It was obviously a mistake, I just don't think it was an egregious one. Also, it was a mutual option, while it's fair to think that Morton would have taken the guaranteed $9.5 million, we don't know that for sure. Instead he got $7 million but two guaranteed years (plus $1 million from the Phillies).
The money part is what's frustrating - even 9.5 milliion was peanuts. But I think it was more that, once Hellickson surprised them, they didn't want two veterans taking up rotation spots, even until July. The rest of the rotation that year was Velasquez, Eickhoff, Nola, Pivetta, with Lively, Eflin and Leiter Jr. all making double digit starts. Not the greatest group in hindsight but the auditions needed to happen, and also, they weren't trying to win. Had Morton stayed Alec Bohm might not be on the Phillies now.
I also don't think it does any good to assume Morton would have stayed with the Phillies past 2017 (he still would have been traded at the deadline), or even pitched like he did in Houston for them (evidence says he very clearly wouldn't have).
Last year was a more interesting failure. They were wrong to prefer Happ to Morton and right to not want to give Happ more years. They were also probably wrong to lowball Corbin, but then we wouldn't have Wheeler now.