Nationals Sign Gio Gonzalez to Contract Extension

The Nationals announced Sunday that they have signed newly acquired lefty Gio Gonzalez to a 5-year contract extension worth $42m. The deal also includes two team option years, which could push it to 7 years and $65m.  This deal covers all four of Gonzalez’s arbitration years and up to his first three free agent years, pending the future decisions on the team options. Even though the team has yet to see whether or not Gonzalez can succeed in Washington, this is a wise, low-risk move that gives the team a measure of financial stability going forward.

Assuming the money is evenly spaced throughout the first 5 years, Gio will be paid $8.4m for each of his arbitration years, in addition to his first free agent year, for a total of $33.6m. Projections by Nats beat writer Mark Zuckerman have Gio’s salary totaling $33m during those years, ranging from $4m in the first year to $12m in the last. The deal also pays that same amount in the first free agent year, and an average of $11.5m for the next two years, which are club options. As a point of comparison, Jonathan Papelbon received a $12m deal from the Red Sox to avoid arbitration in 2011, and then got a 4 year/$50m deal from the Phillies as a free agent. If Papelbon was able to earn $12.5m for each of his first three free agent years (and the fourth), it’s not inconceivable that Gonzalez, as a left-handed starter in his prime, could earn more than the $14.5m per year that Mark Buehrle earned this offseason, which would make even those option years a bargain for the team.

This scenario, of course, assumes Gio will succeed. He’d have to be a consistent All-Star in order to live up to these projections, which is entirely possible. However, it is by no means guaranteed. Even if Gio’s walks come back to haunt him, or he otherwise falters, he is only promised $8.4m for these few years, which is not a colossal amount. For a team with an increasing payroll, this will be an acceptable price to pay for a player who at worst would be a backend starter. If he continues to struggle, the team will obviously not exercise those options and will not be forced to pay an exorbitant amount of money to a player who is not producing, which often becomes the case with players who reach free agency (think Vernon Wells, or Jayson Werth in 5 years.)

Deals like these were pioneered by the budget-conscious Rays, who have MVP-caliber third baseman Evan Longoria under control through 2013 for $17.5m and with club options for the next 3 years, which average $8.83m. They have a similar deal with rookie pitcher Matt Moore, and all indications point to that deal being a steal as well. The Nationals are smart to follow their example, even if their player is less of a sure thing. It’s a low-risk, high-reward proposition that will likely pay dividends for the Nats down the road.