The Yankees And Opportunity Cost

During a discussion with reporters on Wednesday, Brian Cashman talked about the budget that he was operating under. Or perhaps more specifically, the lack of a fixed budget.

“There’s always the target area (for the payroll),” Cashman said. “But obviously we’ve always been in the position thankfully that depending on what becomes available, how it looks, what our current circumstances are, if we’re quote unquote in trouble, we have an ownership that’s receptive to having conversations obviously regarding that. I’ll give you an example.

“Like last year, Russell Martin became available so we stretched to make that work. There wasn’t an intention there. But that was something that he allowed me to do a little bit more on because … we weren’t expecting that. We were going to go with the young catchers. But when he became non-tendered, and if we could get a deal at a certain amount, it took a lot of conversations with Hal Steinbrenner. He allowed that to happen and it was a real big benefit for us and we appreciate that.

“So you have those give and takes that take place. Sometimes it’s no, and sometimes it’s yes, but obviously the flexibility, as you already know, there’s no set number where you can’t exceed it that obviously exists in other environments.”

Not that this is any real surprise, but the Yankees don’t have a payroll limit, they have a “target area”. Ownership probably wouldn’t go for a $300 million payroll, but as long as Cashman can make a compelling case that there’s value to be had in spending a bit more money, he has the ability to dip into an essentially unlimited pool of resources.

As Cashman notes, this isn’t how it works for most teams. Pretty much every other baseball operations department is operating under a budget that isn’t a moving target, and they have to build out their roster knowing that it can’t exceed a set number of dollars for the upcoming season. Thus, every dollar they spend on one player is money they cannot spend on another player, and every player’s salary represents an opportunity cost. This constraint serves to keep salaries somewhat in line with market rates, as even though teams are operating under different budgets, they’re all still incentivized to try to get the best deal they can in acquiring talent, because resources saved on one deal can be used to make another.

The Yankees simply don’t have that constraint. Their only opportunity cost is roster spots – they can’t have Prince Fielder or Albert Pujols because they already have Mark Teixeira playing first base, not because the salaries are a deterrent. We saw this last year with Rafael Soriano, in fact – ownership overruled Cashman and gave Soriano a monster contract to serve as a setup man because it made the team better and the cash spent on Soriano would not prevent the Yankees from doing anything else they wanted to do.

Being efficient with your money matters when there’s a limited supply of how much you can spend. In the Yankees case, that limit doesn’t really exist, and thus they can build their roster in a different way. They still are incentivized to get quality players who will perform for the length of their contracts, but the constraint is the roster spot, not the salary. With that in mind, the Yankees evaluations can be based more on simply expected production without much regard to whether signing a certain player will affect their ability to retain or acquire a player at another position that they also want.

That’s why, when it comes to $/win analysis of transactions, the Yankees can do their calculations in an entirely different way – their calculations can be based on simply outbidding a competitor, rather than justifying the cost based on their own total budget. The entire concept of efficient spending is driven by the idea that a player’s salary represents an opportunity cost, and getting one guy necessarily comes at the expense of getting the next best thing you could acquire for that same price. In New York, though, Cashman has essentially admitted that they have carte blanche to pursue anyone as long as he can make a case to ownership that it will make the team better.

For the Yankees, the cost of a player isn’t irrelevant, but it’s certainly marginalized because getting Player X has little to no effect on their ability to also get Player Y. This reality essentially puts them on a different playing field than the other 29 teams, and some would argue that it tilts the competitive balance scales too far in their direction. As Bradley noted earlier this week, there is parity in baseball, but there might not be enough parity, and there certainly isn’t an equal process in determining the value of a player. The Yankees simply don’t have to factor in the most real constraint that causes other teams to weigh the cost of acquiring a player.

At some point, Major League Baseball will probably have to do something about this. The league doesn’t need a blunt tool like a salary cap – which is good, because the player’s association would never go for one anyway – but instead could benefit from a more precise limiting tool that would serve only to bring the Yankees back in line with the decision making processes that the rest of the league has to face.

What that tool is, I’m not sure. There are downsides to any spending constraint, and as long as the Yankees are making the revenues that they are now, they’ll simply be able to shift their assets from one area to another if the league restricts their ability to invest in their Major League roster. But, given the reality of the current Yankees situation, I think it is fair to say that they’ve found themselves in a unique position where they’re simply operating under a different set of rules than every other MLB organization.

And that’s a problem. When one organization can simply put aside cost as a significant factor in their evaluation of whether or not they should acquire a player, they’re simply not bound by the same factors as the other franchises. The Yankees should be congratulated for creating an empire that produces the kinds of revenues that allow them to make those decisions, but I’d argue that it’s not clear that they should continue to be allowed to operate in such a manner.



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Dave is the Managing Editor of FanGraphs.


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Prashanth Francis
Guest
4 years 6 months ago

Wait, didn’t you just use the Yankees signing of CC Sabathia to make an argument regarding $/WAR?

Conor
Guest
Conor
4 years 6 months ago

Love FanGraphs, love USSMariner, but this is just another article crying about how unfair baseball is when it comes to the Yankees. The Yankees’ ownership is simply willing to spend. The richest owner in baseball? Jim Pohlad of the Twins. At least Jim has agreed to stretch the payroll a bit, whereas his father Carl refused to spend any more money than he absolutely had to on his team. The people who own these teams are billionaires. If they don’t want to spend, that’s fine, but don’t complain about the Yankees because the people who run them are willing to spend and spend and spend if necessary to put a winner on the field.

Connor
Guest
Connor
4 years 6 months ago

Actually, it’s Rogers Telecommunications of the Blue Jays.

DD
Guest
DD
4 years 6 months ago

Connor – you’re not thinking of the business side of things. It’s great of Toronto or Minnesota have the richest owners, but why would they invest an extra $50 million in a payroll that would not sufficiently increase revenues, so they would earn their money back? If the owners invest an extra $50 mil, they may sell out every game, and increase revenues $30 mil. Was it worth it? However, the Yankees make over a BILLION a year, when counting YES network revenues, and they don’t need to be the richest owners to be flush with cash. Their cash comes from operations, not the owners wallet. Also, if the Yankees raise ticket prices 10% to cover a higher payroll, you can bet they still sell out. In Minnesota, I doubt that would work as well.

Prashanth Francis
Guest
4 years 6 months ago

They make over a billion annually? They make a lot, but I don’t think it’s that much. Do you have a source or link for this?

They don’t get all of the revenues from the YES network; the New Jersey Nets are also shown on that channel, thus some of the revenues go to them.

Prashanth Francis
Guest
4 years 6 months ago

Yes, that $450-500M range is where I had them pegged. Plus when they make the playoffs, they make much more than the average playoff team.

Which gets back to why this issue needs to be addressed. In physiological terms, this would be called a positive feedback loop, where the end result of the starting cause (making the playoffs from having a collection of the best players from being able to pay the most) feeds back into the starting cause (additional money to pay for the best players).

Someanalyst
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Someanalyst
4 years 6 months ago

YES Network ownership means cashflow and not revenues are transferred (YES Netowork operating costs have to be covered). For YES, whose 2011 revenues will be $450m-$500m, you can expect EBITDA margins of >40% and possibly >50% (yes, it is very cool to be an RSN). I think the Yankees can expect ~$80m from TV, growing ~10% annually (RSN business model has operating leverage). Keep in mind that the Texas Rangers “monster” new TV deal will pay them $80m per year 20 years from now… when the Yankees might be taking in >$500m in TV revenues… scary.

Joe
Guest
Joe
4 years 6 months ago

Dave….. So if Nolan Ryan owns a 10% stake in an oil company we should look at 10% of that company’s revenues as Rangers revenue?

