Why Did Roberto Hernandez Restructure His Contract?

Two weeks ago, the Cleveland Indians and Fausto Carmona Roberto Hernandez agreed to restructure the remaining three years of Hernandez’ contract; we heard some of the general details of the new deal, but the specifics were kept fairly close to the chest.

Until now. Earlier this week, the Associated Press reported the details of the new contract. Hernandez’ 2012 salary has been reduced from $7 million to $2.5 million with $2.7 million in performance incentives (based on innings pitched and days on the roster), while the $9 million 2013 option the Indians held for Hernandez will now have a $6 million base salary plus $3 million in incentives. In exchange for lowering his own paycheck, Hernandez got the Indians to drop their $13 million 2014 option, potentially allowing him to hit the free agent market a year sooner than he otherwise would have.

Cleveland clearly wanted to save some money here, and if Hernandez’ top priority was hitting the free agent market sooner then these negotiations were a win-win for both sides. But assuming Hernandez is looking to maximize his long-term payday, I’m not sure why he would agree to this deal.

In order to properly assess the consequences of this deal for the Indians’ payroll and Hernandez’ paycheck, let’s take a look at the three general paths that Hernandez’ career could take over the next few seasons:

Scenario 1: Hernandez doesn’t return to the Indians. This seems unlikely, especially now that the fraud-related charges against Hernandez in the Dominican Republic have been dropped—there had been rumors earlier that he could be back with the team as soon as this month—but until we get some sort of timetable for his return it remains theoretically possible that the U.S. government would block his visa until after the 2013 season.

In this case, it wouldn’t matter how much Hernandez is supposed to make because Cleveland won’t owe him a cent. Hernandez is currently on the team’s restricted list, making him ineligible to collect any salary, and if he stays there for two years there’s no way the Indians would have given him $13 million in 2014 anyway. No change here.

Scenario 2: Hernandez comes back doesn’t meet all his incentives. This is a pretty big umbrella—barely missing his final incentive would be a completely different story than his struggling to reach his first—and there are a number of variables that could prevent him from hitting some of the necessary numbers. This would seem to be by far the most likely scenario.

The first question, of course, is when Hernandez will return. The consensus guesstimate seems to be sometime in the middle of the 2012 season, which would mean he’d automatically lose up to $1.5 million just by virtue of not being on the roster long enough. More time missed would also mean fewer innings pitched and games started—both of which would decrease his paycheck.

But there’s another factor in play, too: How will the Indians use him when he returns? The general assumption seems to be that Hernandez will reclaim a rotation spot as soon as he gets back in uniform. But that isn’t a given—or at least, it shouldn’t be. Barring injury or some serious slumping, I’m skeptical that he’d immediately leapfrog over Jeanmar Gomez, Kevin Slowey, and Zach McAllister in the pecking order for the rotation. That goes even moreso for 2013, when Carlos Carrasco will return and one or both of Austin Adams and Scott Barnes could be ready to win a spot with the parent club.

That means Hernandez would probably be moved to a long relief role or stashed in Triple-A for much of 2012. Either way, even meeting his lowest incentives (20 starts and 150-innings) would be far from givens. Unless he’s traded or shows some dramatic improvement, he’d probably project as a swingman at best for 2013—that is, if the Indians pick up his option.

What would this mean for his paycheck? Putting aside questions of when he’ll be able to start collecting salary, he’ll lose somewhere between $1.8 and $4.5 million in 2012 under the new contract (depending on how many incentives he meets) and up to $3 million in 2013 if the Indians exercise his option. Not to mention that he almost certainly wouldn’t be able to find a $13 million-a-year suitor on the free agent market in 2014 after what would by then be three years of inconsistency from a 33-year-old pitcher.

All told, Hernandez could lose up to $7.5 million in 2012-13 salary in exchange for the Indians dropping an option they weren’t likely to pick up anyway. Hard to see this scenario as good for Hernandez.

Scenario 3: Hernandez meets all his incentives. Hernandez rejoins the team within a couple weeks of Opening Day. He rejoins the rotation immediately and stays there all season long, hitting all his benchmarks—180 innings, 26 starts, 165 days on the roster. The Indians pick up his 2013 option, he manages to keep his starting job through the season and he hits all his innings incentives then, too. It’s unlikely and it wouldn’t give Hernandez much margin for error, but it’s at least a plausible scenario.

In that case, Hernandez’ 2013 paycheck is the same, but he still loses $1.8 million in 2012. He’d have to get over $14.2 million for 2014 on the open market to make this restructuring worthwhile—which he probably won’t. Unless he comes back a completely different pitcher, the best-case scenario for Hernandez is that he’ll give the Indians an ERA in the low-to-mid-4.00’s range; in this diminished run environment, that’s definitely not worth a blockbuster deal.

In short, it’s extremely unlikely that Indians would pick up his 2014 option in any scenario, and it’s hard to imagine him getting a better deal—or even a comparable deal—on the open market. It would seem, then, that Hernandez should want more financial certainty; he wasn’t in a position to demand that, but he didn’t have to sign a deal that gave him less security.

The only way this deal makes sense for Hernandez is if he thinks he can reestablish himself as a genuine MLB ace, as he was briefly in 2007—which, of course, was five years ago—and earn a major payday from a spendthrift team two years from now. I admire his confidence and as an Indians fan I hope that happens, but given how Hernandez has pitched since his flash-in-the-pan season the odds of him cashing in in 2014 wouldn’t be very good even if he weren’t in his mid-30’s with a history of identity fraud.

If hitting the market sooner is Hernandez’ prerogative I don’t want to begrudge him that, and I certainly won’t complain about the Indians getting to free up some payroll space. But it’s hard to imagine that Hernandez won’t live to regret this deal.

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