Whoever the Orioles do or don't sign on the free agent market this offseason, they have to engage in a balancing act. The Orioles have a need to put the best team they can get onto the field this season. They also have to make sure that any moves they make don't cost the Orioles too much in the future.
The obvious way to consider that cost is in dollars they might pay to free agents and whether those dollars will be appropriate in the later years of a long contract. That the 2016 Orioles could really use Chris Davis on the team is not in doubt, but if the only way to get Davis onto the team next year is to also have the Orioles committed to paying $20+ million to 35- and 36-year-old Davis in 2021 and 2022, the whole thing is a lot less cut and dry.
The same consideration must be made for either of the top-end free agent outfielders the O's have reportedly considered, Justin Upton and Yoenis Cespedes. There's more to it than just money paid out in the future, though. The Orioles must also consider if signing a certain player is worth sacrificing the #14 overall pick and any potential value they might get from that pick in the future. That comes into play when thinking about Upton and possible rotation answer Yovani Gallardo.
I was reminded of this when engaging in a flight of fancy on Twitter about the idea that Upton might sign for a one-year pillow contract. In reply, I was chided for considering giving up the surplus value of the first round pick for one year of Upton.
The idea behind surplus value involves teams taking advantage of the economics of salaries for young baseball players to their advantage. Every new big leaguer is going to be very inexpensive - at or near the league minimum salary - for his first three seasons, and even for the three years after that when the salary is determined through the arbitration process, a player still won't be paid what he'd be worth as a free agent.
This is something of an abstract idea in the sense that there's no prize for getting the most surplus value on your team. You don't win any more games for having a certain amount of surplus value. But it's an important thing for a team like the Orioles whose budget is not and never will be infinite.
An instructive free agent contract for this purpose was the three-year, $36 million contract given to J.A. Happ. There's nothing exciting about having Happ in your starting rotation. He has a career ERA of 4.13 and he's 33 years old. But he's left-handed, so he gets $12 million per year. If $12 million a year is the cost for, "He could be OK, I guess" - well, no surprise the Orioles haven't been active in signing free agents. If that counts as a good deal, the Orioles can't afford many good deals.
The poster child for surplus value for the O's is Manny Machado, who in his four big league seasons has generated $125.7 million in value (according to Fangraphs). Counting his signing bonus, the Orioles have paid him about $7 million. Even as his salary escalates, he figures to continue generating significant surplus value. Machado helps the Orioles by being a great player. He's also a help by being a great player whom they don't have to pay full price just yet.
Of course, Machado was the #3 overall pick in his draft year. Whoever the Orioles might get at #14 this year is not likely to turn into Machado, although teams have turned that exact draft slot into star players over the last decade. Marlins ace Jose Fernandez was the #14 pick in 2011, and newly-minted $184 million man Jason Heyward was the #14 pick in 2007.
A more realistic comparison for how surplus value can help the Orioles could be a player like Chris Tillman, whose performance and value have broken down like so:
| Year | fWAR | Value | Salary | Surplus Value |
| 2012 | 1.3 | $8,200,000 | $480,000 | $7,720,000 |
| 2013 | 1.9 | $14,000,000 | $508,500 | $13,491,500 |
| 2014 | 2.4 | $18,100,000 | $546,000 | $17,554,000 |
| 2015 | 1.9 | $15,000,000 | $4,315,000 | $10,685,000 |
| Totals | 7.5 | $55,300,000 | $5,849,500 | $49,450,500 |
If anything, Fangraphs, whose value and WAR data is used above, tends to under-sell the success of Tillman due to his ERA being significantly below his FIP from 2012-14. Yet even using the metric that "hates" Tillman, he's still been worth about $50 million more to the Orioles than he has been paid. No one will ever mistake Tillman for having been one of the best pitchers in baseball, but he's been good over this stretch while not costing the team much.
The Orioles need this kind of surplus value to be successful. They need the guys making major league minimum to be worth $8 million, guys making $5 million to be worth $15 million, and guys making $15+ million to be worth $25+ million. They've been very successful at getting all of this in the Dan Duquette tenure - some from players who were acquired or signed during Andy MacPhail's time - and that's one reason they've been able to win.
The best way to get that surplus is to hit on draft picks and the best chance of hitting on draft picks comes with your highest draft pick. This brings us back to thinking about the #14 draft pick in next year's draft. If you could be 100% certain that the Orioles were going to use that pick to draft the next Tillman, who'd make the team in 2020 or 2021, would you want the O's to give up that pick to have Gallardo from 2016-18? What about for a one year pillow deal for Upton?
Reality is more complicated than that. Tillman, frustrating as he's been, might even represent an above-average outcome for a mid-first round pick. Consider the 2006 draft, in which Tillman himself was an early second round pick. The total career fWAR - so far - for players picked 14-20 in that draft, all of whom have at least made the big leagues, is a combined 2.8. Most of that came from recent Orioles failure Travis Snider. Tillman has earned 8.1 fWAR so far in his career.
One finds a similar story in this range of the 2005 draft - and, taking out Heyward from the 14-20 range of the 2007 draft, that looks similar as well. With a lot of skill and luck, you might find a Heyward at #14. With some skill and some luck, maybe you get Billy Butler, picked at #14 in 2004. Luck and Orioles draft picks haven't often gone together lately.
If you knew the Orioles were going to draft the next Heyward, of course they should keep the pick no matter what. If you knew the O's would draft the next Butler, what then? The pick could also be a complete bust, either because the O's end up making a poor choice, or because they make a fine choice who ends up getting derailed by injuries. It happens.
Surplus value is important for the Orioles, but so is right now value. Machado is here right now, seemingly getting better every year. Adam Jones is still here and good. Tillman, Miguel Gonzalez, and Ubaldo Jimenez are signed for two more years. So is J.J. Hardy. They've now had four straight non-losing seasons, but the current successful nucleus won't be here forever.
Even if the O's lose the #14 pick, they still figure to have four of the first 75 draft picks when June rolls around. That's assuming Wei-Yin Chen signs elsewhere, which looks likely, and Davis returns here, which is possible. If Davis also departs, they'd have five picks. That will still bring a great chance to add depth to the system and set up the O's franchise with at least a couple players who will provide surplus value in the future.
I'm not sold on Gallardo. His disappearing strikeout rate combined with his homer-prone tendencies leave me feeling underwhelmed by him. I'd still toss the pick to get a pillow contract for Upton, who is a solid performer who'd fill one of the big holes on the team from last year. The O's could even still get a draft pick about 20 slots later in a year's time if Upton leaves after one season. That's worth the Orioles taking a chance, if it even gets to the point where Upton looks for a one-year deal.
The Orioles will be worse off if they flush away the #14 pick on a bad bet. They won't do any favors to themselves if they rigidly determine they must keep the pick no matter what, either. If something comes along that would help the Orioles a lot over the next few years - or even just next year, in the case of an Upton pillow contract - they should not let the future keep them from improving in the present.