Archive for Payroll
This post was written by Moshe Mandel and Stephen Rhoads
In part 1 of this series we went through six different payroll scenarios for the Yankees over the next decade. We were careful to distinguish between total savings and CBA savings, noting that how you treat the difference in payroll can make a big difference. Where you come down on the question of how much the Yankees can save is very much determined by which figures you’re examining. Let’s use Scenario 1 as an example. In this Scenario, payroll goes from $210M in 2013 to $189M in 2014, and then goes back to $210M in 2015. We summarized the savings accordingly:
2014: Payroll at $189M
Payroll savings: $21M
Revenue sharing refund: $10M
Luxury tax savings ($21M*50%): $10.5M
Total saved: $41.5M
2015: Payroll back at $210M
No payroll savings
Luxury tax savings ($21M*50%) – ($21M* 17.5%): $6.825M
Total saved: 6.825M
2016: Payroll stays at $210M
No payroll savings
Luxury tax savings: ($21M*50%) – ($21M*30%): $4.2M
Total saved: $4.2M
2017: Payroll stays at $210M
No payroll savings
Luxury tax savings: (21*50%) – (21*40%): 2.1M
Total saved: $2.1M
TOTAL SAVINGS: $54.625M
CBA Savings: $23.125M
Now, how you account for 2014 really determines whether the savings are significant or not. We peg the initial savings figure for 2014 at $41.5M saved. This number is comprised of a $21M reduction in payroll, a $10M refund from revenue sharing, and a $10.5M savings in luxury tax. However, the $21M reduction in payroll and the $10.5M reduction in luxury tax don’t really have anything to do with the new CBA per se. This $30.5M savings is a savings they could have gotten at any point in the last decade simply by reducing payroll. Thus, the $30.5M is comprised of savings prompted by the CBA, but it’s not comprised of savings emanating from the new CBA. It’s a $30.5M they could have gotten at any point in the last few years and chose not to. It’s still a cash item – it’s not depreciation in a cash flow statement – and it still means more money in the coffers, but it’s not a CBA savings per se, at least in our estimation. This is an important distinction.
In 2015, the payroll goes back to $210M, which means there are no payroll savings and no revenue sharing refund. There is a luxury tax savings though, as the new CBA allows teams to “reset” the luxury tax by going under the threshhold in just one season, an option that was unavailable under the old agreement. This means that any savings reaped due to the reduced tax rate can be attributed to the new CBA and can therefore be included as “CBA” savings. In this particular scenario, these savings are comprised of a $6.825M difference in what their bill would have been had they not gone under $189M in 2014 compared to what it is since they did go below the threshold. In other words, had they not gone under $189M in 2014, their luxury tax rate in 2015 would have been 50%. Since they did, it’s $17.5%. The difference is $6.825M. This is a real CBA savings and it plays out over the 2016 and 2017 as well (rate goes up to 30% and 40%, respective, per the CBA). Thus, the total amount saved in Scenario 1 is about $55M, but only $23M of it is prompted by the new CBA. Here’s the summary, then, of all six scenarios and how much the team could save by going with each option.
Scenario 1 ($210M to $189M in 2014, returns to $210M in 2015 and beyond): total savings of $55M, CBA savings of $23M.
Scenario 2 ($210M to $189M in 2014, stays at $189 for 3 seasons): total savings of $147M, CBA savings of $53M.
Scenario 3 ($210 to $189M in 2014, stays at $189 for 2 of 3 seasons): total savings of $116M, CBA savings of $54M
Scenario 4 ($220M to $189M in 2014, returns to $220M in 2015 and beyond): total savings of $76M, CBA savings of 29M.
Scenario 5 ($220M to $189M in 2014, stays at $189M for 3 seasons): total savings of $199M, CBA savings of $59M.
Scenario 6 ($220M to $189M in 2014, stays at $189M for 2 of 3 seasons): total savings of $152M, CBA savings of $59M.
Clearly the Yankees would save the most total money in Scenarios 2, 3, 5 and 6. In these scenarios, they’re dropping their payroll down to $189M and keeping it there for a substantial amount of time. The most they could save would be in Scenario 5, in which they shave nearly $40M off their payroll and maintain the reduction. In this case they’d net nearly $200M more, $59M of which would be a derivative of the new CBA.
These gains would be real, but they’re not entirely relevant for our purposes. Saying the team could save nearly $200M in Scenario 5 is true, but it’s also true they could save $75M right this moment if they dropped their payroll down by $75M. Of course, they haven’t done that at any point in recent memory. Our concern is the CBA savings.
