Spending the Steinbrenners’ dollars on the field
ByOver the past few weeks, those who follow the Yankees — from the beat writers to the bloggers and everyone in between — has grown concerned with the team’s dollars. From the perspective of a well-run organization, the Yankees are bleeding cash. They’re spending millions on A-Rod for far too many years; they are doling out checks to A.J. Burnett that his pitching can’t cash. They’re going to re-up with Derek Jeter for many millions more than he would get on the open market, and they seemingly want Cliff Lee as this winter’s shiny new toy.
It doesn’t take an economist to understand that the dollars behind these deals are tremendous, but we can see in all of its Spreadsheet-y goodness just how many bucks the Yankees have committed already. Via Cots, we learn that prior to this winter’s anticipated spending spree, the Yankees already have $107 million on the books for 2012, $94 million in 2013 and $73 million in 2014, the season after the free agencies of Joba Chamberlain and Phil Hughes. The Yankees may have a budget, but don’t expect that number to shrink below its current $213 million level any time soon.
But the real question is the one with which I opened this post: Should we be concerned? If we were looking for the next Moneyball, the next financially-constrained team to exploit an inefficient market, we might be worried that the Yankees aren’t fulfilling that criteria. We aren’t, however, engaged in that chase. Instead, we root for the Yankees and accept them for what they are: a financial behemoth that has the spending power and market ability to tower over the baseball landscape. What good is playing in New York City if you can’t take advantage of the fact that you’re playing in New York City?
Apparently, though, a few folks are worried. In the wake of the release of the MLB financial documents, some Yankee writers decided that, in light of Derek Jeter’s and Mariano Rivera‘s contract extension and Andy Pettitte‘s willingness to go year-to-year, Cliff Lee would not be a good investment. The Yankees might have — GASP — a $240 million payroll in order to compensate for the fact that their long-term aging players aren’t living up to their peak numbers.
Yet, the idea that the Yankees would raise their payroll by 10 percent over the next few years is hardly a revolutionary one. In fact, the Bombers’ payroll has risen by over 10 percent since 2007 and by nearly 100 percent since 2000. If I didn’t know any better, I’d almost believe the Yankees are printing money at will behind the marble of their new stadium in the Bronx.
In fact, that’s what Phil Birnbaum at Sabermetric Research says the Yankees are doing. Even though the Yankees claim they’re running a barely profitable business, Birnbaum delves into the figures publicly available and posits that, by delving up the business and selling off certain aspects of Yankee Baseball — including the TV rights — the Steinbrenner family is running a highly profitable venture, and the millions that reap can either be reinvested into the team or taken as a dividend outside of the revenue sharing scheme baseball has in place. If the Steinbrenners want to put a team getting paid $240 million onto the field, the only thing stopping them would probably be pressure from Major League Baseball.
So maybe all of this hand-wringing over Derek Jeter’s worth, value and contract prospects are for naught. Maybe the Steinbrenners don’t really care that they’re saying they’ll “take care” of Jeter because it’s small beans compared to the overall revenue picture. They can still provide for Jeter, sign Cliff Lee and perhaps even put together a decently-stocked benched next year. It is, after all, only money.
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I was really hoping that MLB financials leak on Deadspin would get to the big boys at some point. We all know the Yankees/Red Sox/Mets are swimming in money like Scrooge McDuck.
In fact, that’s what Phil Birnbaum at Sabermetric Research says the Yankees are doing. Even though the Yankees claim they’re running a barely profitable business,
He’s using data from 2007 to look at the profit/loss for the Yankees. From the Forbes articles (rankings of most valuable franchises), it appears that they turned from a loss to a profit in 2009.
but the yankees have a budget and derek jeter is ruining it!!!!
:::head explodes:::
I have to wonder if the spending will continue to increase, or if we will see a rebuilding/reloading in the next five years. With the pitching talent coming up they could spend a year or two actually letting a couple of young pitchers figure it out on the major league team.
