The Captain's Blog

A $240 million smile. (Photo: AP)

When Brian Cashman said “everyone is replaceable”, he wasn’t kidding. Less than 12 hours after Robinson Cano spurned the pinstripes for the “greener” pasture of Seattle, the Bronx Bombers welcomed Carlos Beltran into the fold. Easy come, easy go.

Yankee fans may have been floored by Cano’s decision to accept a 10-year, $240 million “partnership” with the Seattle Mariners, but the organization certainly wasn’t. Judging by the alacrity to replace him, it seems as if the Bronx Bombers knew what was coming. In fact, their inflexibility with Cano pretty much dictated the sequence of events. Was it a case of the Yankees prudently devising and implementing a contingency plan, or did the franchise actually prefer Plan B from the outset?

Did the Yankees really want Cano? There are 160 million reasons why that might seem like a silly question, but the organization’s posture toward Cano suggests they may have made him an offer he had to refuse. From day one of the off season, the Yankees saturated the media with statements about how much the team would not  pay Cano. By drawing a line in the sand, the organization appeared more interested in backing into an exit strategy than moving forward with productive negotiations. And, if any went on behind the scenes, no one was telling, which seems doubtful considering how public the process became.

Even before the Mariners jumped into the fray, the Yankees jeopardized their own offer to Cano by giving the same deal to Jacoby Ellsbury. Did the Yankees really think the Red Sox All Star was an equal to the homegrown Cano? It’s hard to imagine so, but even if their internal projections bucked the conventional wisdom, they had to know Cano would think otherwise. Either way, by announcing the Ellsbury deal before at least attempting an aggressive push for Cano, the Yankees were effectively sandbagging their offer. What’s more, by outbidding the Mariners for Ellsbury, the Yankees were creating a rival for Cano. In a sense, the signing of Ellsbury all but marked the end of Cano’s time in pinstripes. So, when the Mariners came calling, it’s no surprise the second baseman was eager to listen.

When you consider the $80 million difference between the two offers (which doesn’t take into account the tax advantage of playing in Washington state), it’s impossible to argue that the Yankees were competitive in the process. Ironically, Cano will likely be branded a greedy trader for taking the extra money, when in reality that exorbitant sum should be regarded as a symbol of his loyalty. After all, the Mariners would not have blown the Yankees’ offer out of the water if they didn’t have to. Seattle paid a very high price to lure Cano away from his obvious preference, and, for some reason, the Bronx Bombers made little effort to discourage him. By all accounts, Cano was willing to give the Yankees a discount, but the team didn’t seem interested in finding out exactly what it was.

Yankees’ Payroll as a Percentage of Team Revenue

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

Regardless of the Yankees eagerness to retain Cano, there’s still the question of whether they made the right decision to let him go. A surprising number of Yankee fans have looked past Cano’s production and legacy and instead celebrated the move as a sound financial decision. Who knew so many of the team’s followers had so much concern for Hal Steinbrenner’s profit margin? Chalk that up to the Yankees’ constant talk about cost cutting. Instead of holding the franchise up to standards of the past, fans have begun to think of the team’s payroll as a zero sum game. As a result, Beltran is being accepted as a suitable, cheaper alternative to Cano, instead of a complement, as would normally have been the case. Incredibly, the Yankees have created an environment in which payroll reductions are viewed as increases, and the team’s profit margin is viewed by some fans as being more important than its winning percentage. And yet, the Yankees’ ability to spend doesn’t justify every big contract, especially one as large as Cano’s.

Conventional wisdom now dictates that all long-term deals are bad, especially for players already on the north side of 30. In the case of the 31-year old Cano, a 10-year deal looks particularly onerous. There’s no way the All Star second baseman will come close to earning his $24 million salary in the 2020s, the argument goes, so how can a team make such a short-sighted commitment? This logic seems reasonable, but it is mitigated by three factors routinely overlooked: (1) excess return at the beginning of a contract can offset deficits at the end; (2) money has time value; and (3) player costs are subject to inflation.

Can Cano maintain his production for three more years? If so, according to fangraphs.com, he will be worth $90 million, or $18 million above his annual salary. If he has seasons similar to 2012, the surplus would rise to $33 million. There’s no guarantee the second baseman won’t begin an immediate decline, but chances are he’ll provide excess value over the first half of his contract that would offset at least some of the likely drain toward the end of the deal.