Also you are treating YES revenue as YES operating cash flow… they do incur some costs as a company…

134mil is not 134 free cash flow.If you look at a fairly aggressive margin of 60% (which might be the case here)… that # is 80mil and you are assuming a specific individual is transferring all that money from one company to another and is basically treating YES as a non-profit for his portion of the stake in the company. (Again would it be fair to assume other owners who own stakes in other companies should consider that revenue or cash flow coming out of that as part of the team revenue?)

Also ticket/gate revenue now ends up going 100% to the individual team? Interesting understanding of the baseball revenue model you have there.

While the Yankees certainly do have a revenue advantage, your breakdown/analysis/estimate of it is quite frankly…. laughable.

MikeD
Guest
MikeD
4 years 6 months ago

Revenue is one part of the equation. What are the Yankees expenses? Those two numbers are what determine the Yankees buying power. They bring in more revenue but their expenses are also higher.

None of that is in disagreement with the point of the article, but the numbers are incomplete. Large assumptions are being made on how the Yankees have decided to operate compared to other teams.

Generic
Guest
Generic
4 years 6 months ago

The content of the last paragraph should have been the focus of the article.

.
Guest
.
4 years 6 months ago

Occupy Monument Park!

Prashanth Francis
Guest
4 years 6 months ago

By the away, I absolutely agree with the last paragraph. You hint at it, but I feel pretty strongly that the way the Yankees are allowed to currently operate is entirely unfair. It’s not that they have more money than anybody else, that exists in every system; what makes the Yankees advantage so unfair is how much more they make than everybody else (including successful teams in large markets).

I’m intrigued with the idea of moving the Rays to the Northeast (NJ) as a possible solution.

Brad Johnson
Guest
4 years 6 months ago

I’ve always like the idea of breaking up a portion of the Yankees territory. The Rays are a good option now because they can move in and immediately compete, thus gaining fans quickly.

28 this year
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28 this year
4 years 6 months ago

You’re probably gonna end up hurting the Mets more than the Yankees and that would defeat the purpose. It might help but you’d also have to somehow compensate the Yankees for losing that territory, same way like the Giants and San Jose. Just cause the Yankees are rich, doesn’t give the right for MLB to take away territory without compensation. That also includes compensation for the Mets. It’s more complicated and I think the impact on the Yankees would be minimal or at the very least, take a long time to truly become visible. In that time, who knows how much bigger the Yankees are going to be.

Prashanth Francis
Guest
4 years 6 months ago

There are ways to do this that doesn’t directly encroach on their territory, I believe. There are parts of NJ that are not officially designated to any one specific team.

The teams in the NE would likely all file claims, and some would be compensated to varying degrees, but this seems like the best long term solution. It especially makes sense if you look at it in terms of Population/Team, dividing up the city’s population for the teams that share one city.

28 this year
Guest
28 this year
4 years 6 months ago

I get what your saying but if I remember correctly, this site posted a map showing TV territories across the country and every part of the country is designated in some direction. Northern NJ happens to be a part of the Yankees and Mets. It kinda makes sense on a long term basis but I think moving a team like the Rays would help the Rays and destroy the Mets more than really take away the revenue streams of the Yankees. The issue is that there is another team in the NY area in the Mets. Also, the Phillies are fairly popular in this area too so while you have certain good factors, I dont think the Yankees are going to be as affected. I dont know enough about history to know why the Giants and Dodgers left NY, but I do know that the Giants left cause the Yankees drew more in the Giants home stadium than the Giants themselves. It might work but I think its a little optimistic to say that the Yankees are going to be hurt without realizing that the Mets would really be hurt most of all.

Steve
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Steve
4 years 6 months ago

The Mets would even allow the Yankees to move their TRIPLE A team to NEWARK for ONE SEASON ONLY.

Yeah, I can imagine the Mets and Yankees allowing another MLB team in their territory….

Steve
Guest
Steve
4 years 6 months ago

*would not allow*

antonio bananas
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antonio bananas
4 years 6 months ago

@28 this year, I’m thinking they moved the Giants and Dodgers to california because the Pacific Coast League was gaining so much popularity in the untapped market that MLB wanted to squash them by bringing popular franchises over.

Craig Maduro
Guest
4 years 6 months ago

It would take decades before the Rays were able to gain a real following in that area – if ever. The Yankees and Phillies are entrenched in that market and they’re not going to start supporting a new team that moves into the same general area. The same goes for the Mets for that matter. Who knows, maybe eventually they could be successful, but NJ is close enough to NY and Philly that the residents have developed strong ties to their respective teams that span generations.

This isn’t like giving Charlotte a football team and knocking North Carolinians off of the Cowboys or Redskins bandwagon.

BDF
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BDF
4 years 6 months ago

It’s not unfair because their advantage is so large; it’s unfair because their advantage is (partly) a function of something that they don’t have to adequately account for. It’s like Chinese subsidies for solar panels. That “something” is their presence in the matrix of MLB. The Yankees on their own, apart from the other 29 teams, are worth (close to) nothing and have zero revenue. They have no advantage over their competitors without those competitors’ existence, but reap the reward without paying an appropriate cost.

AndrewYF
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AndrewYF
4 years 6 months ago

“The Yankees on their own, apart from the other 29 teams, are worth (close to) nothing and have zero revenue.”

This is true of every other team in any sport ever. A statement completely without a point.

“but reap the reward without paying an appropriate cost.”

They pay millions upon millions in revenue sharing and luxury tax. Oh, they’re still able to make money? Much of that is because they’re able to utilize their resources extremely well. Their extreme amount of recent (past 15 years) success and their fantastic business acumen rightfully gives them astounding revenues, more than enough to overcome all the other attempts to bring them down over the years. The Mets could easily have done the same, but they were mismanaged and have been terrible.

The Yankees succeeding is not some given fact no matter what happens. They succeed because they win, a lot, and they win (mostly) because they’re well-run. Sour Grapes Cameron would have you believe that the only reason the Yankees win is because they spend a lot of money, but a lot of baseball teams spend a lot of money. The problem is, they spend a lot of it on awful players (Chone Figgins, anyone?) The wouldn’t be able to have humongous payrolls if they were run like, say, the Mets. In fact, their payroll advantage has been going down ever since they stalled right around $200M and everyone else’s has been rising.

Dave actually makes a decent point that he failed to pursue because he’s unfortunately obsessed with the Yankees’ payroll. The fact that they simply can’t sign everyone, because they don’t have the roster space or the playing time to give. No, this is not really a big problem with most of the other teams in the league, but it doesn’t make the Yankees’ situation into some kind of untenable unfairathon. In fact, it gives them a somewhat unique set of challenges, and is probably the reason why their payroll has stalled out around where it is. Other teams, like the Red Sox, the Phillies, Toronto, etc, just need to keep catching up. They certainly have the resources.

BDF
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BDF
4 years 6 months ago

“This is true of every other team in any sport ever. A statement completely without a point.”

A relevant point that, yes, applies to every other team sport, and one that the NBA Players Association has been making during their lockout.

The Yankees paid about $130 million in revenue sharing and luxury tax in 2010 on revenue (as estimated above) of $536 million. That’s just shy of 25%, and in my opinion it’s inadequate. Since their revenue would plummet to $0 without their competitors a 50-50 split (for everyone not just the Yankees–basically the difference between 1/162 of each team’s revenue goes to the lower revenue team for each game played) makes intuitive sense to me. This would preserve the Yankees’ inherent advantage but also satisfy the (or my) requirements of fundamental fairness.

You’re absolutely right that the Yankees are very well run and that their revenue by no means destines them to win. But it’s kind of like two guys throwing darts, only I have one and you have ten; I can throw a bullseye with my only shot, but if you’re any good at all you’ll end up with more bullseyes and look you’re better. It can be hard at all, and no one would argue that it’s a fair contest.

