Olivo Acquisition Just Part of Jays’ Plan

Within the span of two hours on Thursday night, the Toronto Blue Jays acquired catcher Miguel Olivo from the Colorado Rockies for either cash or a PTBNL and then declined his $2.5 million option for 2011. That move cost the Jays $500,000, but it also allows them to offer arbitration to Olivo, who becomes a type B agent with his option declined. The Jays now have five different players who could bring back draft pick compensation, with Olivo joining Jason Frasor, Scott Downs (both Type A), Kevin Gregg, and John Buck.

If the Jays offer arbitration and everybody declines – obviously the best case scenario – the Jays will come out of this with at least 5 supplemental draft pick and two second round picks. If Frasor and Downs were to go to a team with an unprotected pick – this year, the 19th pick, held by the Detroit Tigers, is the first unprotected pick – the Jays could pick up two more first rounders. In this ideal situation, the Jays could pick up an utterly massive haul, with eight picks in the top 50 of the draft. Said haul becomes even more impressive when we consider that the upcoming draft in 2011 is considered to be one of the deeper drafts of recent times, and far deeper than the 2010 draft.

If, however, the Jays do indeed on offering arbitration to these five relatively marginal players, there will be risk involved. As a whole, the five players had a salary of $13.15 million. Because of how arbitration works, it’s a near lock that every player would see a salary increase. Buck and Olivo are both coming off career years. Frasor put up a solid 3.68 ERA, and Gregg (3.51) and Downs (2.54) were even better. If the entire group accepted arbitration, I could see a total salary of $20 million to possibly $30 million, on top of the $1.25 million buyouts for Olivo and Gregg.

The difference is nearly equivalent to the potential value of the picks that the Jays would acquire. According to Victor Wang’s research from 2009, a first round draft pick is worth about $5.2 million, a supplemental pick worth $2.6M, and a second round compensatory pick (guaranteed to be in the top half of the 2nd round) worth $0.8M. Therefore, that the type Bs – Buck, Olivo, Gregg – would contribute $2.6M in value each (total $5.8M) and the type As could contribute either $7.8M or $3.4M (range of $6.8M to $15.6M, for a total range of $12.6M to $21.4M).

It is established, then, that offering arbitration to all five players is a high-risk, high-reward situation. One would assume that the Blue Jays organization has both a good idea on whether or not their players are willing to accept arbitration. Particularly with the catchers, the Jays would not want either Buck or Olivo taking up a roster spot which should go to J.P. Arencibia, and Jose Molina is also under contract for 2011 already. That leads me to believe that one of the catchers will not be offered arbitration. With both of them as type B free agents, the risk of one (or both) of them accepting appears greater than the reward.

To me, it’s conceivable that the Jays will offer arbitration to all three pitchers. Gregg has closer experience and could pick up another multi-year deal on the free agent market, but as the type B of the group, he offers the lowest return on the risk. Downs’s 2.64 ERA and good peripherals make declining arbitration the right choice for him, as he should be able to command a multi-year deal with an average annual value above his arbitration rate. Frasor may not be as likely to decline as Downs or necessarily Gregg, but the opportunity to pick up a first round draft pick along with the supplemental choice is appealing, and he’s a good enough reliever (2.99, 3.31 FIP in 2009, 2010) that accepting arbitration at worst provides the team with a solid reliever who could be flipped at the deadline.

Whether you think of the Jays’ acquisition of Olivo as a brilliant strategy to gain draft picks or a sly gaming of an outdated compensation system, it appears that they stand to gain quite a bit of value, particularly in a draft as deep as the one upcoming. The Jays will assume some risk in offering arbitration to these players, but each one performed well enough in 2010 that it’s conceivable the market is favorable enough for them that they will decline. As far as the Olivo deal by itself goes, $500,000 dollars and a PTBNL are a small price to pay for the potential to pick up a supplemental draft pick. Also consider that of all the players here, Olivo probably has the best chance to cash in on the free agent market with his 14 HR, 3.2 WAR season in Colorado. The Jays and Alex Anthopolous have a definite plan in place, and it just may pay off in the 2011 draft and beyond.