Originally written on Phillies Nation  |  Last updated 7/13/12

As Buster Olney reported yesterday, the Phillies are making one final push to negotiate an in-season extension with Cole Hamels before potentially shifting their focus towards trading the homegrown ace. Both sides have always been close on an annual salary around $24 million, but Hamels and his camp predictably wanted more guaranteed years on the deal.

Hamels is likely looking for a deal better than Matt Cain‘s, and comparable to what the Mets gave Johan Santana. While there is no formal deadline to work out the new deal, if the sides cannot reach an agreement by the weekend, expect Ruben Amaro to pick up the phone and more seriously field trade offers.

What the Phillies could potentially get back for Hamels has been a terrifically interesting subject — especially given his stated willingness to return even if traded during the season — but what hasn’t been discussed much is what happens if he does agree to an extension. After the initial celebratory phase, the front office would be left with a tricky situation to wade itself through. The Phillies would have four players making $20+ million both in actual dollars and the amount calculated for luxury tax purposes, which makes it tougher to fill out the roster with pieces necessary to legitimately compete without incurring the tax.

Signing Hamels would be wonderful, but it would also require the front office to act in a shrewd manner it hasn’t exactly shown itself capable of to date.

The Phils are making a sizable offer to the lefty ace.

First, let’s look at money on the books next year, and remember that the payroll calculated for the luxury tax is different than the player’s actual salaries next season. When calculating luxury tax payroll, the average annual value of the deal is what counts.

Both vesting and club options are excluded from the calculation, while player options are factored in. If a vesting option vests or a club option is exercised, the salary is treated like a one-year deal for the luxury tax. There is also the issue of timing: if an extension is worked out before a current deal expires, the contracts are consolidated.

Ryan Howard is a perfect example of said consolidation. He was signed to a 3 yr/$54 million contract, and then signed his monster 5 yr/$125 million contract. But because he signed the five-year pact before the initial deal expired, the luxury tax views his contract as 6 yrs/$143 million, for an average annual value of $23.8 million. While that is a bit of a discount relative to the 5 yr/$125 mil deal, it means the Phillies paid almost $6 million more for Howard when calculating luxury tax payroll last year.

With that little primer out of the way, we can get back to regularly scheduled programming. For luxury tax purposes, Howard comes in at $23.8 million. Roy Halladay is at $20 million. Cliff Lee is closer to $22 million. Let’s also assume that Hamels signs for an average annual value of $24 million. Through four players we’re at approximately $90 million, and the threshold is $178 million.

Chase Utley‘s deal adds another $12 million. Jonathan Papelbon‘s deal adds $12.5 million. The average annual value of Jimmy Rollins‘ deal is $11 million. That put the Phillies at ~$125 million through just seven players. Hunter Pence figures to make $13 million next season in his last year of team control. Kyle Kendrick counts for $3.75 million.

Laynce Nix adds another $1.2 million. That adds up to ~$143 million through 10 players, and the Phillies would still need a starting third baseman (assuming Polanco’s option is declined), a starting center fielder (Shane isn’t returning), a starting left fielder and a starting catcher, before even filling out the bench, rotation and bullpen.

It’s hard to imagine the Phillies declining Chooch’s option, which solves the starting catcher issue and adds another $5 million to the calculation. But it’s also possible they work out an extension with him where he makes $9 million per year or something in that vicinity. Sticking with the $5 mil option, the Phillies would need 13 more players spread across three starting spots, several bullpen roles, and the bench, and would only have $29 million to work with unless they crossed the luxury tax threshold. That’s pretty dicey.

Antonio Bastardo and David Herndon enter their first years of arbitration eligibility. Bastardo would probably bump up to $1 million, while the Phils could non-tender Herndon if the need arose. That gives us 13 players at $149 million. Assuming both Domonic Brown and John Mayberry are on the team at the league minimum rate, we’re at 15 players and $150 million.

Right now, the hypothetical rotation consists of Halladay, Lee, Hamels, Worley and Kendrick. The bullpen has Papelbon and Bastardo. If Brown and Mayberry platoon in left field, we still need a center fielder and third baseman and a bench other than whichever of those two doesn’t play. The Phillies could fill out the bullpen with five guys like Michael Schwimer, Justin De Fratus, Jake Diekman, Michael Stutes, Phillippe Aumont, Raul Valdes, Scott Elarton and other low-cost options and bump us up to 20 players and $153 million.

But then there are still two starting spots open, Worley’s $500K and whatever they decide to do with the bench. Realistically, we’re looking at 23 players and $157 million before the 3B and CF spots are filled. On top of that, it’s key to remember that 1/30th of the employee benefit costs counts towards each teams luxury tax payroll. So it’s really more like $167-$168 million than $153 million.

The bottom line is that the Phillies will be very close to the threshold again if they re-sign Hamels. But re-signing him is perfectly justifiable, which means it makes plenty of sense to seek financial wiggle room elsewhere so that they can pursue solid performers at either, or both of, third base and center field. Or, wiggle room could come into play if the Phillies once again vie for contention and need to make deadline upgrades.

Fans have been clamoring for an infusion of youth for quite some time now. A contract extension with Hamels will ultimately force the Phillies to fill the roster with youngins if they want to keep everyone else around, or it will require them to think long and hard about which high-priced veterans could both free up money and net a decent prospect package.

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