Tyler
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Tyler
4 years 6 months ago

This means they can extend A-Rod again right? I was starting to get worried.

28 this year
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28 this year
4 years 6 months ago

If you really look at it, the Yankees haven’t really increased payroll in like 5 years and thats with moving into a new money making machine of a stadium. To say the Yankees are still screwing over baseball is to ignore the fact that they haven’t really increased payroll in a while and even though they could, there isn’t much indication to show that they will completely disregard cost altogether. If you look at other big market teams, those teams are growing and raising payroll much faster than the Yankees lessening the disparity. While disparity exists, the Yankees haven’t exactly grown payroll.

Someanalyst
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Someanalyst
4 years 6 months ago

At some point, the roster spots do become a limiting factor – specifically, it limits how far above the league-average payroll you can actually go. A ~$400m payroll might actually be impossible to assemble (25 players at >$15m each… where do they all come from?). What the Yankees do is consistently maintain a gap between their payroll and the next highest. Unequivocal evidence of their spending power.

28 this year
Guest
28 this year
4 years 6 months ago

They do maintain a gap but at the same time, the gap is kind of going down as the Red Sox and Phillies spend more and more while the Yankees hold constant. Everyone says the Yankees blew out the water for Sabathia which is true, the Phillies had multiple 20 million dollar starters along with Oswalt at 16. There is no doubt the Yankees spend more but I think people have this overreaction over how they do it. I like this debate, I just dont think the Yankees will be jumping way beyond the league that much under Hal vs. George. Its a different ownership philosophy that has two consequences: smarter business decisions and less spending.

Someanalyst
Guest
Someanalyst
4 years 6 months ago

You’re right that the gap is not constant and that it currently appears to be shrinking (both relative to league avg and next highest). But the difference between the Yankees and the Phillies remains that the Phillies spend (and compete) cyclically like everybody else while the Yankees spend the most and have a chance to win each year. It is legitimately earned dominance, but that will not stop MLB from ending it if it seems to be in its interests to do so.

Someanalyst
Guest
Someanalyst
4 years 6 months ago

Actually, I should qualify my “legitimately earned” statement – legitimately earned dominance given the restrictions on local competition. If MLB were like eurpoean soccer (no restrictions), there would be >5 major baseball teams in the NYC area; just like London has Chelsea, Arsenal, Tottenham, West Ham United, Queens Park Rangers and Fulham and that’s just in the 20-team premier league…

LTG
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LTG
4 years 6 months ago

It strikes me as an overreach to claim the Yankees are immune to the cyclical effects, although their fiduciary supremacy can make them the most buffered team in MLB. We have seen the Yankees suffer periods of ineptitude in the past (64-77, 84-93), and we should expect to see another period soon enough. Just like any team, if the farm system goes bare and they buy the wrong players, they will stop being competitive. They just have a much thicker buffer or margin of error than any other team.

Gingerade
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Gingerade
4 years 6 months ago

if you don’t like capitalism, defect into Cuba

short
Guest
short
4 years 6 months ago

Sports is not capitalism. McDonald’s doesn’t benefit in any way from having Wendy’s, Jack in the Box and In ‘N’ Out Burger in the same market, but the Yankees need the Royals, Mariners and Orioles as opponents to create competition or they don’t sell tickets. MLB benefits from having a larger national TV market when there are teams all over the place.

The Yankees should be forced by the league to either accept a ridiculously high luxury tax or a new team in their territory. They have no claim to anything that supercedes the health of the league as a whole. Without the league they’re the Harlem Globetrotters, in need of a Washington Generals to beat up on.

Personally I think the Rays should move to New York or possibly neighboring Connecticut, where there is a TV market of modest size that undoubtedly contains tons of Yankee fans. It would also impact the Mets and Red Sox but I wouldn’t cry about that much. The Northeast is an underserved market right now and the Yankees are the primary benefactors.

Steve
Guest
Steve
4 years 6 months ago

The Yankees should be forced by the league to either accept a ridiculously high luxury tax or a new team in their territory. They have no claim to anything that supercedes the health of the league as a whole.

Except this comment assumes that business as usual for the Yankees is NOT very good for the health of the league as a whole. I doubt the owners would agree.

The Yankees DO pay a ridiculously high luxury tax and they pay a ton of money into revenue sharing.

I’m going to guess that the Yankees would accept a third team into their territory in exchange for those other 2 going away happily. I doubt the rest of the league would like that very much.

antonio bananas
Guest
antonio bananas
4 years 6 months ago

@gingerade, you terrify me. So, pure capitalism is a good thing right? Because taxes place a restriction on success. Well, what about the restriction of being born poorer? Say I can’t afford college without tax rev making my school cheaper, yet I’m smarter than some spoiled suburban assclown who drinks through school. That’s a restriction on success too right? So the fair market didn’t actually work did it? Unless we all start out the same (which we dont’) it’s not good in its purest form.

Nick44
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Nick44
4 years 6 months ago

Pure capitalism allows you to shoot people and take their money legally.

Jeff
Guest
Jeff
4 years 6 months ago

I’m a Blue Jays fan, so maybe I should get more worked up about the Yankees’ unique financial resources than I do. But what’s the problem, exactly, with the Yankees being able to spend piles more money than anybody else?

-Can the Yankees buy their way to World Series wins? Not really. Enough randomness exists in baseball that even a 7-game series between the best and worst playoff teams is pretty close to a coin flip. So even if the Yankees can more or less buy their way into the playoffs every single season, they might be reasonably expected to win one or two World Series(es?) a decade. That’s not really out of line with the most successful franchises in other sports.

-Can the Yankees’ perennial success deny *other* teams the opportunity to compete for a World Series win? Again, not as much as you might imagine. Even the other AL East teams have a chance to compete for the wild-card (and soon there might even be two). And once the playoffs begin, everybody’s got one lottery ticket.

In any case, it’s impossible to improve the odds of non-Yankees teams winning without limiting the Yankees to the extent that they’re no longer a lock to make the playoffs. Talk about being punished for success.

hk
Guest
hk
4 years 6 months ago

Jeff,

Randomness may be keeping the Yankees from buying World Series wins, but the high payroll has had a huge impact on the Yankees ability to get into the tournament of randomness known as the MLB playoffs. By extension, the Yankees advantage also reduces the likelihood that a team like the Blue Jays gets into the tournament.

Steve
Guest
Steve
4 years 6 months ago

Sorry man, but I find this comment to be borderline offensive (though I’m sure you didn’t intend it that way). I’m a Rangers fan. My team has NEVER won the World Series. The idea that the Yankees, or any team, is basically entitled to “one or two World Series every decade” solely because of their market size and branding is absolutely ridiculous.

The Rajah
Guest
The Rajah
4 years 6 months ago

In the late 1990’s, MLB hired a company to do a study to find the optimum place(s) to relocate a franchise (with intentions of finding a new home for the Marlins and maybe the Expos) and concluded that the top three locations were
1. New York City
2. New York City
3. Northern New Jersey
Essentially, this report says that metro NYC is big enough to support 5 MLB teams, but only has two. That’s a lot of dollars focused on just two teams. Heck, the city had three teams 50+ years ago when the population in NYC was half what it is now. This is because of the geographic claims that each team has on an area and won’t let someone new move in. There is no capitalism in having a monopoly on a geographic area. This gives the New York teams a tremendously unfair advantage.
A salary floor is the answer. The union cannot argue against having each team keep a minimum payroll at all times. This will keep teams like the Marlins from raking in luxury tax money and making a profit on their bretheren’s successes. For the sake of making my point, I will say the salary floor is $50M. Under these rules, the Marlins are expected to pay at least $50M in salary to their team each season and will end up keeping better players rather than having fire sales. If the Marlins have to keep their better players to keep their team salary above a designated threshold, then there will be fewer players for the Yankees to chase in free agency. Fewer star players available will result in a more competitive balance.
Of course, this will also produce problems for franchises who are having difficulty earning big bucks to pay these salaries, but that could be part of team relocation to a place that is way too big for just two franchises…

Jeff
Guest
Jeff
4 years 6 months ago

Nobody is *entitled* to a championship every decade.

