Was Dumping Frank Thomas a Good Idea?

On Sunday, the Toronto Blue Jays released veteran DH Frank Thomas. While many have attributed his benching and release to his slow start, the more likely reason for cutting Thomas was a vesting option in his contract that would guarantee him $10 million in 2009 if he collected 376 plate appearances in 2008.

Supposedly, the Jays asked Thomas to take a lesser off-the-bench role to keep the option from vesting. Thomas was not happy about this, and the Jays simply released him, eating the remaining portion of the $8 million that the team owes Thomas this season. While I understand that the team probably wishes that it had not agreed to the original contract, I’m not sure that cutting bait was the best remedy.

I estimate that Thomas was worth $9.9 million to the Jays in 2007, which is about what the Jays paid for his services in 2007 ($1 million signing bonus + $9.12 million). This was similar but less than Thomas’s 2006 estimated production with Oakland that would have been worth about $11.9 million in 2007. I don’t think anyone expects him to repeat 2006 again, but Thomas is still a good hitter. And even if he wouldn’t be worth the $10 million he would get next year if his option had vested, it’s likely that his production would not be too far below this value.

By simply cutting Thomas, the Jays must pay Thomas $7 million not to play. I don’t get this, because Thomas is still a productive hitter—the type of hitter the Jays will miss if injuries hit the team and the team has a shot at the playoffs. Either you sit down and explain to him the contract he agreed to—“hey, you agreed to this vesting option, so become a bench player or go on the restricted list and get zilch”—or you trade him to another team and eat a smaller portion of his contract.

Even if the option had vested, it wouldn’t have been a disaster given what it will cost to replace his production. Let’s say Thomas is a $7 million player in 2009. Isn’t it better to pay $3 million more than what you are getting in 2009 ($7 million — $10 million = –$3 million) than $7 million than what you are getting in 2008 ($0 — $7 million = –$7 million)?

One lesson from principles of microeconomics is that just because you are earning a loss doesn’t necessarily mean it’s a good idea to shut down production. As long as the revenues from production exceed the variable costs, you make money to cover a portion of your fixed sunk costs by continuing to operate. Shutting down increases your losses. If a player is producing more on the field than he costs to keep on the roster, then you should keep him on the roster. The Jays have just gone from a situation where they were getting Matt Stairs and Frank Thomas for $9 million (prorated salaries for the remainder of 2008 of $7 million and $2 million) to having only Matt Stairs for that same expenditure. I don’t see how this is an improvement.

This situation differs from the Russ Ortiz situation in 2006 with Arizona (Keith Law offers a nice summary). Ortiz was in the second year of a four-year, $33-million deal. In 2005 and 2006 he was worse than the options available to the team, and therefore it made sense to send Ortiz on his way. Though the Diamondbacks are still paying off the deal, Ortiz isn’t good enough to pitch on a major-league roster. Had Arizona continued to employ his services he would have made the team worse; therefore, cutting Ortiz was the right move. In Thomas’s case, several teams are interested in acquiring his services because he is better than available alternatives.

Of course, there is the possibility that the Jays think Thomas is done. It doesn’t look like it to me, but I’ve seen exactly zero of his at-bats this year. Maybe those reports of a slowing bat aren’t just front office propaganda. But, he would have to fall awfully far to be worth dumping.

16 Responses “Was Dumping Frank Thomas a Good Idea?”

  1. Zach says:

    I don’t know how this typically works in MLB. If a cut player is subsequently signed by another team, is the former team off the hook for the remainder of the player’s salary?

    So, if Thomas signs with another team, what are the ramifications for 1) him, 2) his new team, and 3) the Blue Jays?

    I’d appreciate some clarification on this if anyone is willing.

  2. Adam says:

    Is it also possible that, given Thomas’s slow start, the Blue Jays wanted to try some other, younger hitters in his place? Then, when he openly complained about playing time, he was perceived as a distraction and promptly cut?

    To me, this doesn’t seem like a business decision at all. This year is a crucial one for the Blue Jays to try to sneak by the Yanks-Sox dynasties, so it doesn’t at all seem surprising that they would bench a cold regular player despite it being only a month into the season. And after the following unrest, it makes some sense (although, as you pointed out, not of the business variety) to keep the clubhouse positive and cut a veteran, despite the likelihood that he will rebound at some point. And don’t the Blue Jays have a history of cutting/trading productive but distractive players to improve clubhouse morale?

  3. Donald A. Coffin says:

    The Jays are on the hook for the rest of his 2008 salary if no one signs him. (Plus any buy-out for 2009.)

    Suppose he signs for the (pro-rated) minimum. Then the Jays are on the hook for the balance of his 2008 salary minus the pro-rated minimum.

    Suppose he signs for $1.5 mmillion. Then the Jays are on the hook for the balance of his 20078 salary minus $1.5 mmillion. (And so on.)

    So no team will sign Thomas for more than the pro-rated minimumt his year, because that will simply transfer a cost from the Jays to the signing team, and Thomas gets no additional bucks.

  4. Trevor says:

    As a Jays fan I’m still somewhat on the fence about this move. Thomas looked downright awful at the plate this year – just ugly swing after ugly swing. I know he’s typically a slow starter, but I don’t remember him looking quite so lost last April. While I have an awful feeling that he’s going to sign on with another team and get a big hit against the Jays later in the year, I can definitely understand why the front office thinks he’s done.

