The Captain's Blog

The Yankees have gone all-in on Masahiro Tanaka, but, so too have several other teams. As a result, the Bronx Bombers’ off season plan hangs in the balance ahead of the looming Thursday deadline. Regardless of Tanaka’s decision, however, it’s hard not to wonder whether the Yankees’ aggressive play isn’t part of a bigger bluff.

Even if the Yankees sign Tanaka, they’ll have to answer about their payroll.

If the Yankees are lucky enough to sign Tanaka, it will be the crowning achievement of their off season. The move will give the team’s brass an opportunity to crow about their commitment to winning and willingness to spend well in excess of the $189 million luxury tax threshold. All talk of the suddenly frugal Yankees will be put to rest, and the fans, now buoyed by the team’s renewed financial commitment, will start pouring through the turnstiles and turning on the YES Network. It’s such a perfect plan, there has to be a catch.

If Tanaka signs in the Bronx for the $20 million salary he is reportedly seeking, the Yankees’ payroll would balloon to about $205 million. Judging by intent, this seems to validate Hal Steinbrenner’s insistence that financial restrictions would not prevent the Yankees from fielding a championship caliber team. However, that’s only true if you regard the $189 million luxury tax threshold as the new barometer of team spending.

Since the start of their recent dynasty, the Yankees have usually been baseball’s biggest spender. But, that’s only half the story. Over that span, the Yankees have also been the sport’s biggest revenue generator. So, even though the team’s payroll has remained high on a nominal basis, it has actually declined in relative terms, including based on inflation as well as a percentage of league payroll and team revenue.

Yankees’ Payroll/Luxury Tax as a Percentage of Team Revenue

Note: Revenue is net of revenue sharing and stadium debt service.
Source: Cots Contracts (payroll), bizofbaseball.com (luxury tax) and Forbes (revenue)

In 2005, the Yankees’ payroll peaked at 75% of revenues (87.5% including the luxury tax), but since then, the share of cash flow allotted to salaries has decreased precipitously and was under 50% in 2012. So, with this added perspective, what would a $205 million payroll in 2014 say about the Yankees’ financial commitment? Well, using stagnant revenue from 2012 as a guide (although the Yankees suffered a significant decline in 2013 gate receipts, league-wide revenue and TV-related payments have increased), the Yankees’ payroll would be less than 44% of the team’s intake (45.2% including the luxury tax), the lowest figure since at least 2001. In order to approach the 62% average ratio of payroll plus luxury tax to revenue since 2001, the Yankees would have to spend $257 million on players in 2014 (again using stagnant 2012 revenue and $291 million in total payroll related expenditures).

By focusing so much on plan $189 million, the franchise has effectively defined payroll expectations down. Instead of being judged against their past efforts (which have been rewarded with perennial success on the field), the Yankees have lowered the bar. That’s why the team should not be heralded for going $16 million over the luxury tax limit when/if they sign Tanaka. On the contrary, fans and media should be asking why the Yankees are under spending their historical means by about $50 million.

If Tanaka really was the missing piece, there would be no need for the Yankees to open their wallet as wide as the past. However, considering the track record of recent Japanese starters, it would be unreasonable to expect Tanaka to dominate from day one. Although the righty may eventually emerge as an ace, the Yankees (or whatever team signs him) should be prepared for a transitional phase. And, even if the Japanese right hander immediately lives up to the hype, he still can’t fill the Yankees’ many other holes in the rotation, bullpen, and infield. That’s why the potential signing of Tanaka would not be a validation. The Yankees still have a lot of work to do, and questions remain about their willingness to spend enough to finish the job.

The Yankees have the financial wherewithal to continue improving their 2014 roster. If Hal Steinbrenner wants to live up to his declaration, Tanaka shouldn’t be the finishing touch. Otherwise, Yankee fans will eventually see through the bluff. Of course, that assumes the organization is even willing to pay whatever it takes to sign the Japanese right hander. If this too proves to be a bluff, then all bets are off in the Bronx.