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Yankees Trade for Chapman About Taking Risks, Not Sending Messages

December 29, 2015 by William Juliano

The Yankees have added a big arm, a giant headache, and a world of possibilities.

There’s no point burying the lead. Aroldis Chapman’s pending investigation under MLB’s new domestic violence policy is just as relevant to his acquisition by the Yankees as the lefty’s ability to light up the radar gun. After all, if not for the allegations, Chapman would likely be a Dodger, and the Yankees would have had no chance to acquire him for such a modest package of prospects. Put more bluntly, Chapman is a Yankee because of, not in spite of, baseball’s ongoing domestic violence investigation.

Because of the uniqueness of the situation, the Chapman trade has a rare ethical component. In recent years, the off field behavior of athletes has come under increased scrutiny, with domestic violence garnering particular attention. As a result, some have argued that by trading for Chapman, the Yankees are sending “the wrong message”. However, it’s unclear what message is being sent and to whom?

Yesterday’s trade does not change the fact that Chapman is still the subject of an ongoing investigation. His acquisition by the Yankees doesn’t absolve him of any alleged wrong doing, nor grant him any favors in the process. Professional critics are always eager to weigh in on controversy, but there are three possible outcomes for the Chapman inquiry, and each one deserves a different reaction. For that reason, it’s not only premature to condemn Chapman, but also too early to heap scorn upon the Yankees. Continue Reading »

Posted in Baseball, MLB, Roster Analysis, Trades, Yankees | 2 Comments »

Dodgers Remain Baseball’s Top Spender as Yankee Dollars Continue to Decline

December 22, 2015 by William Juliano

Forget about Dodger Blue. Green is the new primary color in Los Angeles.

The Dodgers may have come up empty handed in the postseason, but it wasn’t for lack of trying. In 2015, the organization spent over $290 million on player costs, which, combined with a luxury tax bill of nearly $44 billion, easily made Los Angeles the most aggressive spender in the game, according to figures obtained by the Associated Press. The Dodgers also broke their own record for the costliest payroll and surpassed the 2005 Yankees for the highest luxury tax bill.

Top-20 Final Team Payrolls, All Time
top20 payroll 2015Note: Final payrolls represent actual amounts spent (salaries, benefits, earned bonuses and pro-rated shares of signing bonuses), but not AAV valuations used for luxury tax purposes.
Source: bizofbaseball.com and MLB releases published by AP

Year-by-Year Luxury Tax Payments by Team
Year by Year Lux Tax BillsNote: Baseball’s first luxury tax was in force from 1997-1999. The current system was instituted in 2003.
Source: bizofbaseball.com and MLB releases published by AP

Los Angeles’ record setting payroll represented a year-over-year increase of nearly 14%, or about double the league average. However, the Dodgers weren’t the only team that opened its wallet last season. Eleven teams  recorded a higher increase than Los Angeles, albeit off a smaller base, including the Astros and Cubs, whose payroll costs rose by over 40%. At the other end of the spectrum, the Phillies and Diamondbacks spent over 20% less in 2015, while the Yankees’ payroll inched up by 2.5%.

Year-Over-Year Payroll Changes (Final), 2015 vs. 2014
2105 final payrollNote: Based on base salary of contract year plus pro-rated items, earned bonuses, and defined benefits of $12,626,624.
Source: MLB releases published by AP Continue Reading »

Posted in Baseball, Business and Finance, CBA, MLB, Red Sox, Yankees | 1 Comment »

Manfred’s Opt Out Cop Out an Attempt to Save Owners from Themselves

December 18, 2015 by William Juliano

Opt out clauses have become the baseball equivalent of a pre-nuptial agreement. Before committing to a team, high profile free agents are increasingly using their leverage to negotiate favorable terms for a potential early divorce. But, are these contractual caveats as one-sided as often portrayed?

The criticism of opt outs has ratcheted up as the practice has become more prevalent. Even the MLB commissioner is scratching his head over the increasing use of these agreements. In an interview with Ken Rosenthal, Rob Manfred wondered aloud about why teams would be willing to extend such uneven terms. “The logic of opt-out clauses for the club escapes me,” Manfred confessed, but is the commissioner really that confounded?

If Manfred really wanted to know why his bosses were engaging in such a counterproductive practice, he could easily ask them. So, why did he take his concerns to the media instead? Probably because he already knows the answer. The teams offering opt outs are doing so because it’s in their best interest.

All baseball contracts are guaranteed, so whenever a long-term deal is signed, an inordinate amount of risk is heaped upon the team. This imbalance isn’t unfair; it’s by design. In exchange for years of team control, owners have agreed to a free agent system the eventually shifts the burden to them. The question for clubs then becomes how best to mitigate the risk associated with long-term contracts. Deferred money, back-loaded contracts, and insurance policies have traditionally been some of the most common ways to manage risk, but, now, opt outs have been added to the owners’ arsenal.

