The Captain's Blog

Hal Steinbrenner emerged from his pinstriped tower earlier today and was shocked…shocked…to hear that Yankee fans aren’t very happy about the team’s new cost cutting philosophy. Was this feigned indignation or genuine naïveté? Let’s take a closer look.

I’m surprised to hear that there’s anger if you see what we’ve done this off-season. Like I said, we’ve signed three or four of the top free agents on the market, because we’re going to continue to field a championship-caliber team.” – Hal Steinbrenner, quoted by the Wall Street Journal, January 10, 2013

The Yankees are depending upon Andy Pettitte, Hiroki Kuroda, Ichiro Suzuki and Kevin Youkilis to be major contributors in 2013, but were they really the cream of the free agent crop? With the likes of Josh Hamilton, Zack Greinke, B.J. Upton, and Michael Bourn on the market, that’s probably an exaggeration. Besides, those signings did not improve the club as much as maintain the status quo. With several other high profile players, like Nick Swisher and Rafael Soriano, departing the club, the net impact of free agency on the Yankees has been negative.

How many World Series winning teams the last 10 years had a payroll over 189? One. You don’t have to have a $200 million payroll to do that.” – Hal Steinbrenner, quoted by the Wall Street Journal, January 10, 2013

Steinbrenner is right. The 2009 Yankees are the only team to win the World Series with a payroll of more than $189 million. That’s a fact. Unfortunately, it’s irrelevant. The Yankees aren’t built to win an occasional World Series. Their mission is to win it every year. That’s not the opinion of an arrogant fan. It’s a mandate heavily promoted by the team.

The Yankees haven’t had a payroll below $189 million since 2004, and, although the team has only won one championship during that period, it has enjoyed unparalleled success. Not only do the Bronx Bombers have the most wins over that span, but they have also made the postseason in all but one season. So, even though $189 million may be enough to build a champion, a perennial winner takes a more substantial investment.

Yankees’ Payroll as a Percentage of MLB Revenue and Total Payroll, 2001, 2003-2012

Source: Cots Contracts and Forbes; 2012 revenue based on reported figure of $7.5 billion

Finally, it’s worth noting that in 2014, a $189 million payroll would only be 2.5% of industry revenue (assuming no growth over the next two seasons, which is an extreme bear case).  Since 2001, the team’s lowest percentage of payroll relative to league revenue was last year’s 2.8%. In addition, the percentage of Yankee dollars spent versus the amount doled out around the league has also been in decline. In relative dollar terms, the Yankees’ cost cutting is even more significant than if taken at face value. As a self proclaimed finance geek, Steinbrenner knows this. Apparently, by using this logic, he doesn’t think anyone else does.

If the young players, the Phelps of the world, who did step up continue to do that and some of the other guys like Banuelos, Pineda we’ve yet to see. If they get the job done, the math works.” – Hal Steinbrenner, quoted by the Wall Street Journal, January 10, 2013

Does the Yankees’ plan really depend on David Phelps and two young pitchers recovering from major surgeries? If so, that’s not exactly ideal risk management, especially with so many key members of the pitching rotation advanced in age. Also, what about the offense? Damon Oppenheimer’s optimism aside, the Yankees’ best position player prospects are at least a couple years away, so if the team is intent on rebuilding around a youth movement, starting it now seems a little premature.

It’s about, to me, being fiscally responsible. I know everybody looks at our attendance and our revenues and all that. But you also have to look at our expenses — $100 million a year in revenue sharing; we pay for every dollar of the debt service on the bonds that build the stadium, which doesn’t cost the taxpayers anything. We pay it every year. We have significant expenses along with those significant revenues, believe me.” – Hal Steinbrenner, quoted by the Wall Street Journal, January 10, 2013

Do the Yankees have a lot of expenses? Of course, but they also generate a lot of revenue. In a successful business, the two often go hand-in-hand, and the Yankees are a perfect example. By most objective measures, the Yankees are in excellent financial shape, with a valuation estimated to be in excess of $3 billion. Pleading poverty simply won’t do. And, no one is going to pat the team on the back for paying the interest on its tax free debt.

Granted, there is a lot of money at stake, and even the Yankees can’t turn their nose up at the potential profits to be gained by cutting back, but Steinbrenner can’t pretend his plan is borne of necessity. To this point, he hasn’t exactly tried to do that, but the Yankees’ owner hasn’t been completely honest either. Dipping below the luxury tax threshold is not about being fiscally responsible. It’s about maximizing profit. As principal owner, Steinbrenner has every right to make that decision, but fans of the team, who are paying exorbitant prices to watch them play, deserve the truth.

Is our goal 189 next year? Yes. But only if I’m convinced that the team I see we put together is a championship-caliber team.” – Hal Steinbrenner, quoted by the Wall Street Journal, January 10, 2013

Some might view this statement as a silver lining in an otherwise overcast commentary, but it’s really a very cloudy statement, one that raises more questions than provides answers. For starters, who will determine whether the Yankees are championship caliber? Is it Brian Cashman? Or, will Steinbrenner make that call? Also, at what point would the Yankee owner decide to do an about-face? Will it be too late to reverse course once the determination is made? Until these questions are answered, it’s hard to view this statement as a genuine commitment to winning.

Am I reading too much into Steinbrenner’s comments? Perhaps. Considering the Yankees’ track record, the team deserves the benefit of the doubt for at least this season. However, the leash won’t be a long one. If the team’s play on the field suffers because of decisions made in the boardroom, Steinbrenner will experience what the anger of Yankee fans is really about it.