The only problem with the high revenue stream is that the Yanks can’t afford to be mediocre. They were able to cover it in 2008 because it was the last year of the old stadium, but to sustain their revenue stream, they have to ensure high attendance and, more importantly, high TV ratings. To do that, they have to be good, and to do that, they can’t punt to rebuild. Nor do they have to as the developments of Phil Hughes and, to a lesser extent, Joba show.
I agree with you on the revenue. I did have in mind that the Yankees will have another opportunity, similar to the old stadium, with Jeter’s run at 3,000 hits. I think the team can spin that into an all year media fest that may allow them to reload that year. Actually, that may be the greatest value that Jeter provides in this next contract.
This has never happened before, so why would it happen now? Hav ewe already forgotten Joba?
I can see one young pitcher per year being groomed. In 2008 it started with 2 young pitchers (and eventually a 3rd) and didn’t work. In 2009 it was one young pitcher, and this year it has been one young pitcher. I can see them penciling in one young starter in the rotation going forward, but no more.
With all of the pitching talent they have in AA and AAA they will likely end up moving some of these guys, hopefully to help build their position players, either at the minor or major league level. Even if all 3 of the Killer B’s become successful major league starters, I can guarantee it won’t be with the Yankees.
I don’t think there is a hard cap on the number of pitchers being groomed–instead I think there is a more realistic expectation for any young pitcher. I would not be surprised to see all three killer B’s promoted within a few months of each other, but they will not be counted on for a starter’s role for 6 months.
So maybe we agree. The Yankees will write one, or even a combination of all three, for one spot in the rotation per year.
Just wait ’til Bud and his cronies get their teeth into the new CBA. How does a 100% “luxury tax” on every dollar above the Red Sox payroll sound to you guys?
Honestly? It doesn’t sound realistic considering the Red Sox have paid luxury tax bills on numerous occasions. If baseball raises the luxury tax revenues, they’ll do so by lowering the tax threshold so more teams are paying more frequently. That’s a big if though.
The MLB players union rules baseball. It’s probably the strongest union in all of America. The amount of power they have is absurd. I bring this up because acting like Bud and his “cronies” (whoever they are) will be able to influence the CBA that much is just not going to happen.
The union loves the Yankees, because they pay their players a lot of money and, by virtue of their financial power, generally raise the price on everyone else. If they increase the luxury tax to the point where the Yankees have no choice but to lower payroll, that trickles down to the players themselves getting less money. So, you can bet the union won’t let that happen.
The real fight isn’t between the union and baseball, it’s between the large market owners and small market owners. The players association just exploits those disagreements.
That fight is irrelevant though. The CBA is negotiated between the owners and the players. Even if small market owners get all of the ownership on their groups, they still have to fight a losing battle against the player’s association.
That. Baseball players’ salaries won’t go down unless the entire industry collapses on itself (entirely possible, considering baseball’s rate of inflation – which, IIRC, is about 80% every ten years since free agency began)
The union loves the Yankees so much, and Bud and his cronies are so overwhelmed and powerless, that the Yankees pay $100 million a year in “revenue sharing” plus a luxury tax targeted directly at them. Good work boys!
In theory, revenue sharing works for the players more than anyone, since a team, no matter its revenue, can only pay a few players. If the Yankees had all their money and nobody else had any, they’d (theoretically) have less competition, giving them no real reason to increase salaries.
So how’s that theory working out Mr. Loria? Mr. Glass? Can somebody get the Ouija board and ask Mr. Pohlad? Revenue stealing has just allowed owners to pocket more cash and generate more profits without having to worry about actually improving their product. It’s a wonderful scam, I wish I could get someone to send me millions in free money every year.
I’m not at all concerned about what the final figure is – so long as it doesn’t ever run significantly into the red, and is, at the very least, even over the course of the average year. I don’t want the team to start spending on borrowed dollar, because if they all of a sudden have to reduce payroll by even a relatively “small” figure like $30M to pay off debts, it’d crush the team – if it’s even possible.