The team would obviously save the most by dropping the payroll and keeping it low. Their tax bill would be lower, and they’d receive money back from the revenue sharing refund. However, these CBA-related savings don’t seem to amount to more than $60M. If they don’t maintain the new low payroll, the savings are even less. In Scenarios 1 and 4, in which they drop the payroll for one year and return it to prior levels immediately after, they’d only save $23M-$29M over four years. At most, this amounts to a little over $7M per year. In the latter scenarios, this annual savings figure rises to a little less than $12 million per year.
It’s our opinion that if the Yankees were interested in saving fifteen to thirty-five million dollars a year in payroll and tax, they should have done it already. They could have done it at any point in the last decade. We’re told that the new CBA incentivizes them to get below $189M to incur specific savings, but we see that the only time those savings are truly noteworthy is in the unlikely scenario in which the Yankees stay under $189M for a significant amount of time. Furthermore, we see that the CBA-related savings, at their most extreme, are about $12M a year. Are the Yankees really concerned about $12M a year in “new savings”? Are they suddenly concerned about the fifteen to thirty-five million dollars a year that they could have been saving all along? Perhaps most importantly, are they willing to forgo top free agents and risk missing the postseason to garner those savings?
Without further guidance as to what the true long-term goal is, we can’t get more specific than this. But it seems to be the case that the team will only realize serious, significant gains if they make a permanent move towards a payroll level more reminiscent of the early part of the last decade. Perhaps we’re stuck in the denial stage of the 5 stages of grief. It’s hard for us to understand the prospect of a “new normal” in which the payroll drops 10-20% while the team simultaneously reaps greater and greater revenues from a lucrative television network and new stadium. It’s even harder for us to understand risking contention in an increasingly competitive American League with an already-expensive roster to simply eke out a pittance in savings relative to the team’s balance sheet. But this may be the new Yankees reality, in which the Steinbrenners reach for a modicum of fiscal responsibility at the expense of some performance certainty. If it is, we all need to adjust our expectations accordingly.
This post was written by Moshe Mandel and Stephen Rhoads
Yesterday Joe walked through the different stages of grief Yankee fans have been going through since learning that a $189M payroll was a realistic option in the near future. Part of my frustration when reading this (still in stage 2, I suppose) was that I didn’t have a firm handle on how much money the Yankees would actually be saving. If the amount they could potentially save ranges into the nine figures territory, then it’s hard to quibble with the team tightening the belt. If it was significantly less, then a whole host of options come into play, including the possibility that the team is not serious about getting below $189M in 2014 and was using Sherman to broadcast their bluff in advance of the Yu Darvish bid.
Accordingly, Moshe and I have run the numbers for six different payroll scenarios. We used the basic parameters set forth by Sherman in this quote to try and estimate the proper figures for each scenario:
For if they are at $189 million or less for the three seasons from 2014-16, they not only avoid paying one cent in luxury tax, which would rise to 50 percent for them as repeat offenders, but they also would get roughly $40 million in savings via the to-be-implemented market disqualification revenue sharing program. However, only teams under the luxury-tax threshold get reimbursed in this program, which is designed to prevent big markets such as Toronto and Washington from receiving revenue sharing dollars, which in turn will lower how much teams such as the Yanks pay (as long as they are under the threshold).
And even if they just went under $189 million for 2014 before going over again in 2015, the Yankees would receive serious benefits. They would get about $10 million in the revenue sharing disqualification program. Also, by simply going under the threshold once, the Yankees would go back to having a 17.5 percent tax rather than the 50 percent that begins in 2014 for them if they never go under. Keep in mind that since the luxury tax went to 40 percent for them in 2005, the Yankees have averaged paying $25.75 million in tax annually.
In the first three scenarios, we use a $210M payroll in 2013, and then assume that they go back to $210M in later years. In the second three scenarios, we use a $220M payroll. In each scenario, we provide savings figures per year. At the bottom of each scenario we provide a total amount saved, and also provide what we’re calling “CBA Savings”. This figure emanates directly from the new CBA, and would include revenue sharing refunds, and luxury tax savings resulting from a new, lowered rate. It would not include the $21M they’d save from going from a $210M payroll to a $189M payroll, for instance. We get down to business after the jump.
