When Andy MacPhail was the general manager of the Baltimore Orioles (or the Executive Vice President of Baseball Operations, if you prefer), on more than one occasion he described his organizational philosophy as "buy the bats, grow the arms." MacPhail -- who is as much responsible as anyone for the Orioles' resurgence over the past few years, having acquiring J.J. Hardy, Chris Davis, Adam Jones and Chris Tillman among others during his short tenure in Baltimore -- recognized the reality that a number of baseball executives are dealing with right now: the market for free agent starting pitching is absolutely absurd.
Take Jason Vargas, for instance, who just signed with the Kansas City Royals for four years and $32 million, a contract unveiled at a press conference in which Kansas City had promised a "major baseball-related announcement." Vargas is entering his age-31 season with a 4.30 ERA in 979.2 major league innings good for an ERA+ of 91. That means over the course of his career, Vargas has been nine percent worse than a league average pitcher. He didn't even have a promising bounceback year in 2013, throwing only 150 innings of 4.02 ERA ball in one of the most pitching-friendly offensive environments of the past 30 years. He will be making $8 million a year for the next four years -- and that fourth year was offered to woo him away from the Los Angeles Angels of Anaheim, where he spent such an underwhelming 2013, who are so pitching-starved that they were reportedly willing to give him that same $8 million a year for three seasons.
Vargas has never been a top-of-the-rotation starter. There is no vast upside hidden in his arm for Dayton Moore's team to unlock. He should perform a bit better in Kansas City because the Royals have sold out their offense in favor of defense in recent years, and Vargas himself is not a negative-value asset -- but the Royals will be paying Vargas and starting pitcher Jeremy Guthrie, who they signed to a multi-year deal last season, a combined $19 million in 2014 for what will very likely be dead-average or below-average production. By comparison, the nearby St. Louis Cardinals will be spending about $21.5 million on their entire starting rotation should it remain Adam Wainwright/Shelby Miller/Michael Wacha/Lance Lynn/Joe Kelly, the vast majority coming in the $19.5 million the Cardinals will be paying Wainwright.
It is simply not cost-effective to buy non-elite arms in the free agent marketplace, and that's part of the reason why Japanese ace Masahiro Tanaka attracted so much attention from MLB teams before discussions over the posting system stalled out. (The other main reason being that under the previous rules, the posting fee did not count against the luxury tax threshold -- this is one of the sticking points in the negotiations over renewing the agreement for this offseason, as smaller market teams don't want a team like the Yankees to dump all their money on the posting fee just to avoid revenue sharing).
Due to free agent salary creep, we've been trained to think that $8 million a year for a below-average pitcher with little to no upside is just about right -- after all, that's no more than Josh Johnson got from the Padres earlier in the week, and he was absolutely horrible in 2013 when he was even healthy enough to pitch. Johnson, of course, is only a couple seasons removed from an elite level of performance and has been stymied by injury, so the one-year pact with San Diego is a make-good deal as Johnson tries to turn himself into the vastly-overpaid free agency prize of the 2014-15 offseason.
However, while the Vargas contract is not in and of itself an albatross, $8 million a season is a significant (if small) piece of the Royals' budgetary pie, and there have already been rumblings that the Vargas signing prices Kansas City wholly out of the Ervin Santana market. It's too early to tell if that's legitimate or just posturing on the Royals' part, but Santana is a clearly better pitcher than Vargas if still only league average over the course of his career (100 career ERA+ to Vargas's 91).
Of course, Vargas's $8 million a year is less than half the annual value of the contract Santana's camp has indicated they're looking for, which is something in the five- to six-year range worth around $100 million. If salary creep has been pushing up the wages of below-average starters like Vargas, it's been absolutely ballooning the salaries of consistently league-average pitchers.
But then again, Santana isn't a consistently league average pitcher: he's demonstrably inconsistent from year to year, being one of the American League's worst starters for Los Angeles in 2012 before being traded to Kansas City and being one of its finest. And the last inconsistent pitcher on the wrong side of 30 to hit the free agent market after turning down a qualifying offer while demanding the moon was… Kyle Lohse, last season. He received little to no indulgence in his demands, and eventually signed a three-year, $33 million contract with the Milwaukee Brewers as spring training loomed. Ervin Santana on a similar contract would be far more valuable than Jason Vargas on this one -- but that's a long game the Royals were likely unwilling to play.
Besides, Kansas City probably doesn't see Vargas as Santana's replacement -- i.e., the second-best pitcher in the rotation who takes the ball after James Shields. If everything goes as planned, that will be 22-year-old Yordano Ventura, who was extremely impressive in his three MLB starts at the end of the season. There's also some sort of hope that Danny Duffy will pan out as a starter; he had great results his initial return from Tommy John surgery last year, but then was shut down again with a "mild flexor strain" in his throwing arm in early September. And if minor leaguer Kyle Zimmer pans out, the Royals could find themselves in a situation somewhat like the Cardinals, where the majority of their rotation is cheap and homegrown. They'd better hope that happens soon, though -- because the price of the Jason Vargases of the world is only going up.