Just making the point that the Yankees aren’t any more successful, in terms of the rate at which they win championships, than teams like the Lakers or Steelers, which operate in much stricter revenue sharing/salary cap environments.

frank
Guest
frank
4 years 6 months ago

EXPECTED.

Expected to win one or two World Series every decade. Expected does not equal entitled.

The Yankees are expected to be in the mix to win the World Series every year. They are not entitled to anything.

antonio bananas
Guest
antonio bananas
4 years 6 months ago

Baseball’s anti-trust is bogus. Because of it, it requires 100% of the owners to agree on something. If it were a simple majority or even 2/3 or 3/4, I bet most of the other owners would allow another team in New York/Jersey.

antonio bananas
Guest
antonio bananas
4 years 6 months ago

I agree with the salary floor idea. Having revenue sharing (however shitty the luxury tax is), is worthless unless you have some way to force teams to put money back in the team. Some will say that some teams can’t afford the floor, but this should be corrected through an increase in league interest and thus, revenue for each team. I say there will be an increase in league interest because of the “uncertain outcome hypothesis” which states that people prefer close games/seasons. It’s why in late August a Yankee/Red Sox game didn’t outdraw Jersey Shore IN NEW YORK. Nobody cared, at that point, it looked like both teams would easily make the playoffs.

MikeS
Guest
MikeS
4 years 6 months ago

Outstanding article. You even point out that if you limit the Yankees ability to spend on major league talent they will leverage their advantage in other ways so the playing field will never be completely level.

I only diagree with one point. “Major League Baseball will probably have to do something about this. The league doesn’t need a blunt tool like a salary cap – which is good, because the player’s association would never go for one anyway – but instead could benefit from a more precise limiting tool that would serve only to bring the Yankees back in line with the decision making processes that the rest of the league has to face.”

I don’t know what thay tool is either but if you postulate that the Yankees have no internal budget and can literally spend whatever they want (which you did) then nothing but a hard cap will affect them. If a luxury tax drives the payroll to $400M but they choose to pay it than the tool has not done anything but line the pockets of owners unwilling to spend. If the only constraint is Cashman convincing ownership they are better and the dollars don’t matter then I don’t see how any tool other than a hard cap will stop them from continuing to outspend the market dramatically.

I also disagree that the union would never go for a cap. If the total money spent on payroll were to go up then, as a union, they probably should agree to it. If a cap is accompanied by a floor that causes all teams in total to spend more than they do now even though the Yankees and a few others spend less than shouldn’t the union jump at that chance? They represent all ballplayers, not just the ones making 8 figures.

mscharer
Member
mscharer
4 years 6 months ago

I think the evil empire having a financial advantage is ultimately good overall for baseball. It drives interest because the other 29 teams hate them for it. Everybody hates the Yankees, and as a Tiger fan I have gained extra joy in winning from beating them the last two times the Tigers have made the playoffs.

I do feel bad for two teams though, the Rays and Blue Jays. IMO, they are the only teams that really operate under the disadvantage because they are stuck in the same division. I don’t really feel bad for the O’s because of the Angelos factor. Baseball is about making the playoffs, the Yankees have an advantage in that aspect every year. So over time they have advantage in winning the most World Series, but year to year, their advantage is removed because of the randomness of match-ups and small sample sizes with the nature of the playoff system.

antonio bananas
Guest
antonio bananas
4 years 6 months ago

It’s good to have a villain but it’s better to have competitive balance. Look at competitive balance between the NFL and MLB, and then look at their growth in popularity over the past 50 years. Sure there are other circumstances that help the NFL, but most economists agree that people like competitive balance. MLB doesn’t have that. More rev sharing and a cap/floor would be an easy fix but Bud is too retarded to change because the Cards and Rangers winning the playoff lottery proves the system works. I mean, sure you have teams with over a decades worth of success and others with a decade’s worth of losing, but whatever, whoever gets lucky enough to win the World Series is the true gauge…

RiversQ
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RiversQ
4 years 6 months ago

It does seem that the best way to bring the Yankees back in line would be to put another team in their territory. The problem is revenue disparity and clearly NYC needs more than two teams to serve the market.

Marver
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Marver
4 years 6 months ago

It’s not that the Yankees need to be efficient with the payroll, they just need to hold on to their incredible market share and the interest their product creates. By focusing on delivering the best product possible, and not the precise highest profit, they hold onto revenues that make their payroll fluctuations appear as noise.

Yankees Market
Guest
Yankees Market
4 years 6 months ago

By luck, skill, or both, the Yankees have acquired a huge fanbase that can’t really be split up by introducing another team. All of New York State is largely Yankees fans except for Western Long Island (Queens, Brooklyn, western Nassau), and the very tip of Eastern Long Island (gets into New England-fans there). You’ll never split Westchester from the Yankees, and the Buffalo-Rochester-Syracuse-Albany market couldn’t support a team even if they didn’t have to be pried from the Yankees to begin with. Northern NJ (Newark, etc.) is a similar situation. You can’t move into Central NJ without the Phillies crying foul, nor Connecticut without imposing on the Red Sox as well, not that either of those markets is sustainable either.

The Yankees have an immovable stake in the country’s largest city and its immediate outlying area. In addition, they have a collection of many smaller markets that could never support their own teams, but in aggregate they add a huge population to the fan base. They also have the front-running, prestige-liking people from all over in their ranks (can’t always blame those people, it’s fun to root for a winner). All-in-all, you can’t really slice into the revenues unless you go all-in for revenue sharing, but then the Dodgers, Red Sox, Angels, Cubs, Phillies, etc. would also be extremely unhappy and oppose it too.

TL;DR version: You can’t stop the Yankees from making a crap-load of money. The only solution is a salary cap to make them not be able to spend it all. The question is not about the solution, but if there is an actual problem.

Steve
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Steve
4 years 6 months ago

That’s naive. If you moved a team to Jersey, CT, Brooklyn, SI, etc., you’d create a new fanbase, same as what happened with the Mets. There are a lot of “soft” Yankees fans in NY, who aren’t diehards. And there are legions of Brooklynites that hate the Yankees and never embraced the Mets. Sure the new team wouldn’t have the same fanbase as the Yanks, but it’d still be a big market team with a big fanbase and would significantly eat into the profits of both the Yanks and Mets. (And the Red Sox, if it were in CT.)

Yankees Market
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Yankees Market
4 years 6 months ago

The problem with Jersey, Staten Island, and CT is that they could never support a team on their own. Brooklyn is an interesting idea, but that would really hammer the Mets, and the Brooklyn Rays would certainly be a niche market that would have a tough time gaining a foothold, much like the NY Islanders.

The reason the Mets got traction, and it wasn’t much for a long time mind you, was because the Giants and Dodgers had left NY only 5 years prior, and National League fans had no one to root for (bear in mind the leagues were culturally separated a lot more back then). There is no such fan base to sweep up now.

We can’t just pick a market to hurt the Yankees revenue steam. We have to choose one that can support itself, and is better than the currently flailing ones (Tampa being the most obvious). Expansion is simply not going to happen right now.