Opt outs provide obvious benefits to the player. If, for example, David Price were to excel in the first three seasons of his new deal with the Red Sox, he could opt out and hit the free agent market again in 2018, when, presumably, a new bidding frenzy would drive his salary even higher. On the other hand, if Price were to flop, or suffer an injury, he could simply remain under the terms of his current deal and live happily ever after in Boston. Because this contrast is so stark, it’s easy to see why so many believe the benefit is one-sided. Continue Reading »

Posted in Baseball, MLB | Leave a Comment »

Tracking the Yankees 2016 Payroll; Money Saved New Way of Keeping Score in the Bronx

December 14, 2015 by William Juliano

Brian Cashman still has a lot of work to do. According to the Yankees’ GM , “there are still steps in the process” to take, but if his master plan precludes adding payroll, Cashman will have to subtract salary before adding more talent.

USA Today recently reported that the Yankees’ actual payroll (AAV, not current salaries) was $241.15 million, resulting in a luxury tax just over $26 million. Based on 2016 contracts, estimated arbitration awards, and minimum-level assumptions for others on the 40-man, the Bronx Bombers only have about $4 million left to avoid exceeding last year’s payout. So, unless the Yankees deviate from their plan to hold the line on spending, Andrew Miller or Brett Gardner may become a casualty of Cashman’s future wheeling and dealing.

Yankees’ Estimated 2016 Payroll

2016 payroll

Note: Current Salary is a player’s base salary + prorated signing bonus and applicable buyout. Actual payroll is defined by the CBA as the average annual value of all contracts, and is used to calculate the luxury tax. For players who are eligible for arbitration, estimates from mlbtraderumors.com are used. For other players on the 40-man roster, the CBA prescribed minimum is used ($510,000 for major leaguers; $80,000 for minor leaguers), with a 10% raise for players that have more than a year of service time.

Source: Cots Contracts, fangraphs.com, baseball-reference.com, mlbtraderumors.com, proprietary

Even if the Yankees exceed their self-imposed budget constraints, their bottom line should still be fatter. In fact, at the status quo, the Yankees percentage of revenue spent on player costs would not only be at its lowest level since at least 2000, but it would also fall below last year’s MLB average, which, after this winter’s spending spree, is headed in the opposite direction of the Bronx Bombers’ outlay.

Yankees’ Payroll/Luxury Tax as a Percentage of Team Revenue, 2001 to 2016E
Pay vs RevNote: For 2001 to 2014, revenue is  based on Forbes projections and net of revenue sharing and stadium debt service. Payroll is based on final figures for each year released by MLB, and may not necessarily equal the amount upon which the luxury tax is based. 

Note: For 2015 to 2016, revenue is based on 7% growth, which matches CAGR from 2003 to 2014 (but is less than recent growth rates in wake of new long-term regional and national TV deals with build in escalators). Payroll is based on an adjustment to reported actual payroll of $241,150,000 commensurate with 2014 and carried forward to 2016 (when current payroll is reported, this number will be updated). 

Source: bizofbaseball.com and MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)

So, why are the Yankees being so frugal in a deep free agent class with so much difference-making talent? One reason is because Hal Steinbrenner doesn’t believe he should “have to have a $200 million payroll to win a world championship”(despite charging the highest prices in the league and enjoying taxpayer subsidized financing), but, regardless of motive, the Yankees new ways of doing business have made it necessary for fans to be just as familiar with the team’s payroll as its 40-man roster. So, as a service to Yankee fans, the Bronx Bombers’ 2016 payroll and future commitments will be maintained on the aptly named tab above. Consider it a new kind of scorecard for Cashman’s unfinished business…one that measures success in dollars saved, not games won.

Posted in Baseball, Business and Finance, MLB, Yankees | 2 Comments »

Brian Cashman’s Defense of Yankees Miserly Ways a Bah Humbug to Fans

December 4, 2015 by William Juliano

Brian Cashman has had a lot to say this week about the state of the Yankees, but all of his comments can be summed up with two words: Bah Humbug!

The Yankees GM has been playing the role of Scrooge for some time now. Since Hal Steinbrenner first announced plans to trim the Yankees’ payroll below $189 million, the team has taken a miserly approach to adding talent. So, while the franchise’s revenue has steadily climbed, the percentage allocated to players has declined just as precipitously. And yet, when asked about the team’s penny pinching, Cashman seemed to portray the Yankees more as Tiny Tim. Unfortunately, the media’s acquiescence has been a crutch.

Below is a summary of Cashman’s recent comments, along with obvious rebuttals that so far have not been forthcoming from those with access to Steinbrenner or the Yankees’ GM.

“I don’t have the money.” – Brian Cashman, quoted by Bryan Heyman.

Presumably, Cashman meant ownership has not budgeted the money for offseason acquisitions. Otherwise, a lie like that might land the Yankee GM on Santa’s naughty list. The Yankees may not want to spend money on improving the team, but they sure have plenty of it. This would seem to be an easy statement to refute, but so far, neither Cashman nor Steinbrenner has been challenged when they plead poverty.

“We’ve spent more than when The Boss was running the show.” – Brian Cashman, appearing on the Michael Kay Show

Although true in real dollar terms, every team is spending more because salary inflation and industry revenue have exploded. In these relative terms, the Yankees’ investment in player costs has dropped dramatically. Cashman knows this. He also knows he can get away with such a vacuous statement because many fans and media don’t grasp the financial nuances involved. Still, truth cloaked in deception is as good as lie.