I don’t suspect this to be the case, though. I’d be highly surprised if the Yankees payroll ever runs past its revenue. That being said, just how sound financially are they? Remember, they just built a $1.2M stadium – and I don’t think they payed cash. Any organization as big as the Yankees has debt. We just have to hope that, as (presumably) triple-A rated borrowers, the Yanks were able to finance on fairly easy terms. I mean, it’d be pretty dumb to lend money at excessively high interest rates when it can almost certainly be payed back at reasonable ones. Why risk default when there’s almost a 100% chance of repayment with interest?
Michael Lewis-inspired ramblings aside, I think the team is okay, but I wouldn’t be very confident about running payroll past $220M in 2011.
The stadium was financed with state issued bonds. The bonds are tax free, so the interest rate is below market rate.
thanks for that. It’s still a boatload of pure capital debt, though, even if it’s structured in a manageable way. That is to say, the Yankees need to remain a strong financial enterprise in order to pay them off (a hugely likely scenario, hence the state’s willingness to finance it)
*$1.2B stadium
A lot of people point to the budget imposed on Cashman this last year and state that it is evidence of financial constraints faced by the owners. Instead, I looked at it as Hal trying to put aside money for the inevitable inheritance tax the family might face at sometime in the future. However, with George passing away when the inheritance tax was not in place, I think that worry is almost gone (they could make such a tax retroactive), and that as a result, the budget will increase again this year.
The Yanks’ payroll is, right now, $12 million higher this year than last. It’s gone up. It will keep going up in fits and starts.
The payroll steadily went up every year until hitting $208m in 2005. It’s been fluctuating between $190m and $213m every year since.
However, when you factor in the luxury tax, the payroll has been trending down. The 2010 luxury tax threshold is about $50m higher than it was in 2005, so even with the increased payroll you’re looking at a $15m reduction in payroll spending compared to the 2005 peak.
This is due entirely to deadline acquisitions? I thought the payroll was held firm on opening day.
The only problem I have with this argument is that you seem to be saying that since the Yankees have a lot of money, it’s okay if they don’t spend it wisely. That’s true to a point, but I don’t think it’s a reason why we should just accept them handing Jeter a blank check, if they actually do that.
At some point, spending money wildly will have to stop. If you keep covering impossibly long contracts by committing more years/money to bring in fresh talent, at some point that will get to critical mass. What will the Yankees do when they have 40+ year old A-rod/Jeter along with 35+ year old Tex/CC/Lee making over 100 million alone down the road? Just keep signing guys until the payroll is over 300 million?
You’re slightly missing my point, but not by much. I’m not saying the Yanks shouldn’t spend it wisely, but if we’re arguing over a Jeter contract that’s 3 years/$45 million vs. 3 years/$57 million, we’re arguing over basically over small change for the Yanks.
so weird that 57 is not a prime number
Not if you play darts. The first thing that comes to mind when I see the number 57 is “triple 19.”
Why?
Seconded. Know your multiplication tables!
There are consequences other than the extra $12 million though. Maybe not with Jeter’s contract, but in general. In fact, the ridiculousness of A-Rod’s contract is going to lead to Jeter’s contract being bigger than it should be. It might lead to Mo’s contract being bigger than it should be. At some point it adds up to a lot of money, though it’s still likely just a drop in the bucket to the Yankees.
I think, even though it’s not his money, Cashman probably has a lot to do with trying to stay within a budget. While he enjoys having the biggest wallet, I’m sure he doesn’t want the Yankees’ salary to get too high, which just digs further into the “Cashman isn’t a good GM he just has a lot of money” argument, that I’m sure he hates.
I don’t think Cashman cares at all about this perception. His job is to put a championship team on the field every year. The Yankees are no different than any other free market enterprise — Google overpays for top software development talent, Apple overpays for hardware engineers, and top investment firms overpay for analytical talent. The day Cashman starts cutting budget because he’s worried about how other people view him is the day he should be fired.