Bookbook
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Bookbook
4 years 6 months ago

I doubt that moving teams into the Yankees’ territory would actually weaken the Yankee brand and revenues, nor increase, say, the Rays. Do the Mets impact the Yankee juggernaut very much?

Steve
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Steve
4 years 6 months ago

Umm…absolutely, they do. The Mets are a huge market team, that dominates most of Queens and LI. You think the Yankees wouldn’t have even more money if they were the only brand in the whole city?

Thomas Tu
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Thomas Tu
4 years 6 months ago

The Mets do not dominate ANY of the 5 boroughs. Their largest fanbase/fanborough, Queens, is still 60% pro-Yankee.

IvanGrushenko
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IvanGrushenko
4 years 6 months ago

The Mets were more popular than the Yankees in the 1980s. If I’m the Rays, I’d try to move somewhere in Manhattan. That would strike at the very heart of Yankee money.

ALAIN
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ALAIN
4 years 6 months ago

so punish the Yankees for to be role economic model in a role economic market.

Someanalyst
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Someanalyst
4 years 6 months ago

Je sais ce que tu veux dire (je pense) mais ton anglais n’est pas claire…

Someanalyst
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Someanalyst
4 years 6 months ago

Rhetorically: So we punish the Yankees for being economic role models in a model economic market?

antonio bananas
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antonio bananas
4 years 6 months ago

Well, when no one gives a shit about the world series because no one cares about other teams, when people care less and less about baseball because there isn’t all that much uncertainty (the Yankees 99% WILL make the playoffs and 100% will have a winning record). Then YES, you do. The Yankees benefit from playing other teams. Should you punish these other teams?

You aren’t thinking in a broad enough way. If the Yankees keep winning, and other teams keep losing. Eventually no one cares right? The Yankees NEED the other teams. Not only that, but there needs to be close games and close races or people don’t care. Plus, if baseball were more competitive, more people would be interested, and revenue for all teams would go up (including the Yankees) and it would possibly make up for whatever “tax” you impose on the Yankees.

Joel
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Joel
4 years 6 months ago

Until MLB is given a financial impetus for crippling their most lucrative brand for the sake of competitive balance, then they’ll never do it. Simple as that.

Eric R
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Eric R
4 years 6 months ago

How about this–get rid of the divisions and leagues. Create as close to a balanced schedule as possible. The top 10 teams in payroll* get two play-off spots. The other 20 teams get the remaining six** play-off spots.

Now you have a real disadvantage in having a large payroll, fighting for a more limited chance for post-season play.

* It would have to be some average over the season, since a team might start out in the top 10 and fall out of it if the #11 team adds some players mid-season. Teams near that #10 spot, might not even know which bucket they are going to fall into until late in the season…

** If MLB is dead set on 10 play-off teams, then I say add those two to the bottom 20 teams and keep it 2 of 10 at the top.

Marver
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Marver
4 years 6 months ago

That league would suck.

Tom
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Tom
4 years 6 months ago

The Rafael Soriano signing was the exact opposite of your opportunity cost model and goes completely against your non budget, add players that add value theory.

Soriano was signed after the 23-24 mil the Yankees had set toward Cliff Lee was freed up when he signed with the Phils, You only have to ask yourself…. would the Yankees have signed Soriano if Lee had been signed?

Based on your opportunity cost model and , no budget theory… I guess the answer is yes?

Must everything be bent to fit your premise?

JCA
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JCA
4 years 6 months ago

What if the Rays and maybe the Os and Blue Jays received a disproportinate share of the NYY luxury tax money? That way, the more the NYY spent, the more they would be directly subsidizing one of their two biggest competitors. Under that structure, Sternberg could budget based on the tax revenues, which would be even more predictable than attendance. Perhaps rank the teams in each division by revenue base, and if the top revenue team exceeds the luxury tax threshold, a disproportionate share of the revenue goes to the bottom team, the second to the second lowest, etc…

If a team is in a division in which none of the teams blow the threshold, should they even get any of the luxury tax revenue? This is a different pot from revenue sharing, so the other teams would still get a share of that. But as for the luxury tax – the so-called competitive balance tax – what better use would there be than to subsidize the most needy direct competitor?

Mike
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Mike
4 years 6 months ago

If this were true the Yankees would also spend the most in the draft and in international signees, because in those cases, even more so than on the major league roster they would have absolutely no constraints.

But wait, the Yankees spend less than a handful of other teams in the draft including the Red Sox.

Interesting hypothesis and certainly fun to write about buutt you’re wrong.

JimNYC
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JimNYC
4 years 6 months ago

This. If a hard cap were ever implemented, the Yankees would just sign EVERY international prospect.

Charles W. Artis
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Charles W. Artis
4 years 6 months ago

The are the best known team in major league sports.
That’s why there’s no payroll cap; The Yankee name means fans in the stands even in Seattle and Houston,
cities that don’t have a lot to cheer for in baseball will
come to see Jeter, Rivera and Rodriquez. Some will be
there hoping the Yanks win, others hope they they will
lose, they still have to have a ticket to find out.
TV ratings drop when the Yanks aren’t in the play-offs
So it’s in the best interest of baseball to let them field
the best team they can, and it’s more interesting if they
lose late in the season.

VCarver
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VCarver
4 years 6 months ago

That’s not really true. if it were true, the Yankees would lead the majors every year in road attendance by a lot. They frequently do lead in that area, but only by a little and not every year. For example in 2008 here were the leaders in road attendance:

1. Red Sox
2. Cubs
3. Mets
4. Padres
5. Yankees
6. Dodgers

The reason there is no salary cap is because the players union would never approve one. If the owners tried to insist on one, the players would probably strike.

Matt C
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Matt C
4 years 6 months ago

I don’t think road attendance is the best indicator. While it certainly can be telling there are some variables that can make it unfair for certain teams. For instance I’m pretty sure weekend series draw more than weekday ones so if one team plays more road weekend series that may skew things. Also I think most cooler weather teams like Detroit, Chicago, Cleveland etc. usually draw better once it warms up, so if you visit those places in April when the weather is crappy the attendance will likely be down for you
.

antonio bananas
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antonio bananas
4 years 6 months ago

Very short sided Charles. What you’re saying is “screw the other teams, the Yankees make money”. So if I have a product that sells well, forget making other products into cash cows.

How about this, make EVERYONE ELSE more interesting and you won’t have to take the gamble of the Yankees being in the world series every year? Then maybe people will watch the awesome 7 games we had this year. Wouldn’t that be awesome? Get this too, people ENJOY competitive balance, so if there is more competitive balance, EVERYONE’s revenues go up.

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4 years 6 months ago

@Joel – You hit it right on the head. From most of the owners standpoint the current system is perfect. You don’t think David Glass out in KC love the Yankees? Everytime the Yanks come to town they put an extra 30,000 asses into the seats. What about Bob Nutting in Pittsburgh or Loria in Florida? You don’t think they love seeing the Yanks giving them millions of dollars year through revenue sharing? The Yankees made roughly $130 million worth of revenue sharing and luxury tax payments…. in 2010 alone! The owners are loving life right now. As long as the Yankees toe the line and don’t go ridiculously over the top and abuse their financial advantages by putting a $275 million dollar team on the field, the owners are gonna continue to make out like bandits.

VCarver
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VCarver
4 years 6 months ago

Luxury tax payments are not distributed to the other teams. Only revenue sharing is. LT payments go to MLB’s discretionary fund.

The system is not perfect. If the owners could, they would institute a hard salary cap. But they can’t because the players union would never let them. They would strike over it if the owners insisted on the cap.

antonio bananas
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antonio bananas
4 years 6 months ago

Those are 3 shit owners though. They run low cost and don’t make much, but they are guaranteed a profit. I bet they’d love the Yankees a lot more if there were a hard cap and minimum and everyone was more competitive. Instead of the Royals getting 15,000 more fans a few times a year, they get 10,000 more fans every game every year.

