The Poor Man’s Analyst

Much Ado About Money (What else?)

with 6 comments

A number that journalists have liked to toss around this off-season is $423.5 million. That’s the total amount of money the Yankees committed to CC Sabathia, A.J. Burnett, and Mark Teixeira this winter, in an attempt to fill the holes in the club, partially caused by the departures of Mussina and Giambi. Keep in mind, the Yankees aren’t paying them all of that money in one season. In fact, the 2009 payroll will be lower than the 2008 figure. That little tid bit is often glossed over, for whatever reason. That hasn’t stopped people from complaining. Brewers owner Mark Attanasio said this in an e-mail to Bloomberg News:

“At the rate the Yankees are going, I’m not sure anyone can compete with them. Frankly, the sport might need a salary cap.” (source)

In response to that, I give you this. Also against the Yankees free spending ways is Astros GM Drayton McLain, saying, “We would love to have a salary cap, but the (players’) union has been very resistant to that.” As a way to curb the Yankees’ free spending ways, a salary cap would seem to do the trick. But would it? Yes, the Yankees couldn’t spend whatever they wanted and afford to cover up whatever mistakes they make (a certain Carl Pavano comes to mind). But other than hurting the Yankees, how does it help the poorer teams? Why do the Brewers and Astros care what the Yankees do? By my count, those two teams play the Yankees a combined ZERO times next season. So how would curbing the Yankees spending somehow help the Brewers and Astros? I have no idea.

It’s not even like McLain and  Attanasio are looking out for the best interests of the sport either–the Yankees generate a ton of revenue for baseball by being such a marketable club.  With a salary cap must come a salary floor. And poorer teams are hurt by salary floors more than they are helped by salary caps. Shawn at Squawking Baseball contributes this in a piece for Baseball Prospectus:

Imagine being Frank Coonelly in this situation. Coonelly, the Pirates‘ team president, has publicly supported a cap. Had our fictional cap/floor arrangement been instituted last year, the Pirates would have needed to increase their Opening Day payroll by $28 million. Not only would the team have taken a big loss, but Neal Huntington’s long-term strategy would have been sabotaged, since the team would have had to sign a number of veterans just to meet the minimum payroll.

Now fast forward to 2009. Let’s say the Pirates’ sales staff runs into major headwinds, with the team struggling and the economy sinking. The team’s top line takes a hit, falling $10 million from 2008. The Mets and Yankees, meanwhile, open their new ballparks, and each team increases its local revenue by $50 million. If the twenty-seven other teams are flat, total industry revenues rise by $90 million (not including any appreciation in national media revenue). Forty-five percent of that, of course, goes to the players. So even as the Pirates’ purchasing power decreases, the payroll floor actually rises.

In other words, without a more egalitarian distribution of income, the system crumbles.

Shawn goes on to talk about why keeping the current system is the best option for baseball to take. But even as a Yankee fan, I don’t completely agree. I think a better system of revenue sharing is the cure for what ails these billionaire owners. If I were voting on what to implement, I’d look for a system that provides strong incentives for teams to win (even more-so than the current system), and that didn’t force teams like the Pirates to spend money that they don’t want to spend. In a piece from way back in 2002, Derek Zumsteg lays out such a system, which rewards teams that get the most out of their respective fanbases. I urge you to read the article in its entirety, but here is a taste:

Owners should love it: it doesn’t punish them for spending on their teams, it doesn’t punish them for working to maximize revenue. It’s proportional, so it’s just, and if you expand or allow another team to move close, it’s almost a relief.

(snip)

For the players, this is the greatest plan ever: there’s no drag on payroll at all. If the Yankees want to go buy their pennant, hey, no one’s stopping them. They won’t be able to do it for long with their reduced revenues, but not many people are going to complain about that.

Just to be clear, there’s probably less than a 1% chance that this would happen. I personally love this proposed system, and I think any economist will tell you that it correctly assigns incentives. Even though it’s not going to happen, we can still dream, can’t we?

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Written by dcn29

January 11, 2009 at 3:06 AM

Posted in general baseball

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6 Responses

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  1. “Why do the Brewers and Astros care what the Yankees do? By my count, those two teams play the Yankees a combined ZERO times next season.”

