The Captain's Blog

The Yankees need Robinson Cano. Such an obvious statement should go without saying, but there has been growing sentiment among fans and media that suggests otherwise. According to this line of thinking, either Cano is not worth his rumored contract demands and/or the Yankees can not afford him. Does such an argument hold up to scrutiny? Let’s first break it down.

1. Cano is being greedy. He isn’t worth the money, or at least he won’t be by the end of his contract.
2. The Yankees can’t afford Cano. The team needs to dip below the $189 million luxury tax threshold, so there’s no way they can fit another big contract into that structure.
3. Besides, the Yankees have shot themselves in the foot countless times with long-term deals, so they should not make the same mistake again.
4. Cano will be missed, but the free agent market is strong, so the Yankees can replace him with several players, making them a more well-rounded team.

Sounds reasonable, right? Now, it’s time for a closer look

1) Cano is being greedy. He isn’t worth the money, or at least he won’t be by the end of his contract.

New York Times’ columnist Tyler Kepner recently wrote “It makes you question what really matters to him,” when discussing Cano’s contract demands and new agent affiliation. “He is Jay Z’s first baseball client, and nobody knows what the whiff of true celebrity will do to Cano’s priorities.” Not only does such a statement cast Cano’s motives in a negative light, but it also implies that the second baseman is selling flash over substance. However, according to fangraphs’ WAR-based valuations (which, admittedly, are very rough), Cano has been worth $114 million over the last four regular seasons. Based on that calculation, Cano’s rumored demand of a $30 million salary isn’t outlandish.

Robinson Cano’s Estimated Value vs. Salary, 2005 to 2013

Source: Fangraphs (value) and baseball-reference.com (salary)

But, what about the end of the deal? If the Yankees signed Cano to a 10-year contract, could he possibly maintain his value over that period? The likely answer is no. However, that shouldn’t be the barometer used to measure free agent contracts. After all, no one seems concerned by the over $100 million surplus the Yankees have enjoyed during Cano’s first nine seasons. Nor should they be. The major league baseball CBA is structured so that players are underpaid at the beginning of their career and then overpaid at the end. That doesn’t mean teams should  indiscriminately pay players for past production, but neither should they be scared away by the free agent premiums built into the system, especially when it comes to retaining a homegrown player from whom the organization has extracted a benefit. So, if Cano does sign a new $300 million deal and underperforms by $100 million, why should the Yankees, and their fans, be worried about coming out even?

2) The Yankees can’t afford Cano. The team needs to dip below the $189 million luxury tax threshold, so there’s no way they can fit another big contract into that structure.

This argument is relevant only in the context of Yankees’ artificial financial restraints. But, why do the Yankees need to avoid the luxury tax? Unfortunately, very few people seem to be asking that question.

The Yankees are doing very well financially, at least according to independent estimates from Forbes and Bloomberg. Also, last year, S&P painted a rosy picture of the Yankees’ financial strength, upgrading the debt rating of the team’s holding company and adjusting its outlook from stable to positive. These two assessments came before the Yankees agreed to a multi-billion dollar contract extension with YES that will see the value of the team’s television rights rise from $85 million presently to approximately $350 million by the end of the contract in 2042. Business has been good for the Yankees, so it doesn’t appear as if the team’s emphasis on cost control is being driven by financial distress.

Yankees’ Payroll as a Percentage of Team Revenue

Source: Cots Contracts (opening day payroll) and Forbes (estimated revenue)

So, why are the Yankees trying to dip below the luxury tax threshold? The simple answer is profit maximization. This is especially evident when you consider the team’s declining payrolls as a percentage of revenue as well as the fact that the luxury tax threshold of $189 million in 2014 represents a $10 million increase over previous seasons (i.e., the Yankees tax will decline even if they maintain the same payroll). There’s nothing wrong with the Yankees wanting to pad the bottom line, but that makes Cano’s contract a question of priority, not affordability. If the Yankees truly value the playing field over the board room (especially when the issue is profit enhancement, not solvency), Cano’s price should not be prohibitive.

3) The Yankees have shot themselves in the foot countless times with long-term deals, so they should not make the same mistake again.

Alex Rodriguez is the poster boy for this argument, which, conveniently ignores the historic production he has provided to the Yankees, not to mention his herculean effort in bringing the team a 27th World Series title in 2009. Of course, Rodriguez didn’t do it alone. He also had help from CC Sabathia and Mark Teixeira, who also signed mega-contracts that currently represent a financial burden on par with Rodriguez.

Winning on a budget is possible. The Rays’ and Athletics’ sporadic success is proof. Teams like the Cardinals have also done a good job replacing high priced free agents with talent from the farm, while the Red Sox proved you can build a champion with a cadre of second tier signings. However, none of those teams have come close to enjoying the Yankees’ perennial success over two decades, not to mention its financial growth. If long-term deals are holding the Yankees’ back, it’s hard to figure how. After all, what’s not to like about winning over 90 games and making the playoffs every year, all while raking in record revenue? There are many ways to build a successful franchise, on and off the field, but no model works as well as the Yankees’.

The Yankees have been immensely successful, but can they sustain their run with an aging major league roster and barren farm? Well, the team’s farm system didn’t look so bleak before the season began, and that was before what many viewed as a successful draft in June. Besides, re-signing Cano would have little impact on the team’s ability to stockpile the farm system. The example of the Cardinals selecting Michael Wacha with the draft pick they received from the Angels as compensation for Albert Pujols has been repeated often in this regard, but it’s worth noting that selection was governed by the old CBA. Whereas the Cardinals received a 19th round pick for losing Pujols, the Yankees would be given a sandwich pick between the first and second rounds if they lose Cano.

4) Cano will be missed, but the free agent market is strong, so the Yankees can replace him with several players, making them a more well-rounded team.

The credibility of this statement depends on the Yankees’ “need” to lower payroll. If Hal Steinbrenner is re-committed to spending at levels more commensurate with the recent past, the team should not be faced with an either/or proposition. In addition to Cano, other free agents, such as Brian McCann and Carlos Beltran, are well within the Yankees’ means. Considering the number of holes the Yankees need to fill, it doesn’t make much sense to take a step back before going forward.

Let’s assume the Yankees are legitimately limited in how much they have to spend. Does that mean the team should say good bye to Cano and reallocate those resources? The first problem with this strategy is it would require the Yankees to overcome a significant downgrade at second base. No matter who replaces Cano, the fall off will be significant, but if internal options are used, the gulf will only widen. As a result, it might take two or three upgrades to make up for the loss. What’s more, the strategy depends on the team’s ability to attract the key components of a fall back plan. Everything has to fall into place to even execute such a plan, much less have it work.

The Yankees seem dead set against meeting Cano’s initial demands, but it’s still early in the game. There’s plenty of room for negotiation, and it would make little sense for the organization to set limits in advance of the process (especially via proclamations in the press). The Yankees need to do more than just retain Cano, so there’s plenty of other business they can conduct in the interim. The market will eventually dictate what Cano is worth, and at some point, the franchise will likely be given an opportunity to bear that cost. Can the Yankees afford to pay the price? Perhaps a better question is can they afford not to?