“I think we’re just operating in a different environment. It’s a completely different arena than The Boss operated in.” – Brian Cashman, appearing on the Michael Kay Show

This comment was a lament about the siphoning effect of competitive balance measures like revenue sharing, but one that’s easy to refute because we know George Steinbrenner allocated much larger percentages of revenue to team payroll. Also, revenue sharing and the luxury tax existed during Steinbrenner’s reign, and neither caused him to shy away from reasonable efforts to field the best team possible. If Cashman wants to defend Hal’s stinginess, that’s fine, but he shouldn’t question the Boss’ dedication to winning in order to do so.

“I feel that we have a good, strong process. We’ve evolved. We’ve grown. The way I do business today is radically different than the way I did business back in the day, and I’m proud of that. I’m proud of how we’ve moved forward.” – Brian Cashman, quoted by Chad Jennings

Back in the day, the Yankees perennially won 95 games, advanced far into the playoffs, and posted record setting attendance and ratings. That would seem to be a source of pride, but apparently not for Cashman. Under the new “process”, however, the team has had three mediocre seasons and suffered declining attendance and television ratings. And, yet, Cashman is proud of that transition? If winning is the focus, it shouldn’t matter how it’s accomplished, unless other priorities have emerged. For Hal, it’s clearly profit; for Cashman, perhaps it’s the legacy of winning without a big budget?

It’s hard to blame Brian Cashman for being so defensive. He has been given his marching orders, and is bound to fulfill them. However, that doesn’t excuse the blatant dishonesty used to justify what he and Hal Steinbrenner refuse to admit. The Yankees unwillingness to spend is not about an improved process, changing financial landscape, or economic restrictions. The reason is much simpler. Hal Steinbrenner doesn’t want to spend $200 million to win a world championship. He does, however, want Yankee fans to keep paying through the nose to watch his increasingly mediocre team.

Posted in Baseball | Leave a Comment »

Yankees Blueprint for 2016 Requires Lots of Green

November 11, 2015 by William Juliano

Ever since Moneyball was published in 2003, the baseball world has been in hot pursuit of the next great market inefficiency. Whether it was Billy Beane’s mining for high on-base percentage, the Rays’ dedication to the “extra 2%”, or, more recently, the Royals’ embrace of contact hitters in a swing-and-miss era, the last decade has seen momentary success heralded as a new paradigm for winning.

In order to play catch up with the likes of the Royals and crosstown Mets, Brian Cashman has reportedly been considering all options. According to teams who have had early talks with the GM, Cashman has been aggressive and creative. The irony, of course, is Cashman doesn’t really need a big imagination to turn the Yankees into World Series favorites. He just needs a good short-term memory.

Market inefficiencies are difficult to exploit because baseball is a copycat industry. As soon as one team strikes gold, another is right behind ready to stake a claim. However, amid the cascade of short-lived formulas, one model has been a true foundation of sustained success: the Almighty Yankee Dollar. For the better part of the last century, including most of the past 20 years, the Yankees have flexed their financial muscle. However, more recently, the team has decided to devalue its currency. Instead of “winning at all costs”, the franchise’s new strategy prioritized profit margin over winning percentage. Well, three year later, the Yankees have certainly fattened their wallets, but winning games has proven much more difficult in a cost cutting environment.

Only Hal Steinbrenner knows whether the Yankees will be once again willing to leverage the advantage of their oversized wallet, but if so, this year’s free agent market presents several compelling opportunities to remedy the team’s deficiencies. So, guided by the old franchise philosophy of money being no object, below is a championship blueprint the Yankees can use to once again lord over the baseball world. Continue Reading »

Posted in Baseball, Hot Stove, Roster Analysis, Yankees | 9 Comments »

Misery Loves Company: World Series Beckons Long Suffering Franchises

October 16, 2015 by William Juliano

Baseball’s final four is set, and it features a quartet with one of the longest cumulative championship droughts in LCS history. So, forget the recent talk of dynasties and title defenses. When the champagne flows after this year’s World Series, it will quench the thirst of a long-suffering fan base.

Yearly Cumulative World Series Drought of LCS Participants, 1969-2015
LCS Drought

Note: Includes the sum of years between a World Series victory and the current season for all teams. A team that won the World Series and played in the LCS in the following year is considered to have a drought of one year. For teams without a World Series victory as a reference point, either their first season or 1903 was used.
Note: 1904 and 1994 were included in calculating the durations.
Source: baseball-reference.com (data)

LCS with Longest Combined Championship Drought
Top 10 lcs droughtsNote: Includes the sum of years between a World Series victory and the current season for all teams. A team that won the World Series and played in the LCS in the following year is considered to have a drought of one year. For teams without a World Series victory as a reference point, either their first season or 1903 was used.
Note: 1904 and 1994 were included in calculating the durations. Droughts of longer than 20 years in bold.
Source: baseball-reference.com (data) Continue Reading »

Posted in Baseball History, MLB, Post Season | 2 Comments »

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