I realize that some cities simply can’t afford a winner every year, but there should be a lot more competitive balance in baseball.

nyyfaninlaaland
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nyyfaninlaaland
4 years 6 months ago

You keep going on about the lack of competitive balance in baseball.

What measure of competitve balance are you looking for? World Series titles? Playoff appearances? Winning seasons?

I honestly don’t feel baseball is out of line with the other major sports in this regard at all, but am open to your argument. I do believe the Yankees may have been more consistently competitive than other franchises of late, but beyond that I’m not sure I see your argument.

I think Dave’s post does make a good point, but I think it may be a bit overdrawn – cost may not be as limiting a factor for NYY as it is for other clubs, but it certainly exists. And with a higher penalty – it costs NY an added 40% to increase payroll compared to other clubs due to the luxury tax.

It may be that some revisons to the revenue sharing system should be considered – NY is in fact incentived to spend aggressively to place those costs against it’s local revenue pool and reduce their RS contribution. But frankly they haven’t really done that, so clearly the incentives aren’t that simple.

I also think a salary floor is a bad idea, but do think that teams shouldn’t subsidize lower payrolls equally. I could see a kind of “inverse luxury tax” where player payrolls below a threshold reduce revenue sharing receipts which would be redistributed in the system. I don’t think teams should be restricted from lowering payrolls – but that also needn’t be financed by the other 25-29 clubs.

That the lowest revenue clubs receive Central fund revenues (which are equally shared and are the fastest growing revenue pool in baseball contributing perhaps upwards of $40 MM per team per year) plus likely well upwards of $30 MM from the revenue sharing pool suggestsn to me that payrols of $75 MM per club are likely sustainable. Remember that only 31% of oocal revenue is placed in the pool – the remailing 69% is still there to cover other club expenses.

antonio bananas
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antonio bananas
4 years 6 months ago

well, there hasn’t been a single playoff since the divisional era without both the Yankees/Sox. There are teams that haven’t made the playoffs for almost a decade, and there also are the Pirates who haven’t won in 20 years. This isn’t the Yankees fault, but it’s the fault of the system. There is revenue sharing (poor system) but there isn’t a reason for the teams recieving to redistribute.

There is a correlation between payroll and winning. If you use the gini coefficient on team payroll, MLB has a large disparity, bigger than the NFL’s. The NFL is also a lot more successful.

I think having 10 teams (which also makes winning the division mean more because you get a bye) and having a floor and cap would be perfect.

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4 years 6 months ago

Rather the other owners won’t cause a stink and complain about the Yankee payroll.

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4 years 6 months ago

The bottom line here folks: As far as MLB and the owners are concerned, league revenues are roaring, the sport is as healthy as ever and life is great. The Yankees brand is the biggest reason why. And for what it’s worth, this coming from a depressed amd disgusted Mets fan…

Tanned Tom
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Tanned Tom
4 years 6 months ago

The article kinda misses the point. People can’t have it both ways, you can’t conplain about what the Yankees spend, and at the same time rely on them to support other teams.
High payrolls do not win championships, shrewd judge of talent does. Otherwise we’d see the same 2 or 3 teams winning them. And hopeless franchises like the Mets or the Cubs would be powerhouses. Instead we see teams like the Cards, the Rays, the Twins compete year after year.
If you want a salary cap, then do away with revenue sharing. if you think KC and Pittsburgh suck now, wait til they have to live on their own revenues. In essence the NYY have been subsidizing small market teams for years. Why should a team that people want to watch have to subsidize those that no one does?
Be honest, your complaint is that you team sucks and you resent the Yankees for their success. Otherwise let’s hear the drumbeat for Boston and Philadelphia too.

noseeum
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noseeum
4 years 6 months ago

Late to the party here, but something that’s important in this debate is franchise value. You simply can’t look at profits in a business like baseball. These are all privately owned businesses. Pretty much every owner hires his wife, kids, friends, neighbors, and pays them millions of dollars to do some cushy job.

Here’s the front office for the Twins:
http://minnesota.twins.mlb.com/team/front_office.jsp?c_id=min

I see five Pohlads in there. And I’m sure there are plenty of others throughout the company.

The statistics that matter most when assessing whether a team has the ability to spend more are enterprise value growth, revenue, and of course revenue sharing, if any. Profits are meaningless because any private company can lose money on paper if it wants to. Just give all the family members big fat raises, and all of a sudden you’re losing money.

Just look at how much the value of the Twins has grown in the past ten years:
http://www.statista.com/statistics/194626/mlb-franchise-value-of-the-minnesota-twins-since-2006/

Nearly $400 million increase in value of your business and payroll has gone from $40 million to $100 million next year.

I can’t seem to find revenue history, but I know it’s now over $200 million.

A smart owner of a baseball team whose already a billionaire would be willing to lose a little bit of money, even without the rampant nepotism possibly being employed, because he knows he will get it back in enterprise value. Whenever he feels like selling, he’ll get all of those losses back.

This is why Mark Cuban should get a team. He knows it often makes business sense to lose money.

You can’t forget that all of these owners have an enforced monopoly in their territories. Monopolies make businesses lazy.

Pohlad could spend $150 million on payroll, and it would still be worth it. He just doesn’t want to.

Aaron
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4 years 6 months ago

Just a couple of things: 1st, nice article, and thank-you for noting that a salray cap is out of the question (if there was a cap.. Boston Philly and Yanks would get all the best players AND not have to pay what they do now).

2ndly, Once teams that recieve luxury dollars ACTUALLY spend as much as they recieve in luxury dollars on payroll.. then there is reason to make a change.

Lastly, the Yankees consistently pick 30th OR ACTUALLY 40 or 50th in the draft depending on free agent type signings.. there is a big balance there overall.

I think you are “overestimating” how much money the Yanks can spend, or are willing to spend. Case in point.. Cliff Lee is a Philly.

I would agree that the Yankees can withstand a failed signing better than other teams. Is that an advantage? Perhaps, but it is not a reason for “leveling the field”. Teams tha suck have the advantage of drafting better, and utilizing MLBs scout team and not spend a dime. and then turn around and claim they spend more on scouting than the Yanks and Sox.

Ther is lots to fix.. but when Pitts is leading most teams in overall profits, I think perhaps we should point the finger elsewhere.

All the best,
Aaron

Standard Deviance
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Standard Deviance
4 years 6 months ago

Surprised no one has brought this up, but I disagree, pretty emphatically, with Dave’s premise that the Yankees have “an essentially unlimited pool of resources.” This premise is based on a misreading of Cashman’s quote, which in no way implies that the Yankees have an unlimited pool of resources to spend on player salaries but, instead, that ownership has given management a soft salary cap to work with. Being able to “stretch” and add Russel Martin’s 4M salary to your intended payroll is much, much different than being able to add almost anyone you’d like, at almost any cost, which is what Dave misconstrues Cashman’s quote to mean.

Maybe MLB should take further action to curb the Yankees’ ability to spend, maybe not (though I’m inclined to believe they would if they believed it were in their best financial interests). But the reason why they should or shouldn’t do so has nothing to do with some imaginary uncapped payroll. The Yankees have made numerous decisions over the past 5-10 years that suggest that even they operate within payroll limitations, however different theirs may be from the rest of the league’s.

VCarver
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VCarver
4 years 6 months ago

Even though the Yankees do indeed have budgetary restrictions, they are so less restrictive than what the other 29 teams have to work with that the Yankees are in a class by themselves in terms of their ability to spend money. It’s an uneven playing field.