    The Brewers care because it was the Yankees who won the bidding for CC Sabathia. The Brewers were his 2nd choice.

    “the Yankees generate a ton of revenue for baseball by being such a marketable club.”

    Actually they generate a ton of revenue because they play their games in New York City. There have been estimates that the NYC area could support up to 6 franchises. Obviously that would never happen, but if another team was added to compete with the Yankees and Mets it might even things out a bit.

    Like the website…keep up the good work.

    Jon

    January 11, 2009 at 11:58 AM

  2. Thanks for the comments…

    “The Brewers care because it was the Yankees who won the bidding for CC Sabathia. The Brewers were his 2nd choice.”

    This is true, I’ll give you that. But it seemed that Attanasio was complaining about overall Yankee spending, not that they could afford Sabathia specifically. Yes, Sabathia is obviously a big part of that, but he didn’t say anything about a salary cap when CC signed. He said this in response to the Teixeira signing. He was probably pissed off that they couldn’t keep Sabathia, but I he was responding to Teixeira’s deal.

    As for your second point, you could be right, I don’t really know that stuff too well. I’m inclined to think baseball wants the Yankees to be at least somewhat successful. After all, they weren’t drawing too many fans in the 1980s. Maybe that’s a future topic to look into.

    dcn29

    January 11, 2009 at 1:09 PM

  3. I think one thing overlooked is the fact that the Yankees not only attract fans in New York, but also in other cities. If you’ve ever been to an Orioles game, you’ll see that these days there are more Yankee and Red Sox fans at the games. The money the dynasty of New York brings in elsewhere is quite significant.

    I haven’t read the Zumberg article yet, but I’ll do it right after this post. From my knowledge, though, most people have found that revenue sharing does not significantly affect the competitive balance among teams in baseball. Even if it did, we have to ask the question ‘what is the optimal level of competitive balance in the league’? Maybe it’s good to have teams like the Yankees with W% above .600. I suspect it is. Look at the overwhelming coverage of the Patriots in the NFL last year. Though the ‘superstar effect’ is probably pretty small…there may be a more significant ‘superteam’ effect.

    Though it’s fun to see strategies under a cap, it would be difficult to implement. What do you do with the current contracts making millions? Are they grandfathered in? Also, dictating how business owners use their own money (I think this was mentioned above) becomes problematic.

    Millsy

    January 11, 2009 at 8:28 PM

  4. I’m not sure how they’d work around the existing contracts–maybe if they were to agree on this proposed Zumsteg plan today, they would implement it starting in like 8 years or something, so teams had a chance to plan ahead. You’re completely right on the last point about dictating how business owners spend their money. Owners would obviously have to vote on such a system before Bud Selig could implement it. Even if this were ever proposed in a serious way, there are so many hurdles that I doubt it would ever pass.

    dcn29

    January 11, 2009 at 8:42 PM

  5. First off, nice job on the site, been looking for another stat-oriented Yankee blog; lifelong NYY fan here living in the southern Plains (thank God for mlb.tv)…

    Anyway, when I started reading your post, the first thing I thought of was the Zumberg article and other similar proposals. I definitely think the most pragmatic way to deal with the large differential in market sizes is to simply judge teams’ revenues on their ability to make money. That takes into account a team’s willingness (and acumen) to put a winner on the field, yet also acknowledges that the Brewers are never going to be able to have the revenue that the Yankees have. It’s really the fairest way.

    But, as you said, it’s all wishful thinking, we’ll probably continue to have some derivation of the current system, which is still better than a salary cap. Even with the latest “outcry” for a salary cap, my impression has been that most of the rest of the baseball establishment seems rather disinterested.

    -Mike

    VortexBreakdown

    January 12, 2009 at 12:08 AM

  6. There are some people out there crying “socialism,” but I think they’re missing the point. The Zumsteg plan doesn’t distribute all the money equally, like the NFL does for example. It gives money to the teams that make good use of the fanbase, and takes money away from those that can’t make use of what they have. Sounds fair to me.

    Thanks for commenting

    dcn29

    January 12, 2009 at 12:36 AM


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