Another important consideration of any long-term deal is present value. It’s natural to look at Cano’s $24 million salary in today’s dollars, but money has time value. More specifically, under typical economic conditions, a dollar in hand is worth more than at any point in the future. How does that impact Cano’s contract? The chart below provides a full picture, but in 2023, for example, the second baseman’s salary will be equivalent to about $15.5 million in current terms.

Present Value Depiction of Robinson Cano’s New Contract

Note: Present Value is based on AAV of contract discounted back by 5% (1% + 30 Year Treasury Rate), with payments assumed as a lump sum on first day of each year  and discount rate compounded annually (this actually overstates the present value). Inflation adjustment is a further 3.55% discount based on average annual salary increase between 2003 and 2012. For example, the chart says that in 2013, Cano’s $24 million salary is worth $15.5 million in today’s dollars, and that based on rising cost structure, paying someone $15.5 million current dollars in 2023 would be like a $11.3 million payment today. 

Between 2003 and 2012, the average salary in major league baseball rose from $2.3 million to $3.2 million. If similar growth is applied to Cano’s contract, his $15.5 million present value salary in 2023 would be similar to paying a player $11.3 million today. If Cano only has to be worth around $11 million in 2023, not $24 million, and you consider the surplus he may provide in the early years of the deal, all of a sudden what seems like a burdensome arrangement becomes fair value.

But, what about the luxury cap? Inflation and time value mean nothing to baseball’s tax man. Even though Cano’s outer years may be worth less in today’s dollars, a team will still be on the hook for a $24 million AAV in 2014. For the Yankees, that’s particularly onerous because, even with an Arod suspension, the team is all but assured of paying the luxury tax once again. However, it’s hard to say the team was motivated by this factor when their top offer had an AAV just below the $24 million figure that will be assigned to the Mariners. And, if Cano had accepted a $10-20 million discount to return to the Bronx, the AAV of a 10-year deal would actually be worth less than the $160 million offer made by the Yankees (the difference becomes greater if the team’s reported willingness to go as high as $175 million over seven years is true).

At the risk of getting bogged down with financial minutia, the math illustrates that long-term deals are not as burdensome as often portrayed. This realization leads back to the original question. Did the Yankees really want Cano? If the financial implications are not so prohibitive, shouldn’t the team have been more aggressive? And, if so, what explains the team’s lukewarm courtship?

Do the Yankees believe Cano is a candidate for a rapid decline? Did they infer from his relationship with Jay Z that baseball was no longer a priority? Was a lack of hustle and work ethic an underlying concern? What about Cano’s close friendship with Alex Rodriguez and Melky Cabrera? Perhaps a PED undercurrent made the Yankees more cautious. It’s easy to throw out conspiracy theories, but a more logical explanation might actually come back to finances.

Instead of being concerned about how much Cano was going to cost, it could be the team was worried about how money they could make off his star power. In an ironic twist, the Yankees may not have been scared away by the prospect of Cano becoming Arod. Their greater concern may have been Cano’s inability to match Rodriguez as a drawing card. Winning is the ultimate lure, and Cano helps in that regard more than most, but the Yankees’ brand also relies heavily on big names. So, without the extra bang for their buck, the organization may have decided Cano wasn’t worth the price. And, if the Yankees were acting from a financial standpoint, their motivation may have been governed more by marketing than payroll reduction, although the latter was certainly a bonus.

Life goes on for the Yankees. Just as Cano isn’t greedy, they aren’t cheap. However, Yankee fans have every right to question whether the team’s commitment to winning has taken a step back in favor of profit maximization. It’s one thing to build an occasional winner on a more defined budget, but when the mandate is perennial success, a lot more risks have to be taken. The Yankees passed up on a big one yesterday, and, it could turn out that they dodged a bullet. What is certain, however, is they have forfeited any chance at a big reward.

One final note is a personal one, but I hope it’s a consideration shared by many Yankee fans. Cano’s departure transcends win-loss rates and profit margin. It also impacts the team’s legacy. There will be no tearful goodbye to Cano in 10 years. By then, his time as a Yankee will have faded into distant memory. Instead of being the heir apparent to Derek Jeter, that royal line will now lay dormant. That might not seem important to some (including Cano), but having the opportunity to watch great players over their entire careers has been an important part of being a Yankee fan and integral to the franchise’s lore. It could be that the organization perceived a lack of connection between Cano and the fans, but nonetheless, the second baseman would have added to the franchise’s pantheon of all-time greats. Now, they’ll have to share Cano with Seattle.