Standard Deviance
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Standard Deviance
4 years 6 months ago

Of course it’s an uneven playing field. That’s not my point. My point is that it’s not an uneven playing field in the way Dave represents it to be: ie, one team has no internally imposed salary cap and all the others do.

The Yankees, I repeat, *do* have an internally mandated limit on what they can spend on player salaries; it’s just that theirs has some wiggle room around the margins. If you want to argue that the playing field is so uneven that changes need to be made, that’s fine, but you can’t base your argument, as Dave does, on the premise that the Yankees essentially have an unlimited pool of resources to spend on salary. That’s a clear misinterpretation of both Cashman’s statement and the facts.

CY
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CY
4 years 6 months ago

The Yankees organization has the money and can operate differently from the other 29 organizations. It is simply their edge. There is no big deal about it. Considering if the other organizations had the same resource like Yankees have had, I bet they would do the same as what Yankees have done. To get to the buttom line, Yankees’ ultimate goal is to win the World Series championship each year but you know they didn’t this year, nor did they last year, even though money is never a constraint to them. It’s simply how it works in MLB.

Kez
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Kez
4 years 6 months ago

Wah! Wah! Wah! If you want to compete with the Yankees lobby your owner to spend more not handicap the most ambitious team! There are richer owners in MLB who could out bid the Yankees but chose not too. So who do you prefer the free spending Scrooge at the end of A Christmas Carol or do you root for the stingy Scrooge? I know who I support.

Maybe being English and seeing rich owners compete for the best players in the Premier League (soccer to my transatlantic friends) means I am used to money seeing money talk and whiny BS walk.

antonio bananas
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antonio bananas
4 years 6 months ago

You’re used to having 4 teams win all the time too. So I guess it’s understandable that you don’t understand why we want more teams to have a shot.

antonio bananas
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antonio bananas
4 years 6 months ago

What about the opportunity cost of allowing a player to go to another team? If the Yankees sign player X, the Red Sox can’t. So even if they’re paying him 20M to ride the bench or split time, it means less wins for their competition. Probably wouldn’t make up for it in revenue from the extra few wins, but from a wins standpoint that’s an opportunity cost.

I think you saw a lot of this in the pre-draft days. The Yanks had a loaded farm and major league team. The farm players could play on major league teams, but they were basically being stocked in the Yankee system and no one else could touch them because of the reserve clause.

Kurt Smith
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4 years 6 months ago

I agree with Antonio…another team should be allowed in New York, or North Jersey or another nearby market. The New York market could support two more teams, and Boston and Philly could each support another team. That is how you solve this problem, not limiting what the Yankees can spend. Baseball needs to remove these restrictions allowing owners to put a stop to it…it’s ridiculous that the Nationals have to share their profits with Peter Angelos. (And of course, Angelos is blaming the presence of the Nats for the Orioles’ putrid play.)

I will say that what this article ultimately means is that the evaluation of the skills of Brian Cashman, Joe Girardi and even many of the players are meaningless. Of course you’re going to look like a good GM with this kind of an advantage.

Raf
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Raf
4 years 6 months ago

“Of course you’re going to look like a good GM with this kind of an advantage.”

Cashman has made his fair share of shrewd moves as well; dealing for Nick Swisher comes to mind.

While the Yanks have a payroll advantage, they’re not a one trick pony; they have a few players worked in from within and they have a decent farm system.

noseeum
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noseeum
4 years 6 months ago

As I mentioned above, I disagree with the premise of Dave’s article, that we can’t fault teams for trying to make a profit, [Yes we can fault them for that because a sports team is a privately run business where profits are a mirage, and as such franchise value is the most important metric for evaluating any business decision, not profit and loss. You should be a billionaire to own a sports team, and you shouldn’t mind losing money], I do understand that there is a disparity in resources available.

I do emphatically believe the Twins, and many other teams, could be doing much more to grow their markets, and should also be willing to have payrolls much higher than $100 million. But I also understand they all can’t go to $200 million. And the Yanks could easily go to $250 if they needed to.

All that said, I think mucking about with caps and such is a terrible way to address the problem. Put a team in Brooklyn. I’m all for it. I understand the Yanks would bitch and moan about it, but it’s the best solution.

PS: That Brooklyn team better be prepared to lose money for 10 years and not bitch about it. That’s how you build a business.

So, I

Jacob Jackson
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Jacob Jackson
4 years 6 months ago

Why did not add an extra few million to their offer to sign Cliff Lee, rather than Soriano? This article correctly and astutely points out the Yankees’ unique position, and their ability to have a flexible payroll based upon opportunity.

We knew that Cliff Lee would be better than any other starter that hit the FA market the following offseason (now), except for Sabathia, whom the Yankees already possess. We also know that, even on paper, the Yankees’ starting pitching was thin headng in to ’11.

Cameron is discussing the point that, when there is not a logjam, the Yankees are willing to be flexible with payroll when opportunities present themselves. Yet they balked at Lee’s sticker price only to instead offer $10-11M per year to…a 31-year-old reliever?

I’m bringing this up because this article is about opportunity cost. And this offseason, there are tons of available closers, and the Yankees didn’t need to sign Soriano last offseason. What ISN’T available this offseason, neither in the free agent market nor via trade, is a top shelf starter.

It seems like they determined that Lee was going to charge them a “Yankee tax,” and that, even though Lee was willing to go to the Phillies for five years, he was going to make the Yankees give him six (at that same $24M per rate).

But again, this whole article is about how the Yankees could’ve in fact afforded that, and that he WOULDN’T have been superfluous given their thin SP corps, and that no elite starter hit the market for the next 12 (and counting) months.

MikeD
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MikeD
4 years 6 months ago

The Yankees would have upped their offer, I’m sure, if they thought it would land Lee. They basically weren’t given the opportunity.

Lee’s agent called Yankees GM Cashman and told him he signed with Philly, who made Lee the highest-paid pitcher ever based on the annual average salary by which MLB and the MLB Union calculate contracts. It was about two million more per year than what the Yankees offered. The Yankees could have matched that, or even exceeded some, but they would only have done that if Lee basically told the Yankees he was interested in pitching for the Yankees. Instead, he told the Philly’s he was interested in pitching for them, and they hammered out the agreement.

So, yeah, it is about the money and Lee got his money, but the player also has to show interest in the team; otherwise there’s no sense in upping the offer.

Conor in China
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Conor in China
4 years 6 months ago

That doesn’t make any sense. The Yankees were in negotiations for Lee for weeks. If the Yankees weren’t influenced by payroll concerns than they would have offered 5 years and 150 million early to ensure that they signed him. Instead they offered contracts similar to, but slightly better than what Texas offered. Although the Yankees are least limited by salaries they are still limited.

Socrates
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Socrates
4 years 6 months ago

I know that it is simple to say that there SHOULD be some kind of restraint to bring the Yankees back in line, but I am not sure anyone has ever made the case.
1) Is it bad for baseball? No. – Baseball has been around for over 150 years. In the past there have been fewer restrictions on spending then there are now. Baseball has not suffered.
2) Is it unfair to the other teams? No. – The yankees make more money because fans watch their games and buy there merchandise at greater rates. This is partly because of the market they play in but more because of their history. Fans vote with their dollars, and they are clearly saying that they are rooting for the Yankees more than any other individual team. That doesn’t guarantee that they will win the WS every year (as we know), but it does almost guarantee that they will be there competing for it year in and year out. That seems fair since that is clearly more people want the Yankees to win than any other team. It is actually good for baseball.

Barry McGrath
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Barry McGrath
4 years 6 months ago

If a magic genie popped out of a bottle and offered every team owner a choice – you’re guaranteed to win every year but you may not make money OR you’re guaranteed to make the most money every year but you may not win.
The Steinbrenners would go for the wins. I’m not sure about anybody else.