I don’t think he cuts the budget, or will cut the budget because of perception. I think he believes that he can win without spending $120 million on a guy like Matt Holliday this offseason. Could they have afforded it? Yes. Did they have a question mark at his position? I just think he knows that spending money isn’t the only way to win, and isn’t guaranteed to win. That’s why he has spent so much effort on rebuilding the farm since he gained more power in the organization. When a guys like CC and Tex hit the market in the absolute primes of their careers (which doesn’t happen often) he will pounce. But I think gone are they days of spending because you have money and a hole. Call it the Pavano/Wright effect.
I think those guys are gone too, but for a different reason. The definition of “hole” has changed.
He still spent the money (and talent) on Javy to fill a hole, even though he had Joba, whereas in 2008, IPK, Joba and Hughes were not thought of (by Cashman) as holes.
I don’t know that there were any adequate internal replacements when Pavano and Wright were signed, or when trades were made for Brown & RJ.
I like the way Cashman is going about it now. He is mixing in a player or two from the farm, in moderation. He’s not afraid to let a talented, young player hold down a significant role, but he does give them a net, just in case.
I don’t know that there were any adequate internal replacements when Pavano and Wright were signed, or when trades were made for Brown & RJ.
Agreed, he was essentially forced to overpay for those guys because he had nowhere else to turn. He doesn’t want to be put in that situation again.
Yeah, the combination of a poor post-season, glaring starting rotation gaps, and a weak FA pitching class resulted in Pavano/Wright.
Obviously those signings were terrible, but I think the bigger point is that those signings along with other pricey acquisitions (RJ, Javy Part I, Kevin Brown, etc.) had no impact on the ability to go out and sign Tex and CC and win in 2009.
The reason that those acquisitions had no effect on the ability to sign Tex and CC was that they were all gone by the time CC and Tex got on the market. The fact that the Yankees could sign CC, Tex, and AJ in the same year had everything to do with the fact that Pavano, Abreu, Mussina, and Giambi all came off the books in the same year. It should also be noted that although Wright, RJ, and Javy didn’t really succeed in New York, their contracts were not that crazy and they were actually able to be traded away. Current guys, like AJ and Arod, have completely untradeable contracts.
Ben – Sounds like you don’t necessarily agree with the Pinstripe Alley premise of spending $90M on 4 guys in their mid-late 30s by 2014? Not sure how bad the CC/Tex deals are, but A-Rod’s deal clearly is/will be an albatross. So Ca$hmoney should just ignore that and funcation as if we don’t owe him $25M/year? I really want Cliff Lee too, but the last month or two just shows how fickle pitching can be, even all world pitching.
I disagree with the premise that these commitments will hamstring the Yanks. A-Rod’s salary is a problem but the Yanks can still spend. Plus, his salary decreases with time so by 2015 he’s making “just” $21 million. I’d like to see them go after Cliff Lee.
Maybe it won’t hamstring the payroll- but what about the performance of the team?
That’s another issue entirely though. The Yankees shouldn’t be overpaying in years because of performance, not because of the economics of it.
Yeah I was blending it together, I see the point
This is also a misconception bc he will be getting $6M escalators for a total of $30M for HR milestones, which will make his contract avg $30M per season the rest of the way (give or take per season depending)
There seems to be a bit of a “perfect storm” here when it comes to the Yankees payroll.
Tex, AJ, CC, Swish, Grand & Javy are all your usual Yankee FA/trade suspects. Good or great players who were available at the right price.
Cano, Hughes, Joba, Gardy, D-Rob, etc. are your new-wave, cost-efficient farm guys that every team has.
They key to the 220+M payroll is the fact that they brought up a core of Jeter, Mo, Andy, and Jorge in the 90′s and then added Alex (almost by default) in 2004. They just happen to have 5 HOF caliber players making the most money they ever have in their careers on the payroll at the same time.
When they retire, they will be replaced partly by farm guys, and partly by high-priced FAs and trades, but there is no way they will be shelling out 90+M for the replacements of 5 players.
Jorgie gets replaced by Montero/Romine/Sanchez so that position is locked up cheap for at least 2012-2017. Ditto when Pettitte gets replaced by the Killer B’s.