    While I’m hardly an economist I think you’ve neglected to consider the production from other alternatives. To continue your firm operating at a loss analogy: what if the company could change to another product which they know will be profitable and have negligible switching costs? Fixed costs remain essentially unchanged but you’re making more profit on each extra unit produced. Wouldn’t it be smart to switch then?

    This is what the Jays’ front office believes they have in Adam Lind. They think that Lind will out perform Thomas while earning close to the league minimum. So, to use your numbers, instead of paying Thomas and Stairs $9M and getting $9M of value (perhaps less), the Jays will pay Thomas, Stairs and Lind $9.5M and get $10M (maybe more). This also assumes that defense is included in player valuations. By putting Lind in LF and moving Stairs to DH, the Jays team defense is greatly improved.

    Framed that way it doesn’t look like such a terrible decision. Of course this is all dependant on Lind actually living up to the front office’s expectations, which, since I’m no fan of JP Riccardi, I have my doubts about.

  5. Zach says:

    Donald,

    Thanks for the info. So, the Jays are definately on the hook for a ton this year. So, it’s obvious that any team interested in him will only sign him to the minimum (what a bargain!). Thomas’s only decision is whether he would rather play or not, collecting the same amount in either case.

  6. jon says:

    I think Donald has it right. I thought that teams actually _couldn’t_ sign him for more than the minimum, but that may not be right.

    Also, not that this would happen, but what if he got an offer of, say, $15M? He could take that, get $15M from the new team, and Toronto would be off the hook, right?

    Anyway, JC – thanks for being a voice of reason. Way too many people who shouldn’t be writing have been saying this was the right move. Of course it’s about money, and if I were the Jays I would tell Thomas, like you suggest, “We are not playing you enough to get your option kicked in, intentionally, and yes it is 100% about the fact that your production is not worth the money.” Then when the players association starts complaining I’d tell them to piss off and abide by the terms of the contracts they sign.

    Perhaps Toronto just doesn’t want to get a reputation like that, given that free agents aren’t particularly fond of signing there anyway?

  7. JC says:

    Bringing up Lind (which I don’t believe the Jays have done yet), even if he is Thomas’s equal, increases expenses by adding a salary. Also, the cost of using Lind isn’t his his just his salary but his opportunity cost. Because of his reserve status, he is valuable in a trade to another team. By playing Thomas and trading Lind to another club, the Jays could be better off. There are also some service time considerations that may impact his arbitration status.

  8. JC says:

    I’m not sure what type of blow-back Toronto would take from benching Thomas. Players understand how contracts work and that this is a business. I think the White Sox invoking its diminished capacity clause on (coincidently) Thomas probably created more negative feedback, but it hasn’t stopped free agents from moving there. How about the Red Sox trading Arroyo after he signed at a discount?

    While there may have been some repercussions for Toronto, I don’t think they warranted swallowing $7 million. That is some serious good will they are buying.

  9. Ken Houghton says:

    Trading Arroyo was a dumb move–it means no one else will ever sign a discount contract with the RSox, unless they also get either a no-trade clause or (at best) a clause in the contract that says their salary goes up significantly (where the market would have been, at least) if they are traded.

    That said, Thomas is still tied for the team lead in HR, and had 11 walks in 16 games. (Also, one of five players on the BJays with more than 5 RBIs.)

  10. Greg Weeks says:

    What about the possible fear that a benched and unhappy Frank Thomas could pull the team down? I am not sure, though, how much money that is worth losing to avoid.

  11. Merv says:

    If this was really a business decision, then why not play Frank Thomas for exactly 375 plate appearances? Then, halfway through the season, Ricciardi goes out and “fortuitously” finds a better DH (either through trade or the farm system) right before Thomas logs his 376th PA.

    The fact that the Jays didn’t try something sneaky like this suggests they really just don’t want Thomas’ bat taking up a roster spot, period.

  12. Zach says:

    JC, what would you project Thomas’s value to be this year with only 375 plate appearances?

  13. Rick says:

    Ken, the only reason that trading Arroyo was a bad move was because WMP didn’t work out as a regular player. In the AL East he was a league average pitcher at best. Playing in the NL he turned into a top 3rd tier pitcher. He said when the trade went down and when he signed the contract that he knew that signing it wouldn’t mean he wouldn’t get traded.
    You don’t think that players would want to play for a team that has a very good chance to get into the post-season every year.

  14. JC says:

    Thomas’s value with 375 PAs is between $5.5 and $6 million.

  15. Zach says:

    This discussion regarding the economics of cutting Thomas makes me wonder about Giambi’s situation. His value can’t be much more than Thomas’s, yet he is owed more than twice as much this season ($21 mil). He also has a $5 million buyout of a $22 mil option next year and a prorated portion of his $17 million signing bonus. I don’t know for sure, but it sounds like a club option. If so, it seems like a foregone conclusion that he’ll be bought out next year since a $5 mil loss is better than a (roughly) $12 mil loss ($10 mil value – $22+ mil salary).

    It seems to me that what makes his situation different from Thomas’s is that he doesn’t have that 375 PA threshold for kicking in next year’s salary. So, unless he’s blocking a prospect or is a significant negative clubhouse influence, then it makes sense for the Yankees to ride him out this year.

    Also, presumably not factored into JC’s valuations, is the value of Giambi and Thomas NOT playing for a rival. Keeping them gives the added benefit that either player will not jump to the Orioles or Rays. Obviously this is hard to quantify, but is certainly positive and weighs on the minds of general managers.

  16. kevin says:

    One difference between Giambi and Thomas is that Jason is well liked by his teammates and Thomas has a reputation of being surly.