It’s been a little over a month since we last broke down the Yankees’ payroll, but a lot has changed since then. Robinson Cano and Nick Swisher had their clubs options officially picked up, Andrew Brackman was cut loose, Rafael Soriano did not opt-out of his deal, and CC Sabathia signed a new contract extension. Let’s take stock of who the team currently has under contract for next season…
- Guaranteed Contracts (eleven players, $172.875M): Alex Rodriguez ($30M), Mark Teixeira ($23.125M), Sabathia ($23M), A.J. Burnett ($16.5M), Derek Jeter ($16M), Mariano Rivera ($15M), Cano ($14M), Soriano ($11M), Swisher ($10.25M), Curtis Granderson ($10M), Pedro Feliciano ($4M)
- Arbitration-Eligible (six players): Joba Chamberlain, Brett Gardner, Phil Hughes, Boone Logan, Russell Martin, David Robertson
- Option Buy-Outs (one player, $0.250M): Damaso Marte ($0.250M)
Freddy Garcia‘s new one-year contract is not yet official, but all reports indicate that it will have a $4M base salary plus incentives. That brings us up to a dozen players and a total payout of $177.125M. Using MLBTR’s projections, the Yankees will have another $17.9M tied up in their six arbitration-eligible players. Chris Dickerson just missed the Super Two cutoff, so he’s not yet eligible for arbitration. That’s $195.025M for 18 players.
There are currently 22 pre-arbitration players on the 40-man roster, and the new CBA raised the minimum salary to $480k. If we estimate those 22 guys at half-a-mil each, it’s another $11M on the payroll, bringing us to $206.025M for 40 players. It doesn’t work like that though, not all 22 of those guys will be in the big leagues this year. Cory Wade, Ivan Nova, Jesus Montero, and Eduardo Nunez seem to be the only guys with a realistic chance of sticking all year. The other 18 pre-arbitration guys will spend the majority of the year in the minors and earn minor league salaries.
Adding Wade, Nova, Montero, and Nunez to the 18 players above gives us a payroll of $197.025M with three spots on the 25-man active roster left open. Preferably, one of those spots will go to Andruw Jones, another to a starting pitcher, and the last to someone filling the Eric Chavez role (backup corner infielder, lefty bat off the bench). The Yankees are all but guaranteed to go over the $200M mark next season, even if they just re-sign Andruw and fill the last two spots with Hector Noesi and Brandon Laird.
If the Yankees are planning to stick to that $200M limit they’ve talked about in recent years, then they won’t be making any major signings this winter without shipping some salary out. They could save a few bucks if the arbitration salaries are lower than projected, but it’s unlikely to be enough to land a big name pitcher. The Yankees are either going to have to start next season with a higher payroll than what they’ve indicated they’d like it to be, or they’re going to have to get creative to make major upgrades this winter.
As always, the Yankees will have some work to do this offseason, primarily with shoring up their pitching staff. They have a decent amount of money coming off the books, mostly in the form of Jorge Posada ($13.1M) and Kei Igawa ($4M), and that money will be plugged right back into the team. In fact, that money and then some figures to be spent this winter. With some help from Cot’s Baseball Contracts, let’s look at the Yankees salary commitments for 2012…
- Guaranteed Contracts (eight players, $125.625M): Alex Rodriguez ($30M), Mark Teixeira ($23.125M), A.J. Burnett ($16.5), Derek Jeter ($16M), Mariano Rivera ($15M), Rafael Soriano ($11M), Curtis Granderson ($10M), Pedro Feliciano ($4M)
- Option Pick-Ups (two players, $24.25M): Robinson Cano ($14M), Nick Swisher ($10.25M)
- Option Buy-Outs (one player, $0.250M): Damaso Marte ($0.250M)
That’s guaranteed money only, and I took the liberty of leaving CC Sabathia out given his opt-out clause. The ten players (not counting Marte) account for $150.25M, and based on MLBTR’s projections, we should conservatively tack on another $17.9M for the six arbitration-eligible players (David Robertson, Boone Logan, Joba Chamberlain, Brett Gardner, Phil Hughes, and Russell Martin). That makes it $168.15M for 16 players.
The pre-arbitration guys don’t make a ton of money (relative to the baseball pay scale, that is), but they add up. There’s 18 of them on 40-man roster right now plus two more coming in David Phelps and D.J. Mitchell (who are Rule 5 Draft eligible), so let’s conservatively estimate those guys at $10M total (half a mil each). Andrew Brackman is a bit of a wild card. He earned $1M last season and I have to imagine he’ll make at least that next year per the terms of his big league contract. Let’s call it another $1M for simplicity’s sake, putting us at $179.15M for 37 players. Of course, a few of those pre-arb guys (Reegie Corona, Kevin Whelan, Justin Maxwell, etc.) figure to meet the roster axe at some point in the not too distant future.
