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Have to agree. It sounds like Iwakuma wants to prove himself and get the payoff at years end.
It wouldn't suprise me if he'd accept a slightly below-market extension mid-season, but I think we're best off letting him go.
Let him run a 3.30 ERA in Safeco (if the arm is still live) and get his contract next year. Hopefully we can add enough players to benefit from the bargan.