a ton of sense for the Orioles.

Executives believe it'll be very difficult for Dexter Fowler to get more than the 2-year, $20 million deal that Howie Kendrick got from LAD.

— Buster Olney (@Buster_ESPN) February 10, 2016

Going into the winter, both the crowd and myself projected Dexter Fowler to sign for $56 million over four years; 2/$20M would be a significant discount, and like Kendrick, would mean that Fowler took a less valuable contract than the qualifying offer he turned down. Like with Kendrick and Gallardo, the draft pick is the sticking point; teams have decided they don’t really want to give up valuable draft selections in exchange for the decline years of an average player. And to some extent, it’s a rational decision.

Take the 14th pick, for instance. The asset value of a pick in that range is something like $15 to $20 million, so that lost value is essentially a tax enforced on the signing. On a long-term deal where you expect to get value from a player for years to come, a $15 million tax isn’t a huge deal, but the kinds of players who are getting crushed by the qualifying offer are the guys who teams don’t want to give long-term deals to. When you’re just talking about signing a player for two or three years, adding a $15 or $20 million tax on top of the signing price makes the deal much more expensive than if you’re paying that same tax for a guy you think might help you for five or six years.

If a team believes their first round pick is worth $15 million, then even 2/$20M for Fowler is really 2/$35M from the team’s perspective. So, what seems like a bargain on the surface ends up being something closer to market rate when the lost draft pick is applied, which is one of the reasons why I’m probably not going to love the Gallardo signing for the Orioles, especially if he gets an early opt-out as has been speculated. But now that the Orioles have already made the decision to pay that tax on Gallardo, they’ve decreased the cost they’ll have to pay to sign Fowler as well.

Their next pick is currently slotted at #29, the compensation pick they’d get for losing Chen. That’s still a valuable selection, but because draft picks lose value pretty quickly as you get further from the top tier, that pick is probably worth something closer to $10 million, and some teams put estimates on those compensation picks more in the $5 million to $8 million range. In other words, signing Gallardo means that the tax to sign Fowler is now half as large as it would have been otherwise, and he’d cost something more like 2/$30M in total value if he signed with the Orioles after they signed Gallardo.

And at that price, the Orioles should make the move. They currently have very little in the way of outfield depth, and adding Fowler would ensure that they could keep Mark Trumbo at DH rather than letting him fruitlessly chase fly balls around Camden Yards. The gain from adding Fowler to play one of the two corner OF positions and shifting Trumbo to DH — sending Nolan Reimold or Jimmy Paredes back to the bench where they belongs — is probably worth something close to two wins; it’s likely a larger upgrade than adding Gallardo to the rotation.

With Gallardo and Fowler, you could reasonably look at the Orioles as an 81-82 win team heading into the season, and from there, it’s not a huge stretch to find a few extra wins, allowing the team to sneak into contention. And at a 2/$20M signing price, the floor is actually pretty high as well; Fowler would almost certainly have positive trade value this summer if things go poorly, and the team could likely recoup prospects in trade that could nearly match (or potentially exceed) the value of the 29th pick.

Signing Gallardo in isolation doesn’t strike me as a great deal, as he’s probably not good enough to justify giving up the 14th pick by himself. But if the Orioles can turn this into a package deal, turning the 14th and 29th picks into Gallardo and Fowler, then they might be able to defray some of the cost of the first signing. The qualifying offer system incentivizes stacking your free agent signings together in the same winter, and if the Orioles really are going to give up their first rounder for Gallardo, they should make a play for Dexter Fowler too.