So after all that, the Yankees still need to a) re-sign Sabathia, b) add one more starter, preferably two (assuming one is a Bartolo Colon/Freddy Garcia-type), and c) fill out the bench. Item (c) can be minimized by having Brandon Laird replace Eric Chavez and one of the minimum salary guys replace Andruw Jones. I’d be fine with Laird, at least to start the season, but I’m not sure who would replace Jones as the designated lefty masher. Greg Golson? Maxwell? Eh, not likely. Gonna have to spend a little something there. It was nice having a strong bench this past season.
Hal Steinbrenner has held firm on that $200M (or thereabouts) payroll limit over the last few years, so the Yankees will have to get a little creative to address all their needs. Sabathia did take a reduced salary in the first year of his current contract, so maybe he’d agree to that again knowing Rivera, Swisher, and Feliciano will be coming off the books after the season. Yu Darvish would likely come at a lower annual salary than C.J. Wilson, but would also require a massive up front posting fee payment. Also keep in mind that the salary estimates for the arbitration and pre-arbitration players are conservative and probably a little high, so that $179.15 might be more like $175M or so. Insurance might cover Feliciano’s salary for all we know. And who knows, maybe Soriano will opt out, but I’m not holding my breath.
The Yankees appear to have about $25M to play with this winter, which is a ton of free cash in most years. This isn’t most years though. Sabathia needs to be retained and they need even more pitching on top of that, so something has to give here.
This is a guest post by Paul Vinelli.
After enduring another horrific start from Andy Pettitte (earning $16 million this season), a strange question enters my mind:
Are the Yankees’ players paid too well to win?
I’m not an economist, so my logic is almost entirely anecdotal. My formative years with the Yankees were the late 1980s and early 1990s. Back then, the team nearly always sported one of the largest payrolls in baseball. Steinbrenner and company signed “tough, proven” pitchers (Rick Rhoden, Andy Hawkins), over-hyped “stud prospects” (Hensley Meulens), platooned “aspiring sluggers” (Kevin Maas, Mike Blowers) and routinely overpaid one-dimensional outfielders (Deion Sanders, Jesse Barfield). It was a culture of meddling ownership, fiscal irresponsibility, reckless trades, and dismal grooming of young talent.
As a result, while growing up I always believed in the illusion that the Yankees could compete because the team could afford to swallow its most dreadful mistakes in supplementing the efforts of superstars like Mattingly, Henderson, Winfield, and Righetti. However, with the introduction of sabermetrics and the new generation of free-spending owners, I fear that the current squad fields too many mistake signings and that this affects overall performance.
While the current Yankees administration continues to overpay its players, the competition has become far savvier in how it allocates its resources. The Angels and Tigers have owners that are willing to spend money — and they do so relatively intelligently. The A’s have Billy Beane. The Mariners’ front office is clueless (witness the Bedard trade), yet their team still competes somehow. Cleveland has a bunch of young studs, and the Rays’ collection of prospects might be the best in baseball. Most terrifyingly, the Red Sox employ terrific scouting and top sabermetricians while wielding a payroll that rivals New York’s.
And what of the Yankees? Two years ago I considered the Mussina signing to be unwise ($22 million for 07-08) and in 2001 I was rabidly against bringing on Giambi (my friends and I deem the current championship drought as “the curse of the contract”). Andy Pettitte earns $16 million this year, though fortunately his deal is only for one year. Left field is entrusted to the immobile Matsui and the feeble-armed Damon ($26 million combined this year and next). Abreu was re-signed for a ghastly one-year sum, and his effort in RF is best categorized as “easy-going.” If Jorge isn’t splitting time between 1B and DH by the end of 2009, I’ll honestly be surprised. Carl Pavano – ’nuff said.
I believe that the Yankees have repeatedly tendered these ridiculous contracts in the past few years in order to give the elder Steinbrenner one last shot at the title. I respect this win now approach — however, the dynastic nucleus is aging (Pettitte, Jeter, Posada, Rivera) and there is a management struggle at the top (Hank vs. Hal vs. Cash vs. Levine). I’m not sure that if the team even wanted to make a big move (e.g. trade for Sabathia mid-season) that it even could foster the consensus to do so.
Hopefully when the current contracts expire the team will choose to focus on building from within instead of signing another big name to patrol left field. This might require a year or two of non-playoff growing pains, but I’m just hoping that 2008 won’t be one of those years.