The 2013 season for Phil Hughes was a supposed to be a big one as he heads towards free agency this winter. The right-hander was coming off a relatively solid 2012, when he logged a career-high 32 starts and 119.1 innings pitched while allowing runs at just a shade below league-average rate (98 ERA+). Heading into the 2013 season, it was sort of expected that he would have a good/big year and would cash in during the winter. Unfortunately for him and the Yankees, that has not happened, not even close.
After Hughes' dreadful start against the Padres on August 4, the 27-year-old described his year as a "nightmare I can't wake up from," and that couldn't be more true. Phil has pitched to an ugly 4.99 ERA (80 ERA+) and 4.72 FIP on the year. The saving grace for him, I guess, is that he has, aside from a back injury that delayed his season debut, stayed healthy so far. Either way, it was hoped that if the team chooses not to re-sign him during the off-season, that they would at least give their pitcher a qualifying offer, hope he declines it so he could sign a multi-year deal elsewhere, then the team would net a first round pick in return. At this rate, Phil would accept the qualifying offer if he received one from the Yankees, thus the team needs to keep him in the rotation and hope he turns it around. If they keep him in the rotation and he continues to struggle, they'll get nothing for him if/when he signs elsewhere this winter.
Now, keeping a severely home run prone pitcher who allows runs at a rate 20% worse than league average is a pretty big risk given the state of the team and the standings. However, it is a move they really have no choice but to make. If they give up on him as a starter and shift him to the bullpen, there wouldn't be much sense in giving him the qualifying offer after the season, since the Yankees basically tipped their hand at what they think he is. They could try to slip him through waivers and trade him, but they'll get next to nothing in return. Or maybe they could trade him, get something little of value in return, then, in a separate deal, try to trade for another starter, but that has too many moving parts and I doubt they'd get someone good in return anyway.
Like it or not, the Yankees' smartest choice is to keep Hughes in the rotation and hope and pray he figures it out. It wouldn't be the most surprising thing if he does turn it around and pitches well, though. In fact, just last year, in his final 27 starts, he pitched to a solid 3.82 ERA. A turnaround isn't completely unreasonable. Even if they decide to pull him from the rotation, they'd replace him with... Adam Warren and his 5.46 ERA the past two-and-a-half months in relief? Brett Marshall? There just aren't any better alternatives in the organization right now, which really speaks to the lack of pitching depth the team is currently dealing with.