The other teams are almost all run by billionaires and large corporations. They have plenty of resources. There’s a difference between saying you want something and doing what you need to do to get it. If you set an arbitrary salary limit, your priority is profits, not winning. So you shouldn’t be surprised if you don’t.

MikeD
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MikeD
4 years 6 months ago

I basically want to take a position here of either agreeing with Dave or disagreeing with him, and I’ve come close to posting a note on either side of the issue, yet I can’t. Emotionally I feel he has a point; intellectually I’m not convinced.

A comment from Brian Cashman saying the Yankees have payroll flexibility to add a player doesn’t mean a whole lot. In fact, it’s vintage Brian Cashman. It sounds like he’s saying something, but he’s really not saying anything at all. He may not be lying, but that doesn’t mean he’s telling the truth.

Sure, the Yankees have more resources, and therefore have more flexibility, yet I don’t see anything destructive going on. It sounds as if the concern is the Yankees have the ability to compete for a playoff spot on a regular basis, so that must be bad. I don’t buy that, or at least the case hasn’t been made that strongly.

I do wonder though if indeed the restraint solution has been achieved, but no one has really noticed. I’m talking about the luxury tax. Pretty much all teams do whatever they can to not exceed it, and if they do, it’s only for a year. The only team that has lived above it is the New York Yankees, yet the luxury tax has seemingly restrained them.

It was George Steinbrenner who pushed the Yankees over the $200 million mark in 2005 as it appeared he was frantically trying to win one more championship before he stepped out. Yet Hal Steinbrenner is not George Steinbrenner, and he seems to operate the Yankees with a more hardline budget. It may be flexible to some degree, but the budget line is there.

I believe the Yankees payroll in 2011 was two million less than it was in 2005. I might be off by a couple million in either direction, but it’s close. 2012 will be the 8th straight year where the Yankees are around $200 million; meanwhile, the luxury tax threshold creeps closer and closer to the Yankees payroll. I think Hal Steinbrenner’s desire is to eventually let the luxury tax line to eclipse the Yankees payroll, or to at the least, substantially reduce the portion of the payroll subject to the tax.

MLB’s luxury tax does seemed to have worked by restraining the high-end rapid growth paid in salaries by the Yankees, and all the other teams are fighting to stay below it. I’m surprised the player’s union hasn’t tried to remove it.

Conor in China
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Conor in China
4 years 6 months ago

Dave is making a big assumption from a statement by Cashman that they have flexibility in regards to their salary target to he (Cashman) has the ability to dip into an essentially unlimited pool of resources. Cashman’s example is signing Russell Martin last year. Martin was signed to a one year contract for something like four million. That’s about 2% of the Yankee payroll. First of all, I would guess that about 5-10 teams have the flexibility to add relatively small about of payroll in a similar situation. Red Sox, Phillies, Cubs, Cardinals, Giants, Mets, White Sox, Angels, Tigers and soon the Rangers and Dodgers might all have the flexibility to add a cheap starter if they find someone undervalued on the market who they hadn’t budgeted on acquiring.

Secondly, the Yankees have operated under a consistent payroll for several seasons despite having clear roster openings in their rotation. They had an excellent opportunity to fill one of those stops by blowing away Cliff Lee with an offer. But although they offered the most money, it was similar to the amounts offered by Texas and less per year than Philly. If they really had an essentially unlimited payroll, or even the flexibility to add an extra $50 million per year, wouldn’t they have made an offer Lee couldn’t refuse? But they didn’t offer 5 years, 150 million.

It seems likely that the Yankees have the biggest payroll by a significant margin and so can pay more than other teams for players they want (Sabathia, Teixeira, Burnett), but they are still dealing with financial limitations. Obviously, no one should be crying for the Yankees, their are filthy rich and have a significant financial advantage. But we already knew that before we read the article.

As to another team in the New York market, I think that’s a good idea because it would give another team a chance to make more money. But I think that would likely just create another big market team, but only slightly reduce the Yankees advantage.

Barkey Walker
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Barkey Walker
4 years 6 months ago

This is basically saying that other teams solve a profit (wins) maximization problem in the following way: maximize profit knowing that expenses are fixed. While the Yankees use a more rational Lagrange multiplier approach where they sign players where the expected profit/wins increase is sufficiently large relative to the expense.

These are really two ways to solve the same problem and the Yankees approach could be instituted at any institution (and I can pretty much guarantee the Yankees way of thinking about it is how the Rays operate). The difference is that the Rays lagrangian has to be larger–they player has to be worth way more wins/$ to get signed in St. Pete than signed… well, down the street in St. Pete (at the Yankees HQ).

There is a pretty basic theorem of economics: you can solve the profit maximization problem in a number of ways, they all lead to the same result.

CircleChange11
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CircleChange11
4 years 6 months ago

The NYY used to have 2 other teams in their city.

Those teams left.

Not a solution.

If you want to use something like # of teams per market size & wealth, NY should have more like 4 or 5 teams to be comparable to CHI and LAA.

Even then those teams may want to go elsewhere to get out of the shadow.

Moving the Rays to the NE probably helps the Rays but probably doesn’t hurt the NYY. Like throwing rocks at a tank.

parmesan
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parmesan
4 years 6 months ago

Dave seems to be making an awful lot of assumptions based on his interpretation of Cashman’s comments, which reads more to me like speculation than fact about how the Yankees can or can’t spend. Looking at the Yankees recent behavior, nothing really suggests that they operate free of opportunity cost; they are simply able to bear a higher burden of costs than their competitors.

I think the Soriano example specifically works against Cameron’s argument here. While the player would have improved the team regardless of of how the Yankees starting rotation was constructed, they were only able to sign him with the resources made available after they missed out on acquiring Cliff Lee. Allotting ~$24M to Lee would have made impossible the prospect of sumping another ~$12M/yr. into Soriano, as was implicitly stated by Randy Levine in comments regarding the signing as being made with “funds we still had available”.

I also take issue with the somewhat overblown notion of “It’s the Yankees and then the other 29 teams”. Grouping Boston and Philly, specifically, with those “other teams” seems fairly absurd, considering those teams’ business models increasingly resemble the Yankees’ far more than their other supposedly destitute brethren. The Sox are operating at about ~85% of the Yankees payroll, and the Phillies have nearly $100M committed to to just 5 players in 2013 (excluding possible extensions for Hamels or Rollins), while the Yankees have $127M committed to six players for that same year. There is clearly a willingness to spend freely while playing in the deep end of the pool in more places than just NY.

Josh Wexler
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4 years 4 months ago

I thought that this article was unworthy of Mr. Cameron’s otherwise awesome oeuvre to begin with, but isn’t it nearing a time for a complete retraction? Multiple reports are saying the Yankees would like to sign Kuroda but are constrained by their budget. If true, that means they certainly won’t be signing EJax either. This could be all Yankee bluster, but they already set a precedent last offseason of capping what they would pay for an ultra-valuable Cliff Lee and throwing a bunch of low probability reclamation projects against the wall to see what sticks.

They are on pace to do the same this year. No Pujols, who would have made quite a nice DH/!B if they really had no monetary opportunity costs. No CJ Wilson who would have given them a #2 that they simply don’t have, and who signed at a very reasonable price. A paltry bid on Darvish despite scouting the heck out of him. They extended CC and re-upped with freakin Freddy Garcia, which is a pretty good sign that Cashman is continuing on a path of compulsory fiscal restraint that was obvious to many observers (NoMaas.org remarked upon this) though not DCam for some reason.

As always, I enjoyed the writing and even enjoyed it it for the sake of its provocation. But, the thesis has proven false.

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