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Max Scherzer Deal Won't Break the Nationals' Bank

The Nationals' deal with Max Scherzer shouldn't prevent them from spending in the near future, thanks in part to its unique structure.

Scott Rovak-USA TODAY Sports

The Nationals have handed righty Max Scherzer the second largest contract for a pitcher in the history of the game and the largest ever given to a free agent pitcher. The move solidifies Washington's already tight grip on the National League East but thanks to its unique structure, it also gives the Nationals room to maneuver in next few seasons. That may be just as vital with key players like Bryce Harper and Stephen Strasburg becoming more expensive and star pitcher Jordan Zimmermann and shortstop Ian Desmond headed for free agency next winter.

As Jeff Passan first reported, the Nationals will pay Scherzer $15 million a year for 14 years to reach the $210 million total he is owed, a move that Passan notes will save Scherzer quite a bit given the district's tax laws.The deal is a bit deceiving because of the structure, even beyond the complexities of tax laws. At Fangraphs, Dave Cameron broke those numbers down and put the inflation-adjusted cost to Washington at around $170 million thanks to the deferment. That is still an enormous investment for a team but structured as it is, the deal has far less of an impact on the team's near-future spending power than simply paying him the $30 million-a-year over the term of the deal would. With the value of a win by dollar/WAR calculations currently estimated at between $6 million and $7 million, the Nationals deferment plan lands them a player who should be worth approximately $30-$35 million this season at half that price. Inflation alone makes that a tremendous savings for the team, even if the estimated five percent rate of inflation in the game scales back to something closer to the average for the country. However, Washington benefits in terms of luxury tax considerations as well. Passan believes the league's math, which is based on average annual value, will assess Scherzer at $26.4 million per season. Teams pay a steep tax on every dollar spent over the luxury tax threshold, with the rate of the tax increasing with each year the team remains over the limit. Saving several million dollars in luxury tax money could be just as important for a team like Washington, as they now appear to be in a position to potentially pass over the threshold in 2015 or 2016.

Washington has increased payroll each season since 2008, more than tripling their payroll roll in the process. The results on the field have justified such increased spending since the team has transformed from a perennial also-ran to a top contender over the same period. The Nationals are young and talented so a giant win-now move like this makes perfect sense for them regardless of the luxury tax implications or the burden it might place on the team's future budgets. Already the clear favorite in their division, Scherzer has made the Nationals the clear favorite for the World Series now as well, at least according to the odds in Vegas. Considering that even monstrous deals like this have become movable in recent years, the Nationals have ever reason to do this now and consider the future later.

The future ramifications of this deal are not as bad as they might seem on the surface, however. The Washington market is the fourth-largest in the game, behind New York, Los Angeles and Chicago. It is on par with the Boston and San Francisco markets and even though it hosts both the Nationals and the Orioles, it can support the same kind of spending that a market like Boston does. This year, the Red Sox are looking at a projected payroll of $181 million. Washington could certainly sustain comparable spending in the short term. Scherzer's former team, the Detroit Tigers, play in a market that is two-thirds the size of the Nationals market and they have put up a payroll that has been more than $30 million above Washington's over the past three seasons. Like the Red Sox, the Nationals probably would not be wise to consistently hover over the luxury tax threshold, but they can sit at that level for a year or two, especially if it means holding down the division title with an iron fist.

Washington is not at that point yet however. Prior to the signing, Baseball-reference estimated the Nationals payroll at approximately $141 million. Scherzer's deal adds $26.4 million to the luxury cap number, making it roughly $167 million.Owner Ted Lerner is telling people he intends to keep the Nationals impressive rotation in tact despite the signing, according to Ken Rosenthal of Fox Sports. Regardless of that statement, the Nationals might consider dealing an arm. Doug Fister is the most obvious candidate. Fister will make $11.4 million this season and hit the market as a free agent after the season. Jordan Zimmermann will also become a free agent and he is owed $16.5 million, but Zimmermann has been one of the best pitchers in the game over the last few seasons. That will makes him a pricey one-year rental for any team that is trying to trade for him and a tough player for the win-now Nationals to part with this season. Rumors have already popped up concerning Stephen Strasburg, but a deal there seems unlikely as well. He would certainly draw interest from just about every team in the game, but it is hard to imagine the Nationals trading a player of his ability while he is still so inexpensive and Rosenthal  reports that other front offices believe the price will be exorbitant. Washington could also move Ian Desmond now that they have a replacement in Yunel Escobar. Desmond is owed $11 million this season and will become a free agent in November but their current plan seems to be to use Escobar at second, and it will probably take a very enticing offer to change that plan this season. The takeaway from Roenthal's report of Lerner's position on the rotation might be that team is very comfortable with the budget where it is, making any deal that happens about improving the team and not about shedding payroll.

If the Nationals stand pat until mid-season, they will be far enough under the $189 million luxury tax threshold to maneuver at the deadline with few restrictions. If they deal Fister or Desmond, they will have room to add just about anyone. With Desmond, Fister and Zimmerman all coming off the payroll at the end of the year, the Nationals have options in 2016. It will be difficult for them to remain under the luxury tax threshold if they resign both Zimmermann and Desmond and also hold on to Stephen Strasburg and Bryce Harper as they become more expensive. Since so much of Scherzer's price tag is deferred, the Nationals will almost certainly have the money to make those deals. Their limits in adding future payroll will probably be more about their tolerance for paying the luxury tax than their operating budget. The current Collective Bargaining Agreement will expire in 2016 and a new agreement will probably see the tax threshold rise at least in accordance with the league's inflation rate. That means the Nationals would be well justified in crossing the luxury tax threshold now or in the CBA's final year if they find themselves in need of a pricey player. With extra money available through 2017- the year they have to start funding the future payments for Scherzer (per Passan), the Nationals have every reason to keep adding talent during the season and next winter. They could choose to do so by trading a stud like Strasburg, but simply buying free agent talent should also be very much on the table.

So while the Scherzer signing might make it less likely that the Nationals will re-sign Jordan Zimmermann, it does not rule it out at all. Washington is a major market team at the absolute peak of their window to win. Even after adding the top free agent on the market at a near-record price, they still have the ability to spend during the season and next winter. If they choose to spend on Zimmermann or Desmond, they won't be hampered by the Scherzer deal. The long term outlook of this deal is difficult to gauge with a new CBA just around the corner. Pitchers are inherently risky and paying one through his age-36 season is never the ideal, but Scherzer is as good a bet to hold his value as anyone. Injuries or under-performance can always sabotage a deal, but it is hard to imagine a new CBA making this deal inherently worse for Washington. If nothing else, locking in Scherzer gives them some rotation security with Zimmermann, Gio Gonzalez and Stephen Strasburg all approaching free agency in the next three years. The Nationals were already the team to beat in the NL East. Now they are the team to beat in the National League as well. With room in the budget to spend remaining even after this deal, that will probably remain true in 2016.