Dallas Keuchel Contract Extension Could Prove Difficult

Dallas Keuchel’s continued progress into an ace is one of the major reasons Houston is contending earlier than anyone predicted. After a good year in 2014, he is a Cy Young candidate, and perhaps front-runner, for the first place Houston Astros. The left-hander recently expressed interest in a contract extension, and Houston Astros general manager Jeff Luhnow provided a stock response about continually re-evaluating players for potential extensions. However, an extension for Keuchel is not an easy one to figure out given his proximity to arbitration and an uncertain award once he gets there.

Keuchel might have been overlooked few years ago because he lacks a fastball above even 90 mph, and there might have been some skepticism about his success last year due to a 6.6 K/9 rate that placed in the bottom third of qualified starters, but Keuchel uses an array of pitches to keep getting better. Keuchel has spent time working with Astros pitching coach Brent Strom, and that work has paid off in a big way. His 2.28 ERA ranks second in the American League and he excels at aspects of the game not picked up by peripheral statistics — although those same peripheral statistics also rank among the best in the game.

Keuchel strikes out only eight players per nine innings, but due to his efficiency, using K/9 for Keuchel distorts his effectiveness. Consider: Keuchel’s 22.8% strikeout rate ranks 10th in the American League. Combined with a great walk rate, Keuchel’s 2.66 FIP is third in the AL and his 5.4 WAR ranks just behind Chris Sale’s 5.6 mark this season. With his low ERA, Keuchel is first in the American League in RA/9 WAR and as the only AL pitcher in the top three of both, he has a very good chance at taking home the Cy Young award after the season. As a first-time arbitration-eligible player, Keuchel is looking for his first big payday after making near the minimum thus far in his career.

Determining how much Keuchel will receive in arbitration is still up in the air at this point. Last year’s arbitration numbers should be able to provide some comparison for Keuchel. The below chart shows a few of the first-time arbitration-eligible starting pitchers after last season.

2015 First-Time Arbitration-Eligible Starters

	WAR	2015 $M
Jake Arrieta	7.6	3.6
Carlos Carrasco	4.5	2.3
Alex Cobb	8.3	4.0
Nathan Eovaldi	5.5	3.3
Miguel Gonzalez	3.3	3.3
Chris Tillman	6.2	4.3
Wade Miley	7.4	3.5
Lance Lynn	10.5	7.0
Dallas Keuchel	10.8	?

The salaries for Lynn and Miley were part of three-year contract extensions both players signed for around $20 million, with Miley’s deal including a team option potentially buying out a free-agent season. Unlike the arbitration process, where salaries escalate every year, Lynn’s contract provided an equal amount of money over the contract. In arbitration, Lynn likely would have made closer to $5 million than the $7 million he is receiving this season. Given Keuchel’s great year, he likely will be in line for a little bit more than Lynn, although it does not appear any first-year pitcher has actually gone to arbitration and received more than the $4.35 million Dontrelle Willis received a decade ago, which could suppress Keuchel’s number by a little. If we estimate Keuchel receiving $6 million in arbitration, we could see the base of a potential extension around Lynn’s $22 million deal — and perhaps about double that for a year or two of free agency. The problem with these estimations is that, at this point, Keuchel’s arbitration award is subject to considerable fluctuation.

If Keuchel were to take home a Cy Young award, his arbitration award could rise well above $6 million as arbitrators treat award-winners differently than the rest of players. Over the last ten years, only four players have won Cy Young awards in either league and not already been under contract for the following season or a free agent: Max Scherzer, David Price, Tim Lincecum, and Clayton Kershaw. The chart below shows the players’ progress through their arbitration years.

A few notes: 1) Lincecum and Price were super-two eligible so their first year of arbitration occurred earlier than the rest. 2) Kershaw signed a two-year contract to avoid his first two seasons of arbitration, followed by his massive extension before his final season of arbitration. 3) Lincecum signed a pair of two-year contracts to avoid all four years of arbitration.

Cy Young Winners in Arbitration-Eligible Years (In Millions)

Player	Super-2	Arb-1	Arb-2	Arb-3
Tim Lincecum	$8.0	$13.0	$18.0	$22.0
Clayton Kershaw	—	$7.5	$11.0	Extension
Max Scherzer	—	$3.8	$6.7	$15.5
David Price	$4.4	$10.1	$14.0	$19.8

*Orange cell denotes year after Cy Young award.

The teams that had winners heading into their first year of arbitration signed those players to two-year contracts with first-year salaries close to double typical first-year salaries, while Price and Scherzer more than doubled their previous salaries after winning the Cy Young. In every case, the teams reached agreement prior to arbitration and avoided a hearing. Given that two-year guarantees were given to Lincecum and Kershaw, an arbitration award might have been even higher, and those first-year salaries are nearly half-a-decade old for that pair. A Keuchel Cy Young award could increase his arbitration award by several million dollars this season, potentially reaching eight figures. The increases carry over to the following seasons, as well. Good, but not great pitchers like Doug Fister, Jeff Samardzija, and Mat Latos all received close to $10 million this season while Cy Young winners have received or would receive around double that amount.

This uncertainty could amount to a $20 million difference over just three years of arbitration, and that could make it very difficult for both parties to come to a consensus on the value of a contract. Placing value on free-agent years that are four seasons away is difficult regardless of the player, and they would be very difficult even if Keuchel’s Cy Young situation was already known. Adding the uncertainty of the award at this point in the negotiations compounds the difficulty. The Astros have carried low payrolls for several years and should be in very good position to add salaries. Keuchel is exactly the type of player the team should be looking to lock up long-term, but given how close Keuchel is to a large, guaranteed payday, there might not be enough motivation on both sides to get a deal done. There might have been some uncertainty about Keuchel entering the season, and that uncertainty might have created the best opportunity to get a long-term deal done. Now that Keuchel has erased doubts about his performance and gotten so close to his first million-dollar payday, the opportunity for a long-term team-friendly deal is likely past.