As of this writing, the Yankees have precisely 2 albatross contracts: Rodriguez and Burnett. But that is in some large part due to Rodriguez’s and Burnett’s performances. In 2011, those might be much smaller birds.
I do not expect Jeter’s next contract to be an awful one for the team. Keep in mind there are no other SS options, so some significant part of the overpay will be justifiable.
The steady stream of major leaguers that begin to graduate immediately makes the budget manageable. For instance, by my rudimentary numbers, Cliff Lee fits into the current budget if the Yankees let Javy, Nick Johnson, Gaudin and Mitre walk, replacing Nick with Montero, and Gaudin/Mitre with Nova/Noesi.
There is more of that down the line. The continued march of pre-arb players will allow the Yankees to be at the forefront of every top FA’s list for years to come.
I read Nick Johson as Nick Swisher and almost crapped my pants.
The Yankees will be fine if they don’t get all foolish and chase after Cliff Lee who, after 2 1/2 years of pitching well (2008-9-10 (SEA) and one decent season back in 2005, now shows great potential for being the next Javy/AJ going into his year 33. Nor would big bucks to tie up 30-yo Carl Crawford for years be a wise move, considering current OF makeup and which Crawford we’d see- the one from 2009-10 or the one from 2008? There is no upside on Crawford, only the risk of him losing another step or two and also falling off a cliff.
Who do you recommend signing if they don’t sign Lee? Pavano? Lilly? The other FA options are league-average at best or huge injury risks.
You either pay Lee ~$20M or a lower tier guy $12-15M. I’d rather have Lee.
I agree about Crawford, but what’s your solution for the rotation next year? Lee would make it CC-Lee-Pettitte-Hughes-AJ. And that’s IF Pettitte comes back. I want to see Joba start as much as the next guy, but I don’t want a 2011 rotation of CC-Andy-Hughes-AJ-Joba. The team needs Lee
I’m obviously no expert here, but Lee to me appears the type of pitcher that will age very well:
1. he’s an excellent athlete
2. he’s got phenomenal discipline, in that he can repeat his delivery, probably with a .15 blood-alcohol content
3. he does not rely on velocity
4. he’s left handed
Coming to mind are David Wells and Tom Glavine, who pitched well until 40.
You can write off basically every free agent with your reasoning. Most guys are hitting free agency late twenties and thirties these days. Rare is the 24-27 year old superstar hitting the market. And even with them, I’m sure you could find reasons to not spend big on them too.
The entire point of this article is that the Yanks can overspend on players and still make a shit load of money anyway. So why not sign them? So the Steinbrenners can watch their billion dollar bank accounts grow even larger?
I think this article is only news to the budget conscious RAB writers and faithful readers. The Yankees, making money hands over fist? Not concerned about a budget? Willing to overspend without a second thought and no repercussions? Nooooo. Shocking.
It’s all well and good to say that, and it’s possible it ends up being true. But the fact is, it was stated this past offseason that there was an actual budget. No real attempt was made to go after Holliday or Lackey. Lackey I didn’t mind even before his poor year, because I thought there were far better options for 2011, but I’m not so sure about Holliday, as Crawford gets older I doubt he’d be better.
Now that’s not to say I’m upset they didn’t sign Holliday, I’m fine with that. But it seems to me the reason they didn’t even appear to look into it is money, which is what Hal and Cash said…that there is a limit. And if they hold true to that, then signing Jeter to a big money extension and signing Cliff Lee will severely limit what they can do in the future.
I’d also point out it might not just be a “are we turning a profit” thing. At a payroll of 215ish, the other teams will grumble but let it go. However, what happens if that payroll keeps climbing? If that reaches 250 million, or 275, or even 300 million as you see a few people throw out (which I’d really doubt, but hey, you never know), how long before the other owners say “No, you know what, this is ridiculous, we need a salary cap”?
Maybe I’m totally wrong. Maybe Hal and Cash lied about having a payroll limit, and maybe the other 29 teams are totally cool with the Yankees spending 250 million+. But those at least have to be considerations even if you accept that the Yankees aren’t actually operating at a deficit (which I don’t think they are).