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Major League Baseball has released official final payrolls along with the average annual value calculations used to determine the luxury tax, and once again, the Yankees sit near the top of each list. With a payroll of just over $208 million and tax bill approaching $16 million, the Bronx Bombers look like big spenders, but each figure represents not only a gradual decline, but continued progress toward the team’s goal of getting below the luxury tax threshold in 2018.

Yankees’ Payroll and Luxury Tax Payments, 2001, 2003-2017

Note: Final payrolls encompass the 40-man rosters and include salaries, incentive bonuses, and pro-rated shares of signing bonuses, present value of deferred payments, buyouts and other cash payments and non-cash compensation.  These payrolls ARE NOT AAV valuations used for luxury tax purposes. 2018E assumes Yankees spend up to, but not beyond the $197 million luxury tax threshold.
Source: MLB release published by AP

In real terms, the Yankees’ $208 million payroll was the lowest since 2006, and its luxury tax bill of $15.7 million was the lightest levy since 2011. What’s more, when compared to the 2013 peak in both measures, the decline is much more substantial. That shouldn’t come as a surprise, as the Yankees have long been trying to get below the luxury threshold. It’s taken longer than expected, with a few bumps along the way, but after six years, the Yankees finally seem poised to achieve that goal. But, is the organization’s focus on cost control justified?

Yankees’ Financial Snapshot, 2003-2016

Note: Revenue for each team is net of stadium debt and revenue sharing.
Source: Forbes.com

Yankees Expected Rights Fee Payments from FOX, 2013 to 2042

Note: Amortized upfront payment is based on $584 million payment from FOX to the Yankees pursuant to initial equity investment.  Continue Reading »

The Dodgers came within one game of winning the World Series, but they didn’t fall short in the final MLB payroll rankings. For the fourth straight year, Los Angeles led all teams with nearly $247 million spent on players, widening its lead over the Yankees as the sport’s top spender.

2017 Final MLB Payrolls

Note: Final payrolls encompass the 40-man rosters and include salaries, incentive bonuses, and pro-rated shares of signing bonuses, present value of deferred payments, buyouts and other cash payments and non-cash compensation.  These payrolls ARE NOT AAV valuations used for luxury tax purposes.
Source: MLB release published by AP

The Bronx Bombers may still be smarting over their loss to the Astros in the ALCS, but you can bet Hal Steinbrenner doesn’t mind looking up at the Dodgers’ payroll. In 2017, the Yankees trimmed their payroll by over 7% to $208.4 million, their lowest total since 2006. And, they weren’t alone among big market teams who tightened their belts last year. Even the Dodgers’ shed over 4%, joining the Red Sox and Tigers as other high payroll teams seeking a little relief.

Year-Over-Year Payroll Changes (Final), 2017 vs. 2016

Note: Final payrolls encompass the 40-man rosters and include salaries, incentive bonuses, and pro-rated shares of signing bonuses, present value of deferred payments, buyouts and other cash payments and non-cash compensation.  These payrolls ARE NOT AAV valuations used for luxury tax purposes.
Source: MLB release published by AP

Having big market teams cut back seems like bad news for the players, but only nine of the 30 clubs recorded a reduction in player expenses, including three teams (White Sox, Padres, Athletics) in the midst of a rebuilding plan. The rest of the league spent more on payroll in 2017, with, ironically, the Miami Marlins recording the largest jump at 44%. Eight other teams saw double-digit increases in payroll, including the World Champion Astros, who reported their fourth straight bump of at least 25%.

2017 Players’ Share of MLB Revenue
Notes: Revenue is net of stadium debt service (MLB reports “over $10 billion in gross revenue“). For 2017E, revenue is estimated as 7.1% greater than Forbes 2016 calculation (the average of the previous two years’ growth). All other 2017 data are actual. Total compensation is actual payroll + player benefit costs + players’ share of the postseason revenue pool. For pre-2015, benefit costs were determined by working backward from the known 2015 amount and assuming a 4% growth rate (CBA calls for increases up to 10%).
Source: MLB releases published by AP (actual payroll, post season revenue), baseball-almanac (older postseason revenue) and Forbes (net revenue) Continue Reading »

The Yankees began the off season trumpeting their intention to fall below the luxury tax threshold for the first time. With a superstar free agent class looming in 2018, avoiding the tax and resetting the penalty from 50% to 20% was deemed an economic imperative. So, what did Brian Cashman do? He traded for the most expensive contract in baseball history.

By acquiring Giancarlo Stanton, the Yankees hit the jackpot, but didn’t break the bank. Because of how the deal has reportedly been structured, Cashman was able to turn a contract with a $295 million balance into a relative bargain. The chart below contains a breakdown of Stanton’s contract based on its impact to the Yankees’ luxury tax position. Included is an explanation of how the average annual value is calculated, both for the contract alone and how it’s applied to the Yankees’ payroll. In addition, there is an analysis of how a potential opt out by Stanton would effect the Yankees’ payroll after the 2020 season.

Breakdown of Giancarlo Stanton’s Contract Based on Luxury Tax Implications

Source: 2017–2021 MLB Basic Agreement and Captain’s Blog

What makes Stanton’s high price tag affordable is the length of the deal, which reduces a record setting total value to a more pedestrian $25 million average annual value (AAV). Further mitigating the impact to the Yankees is the pro rated $30 million being sent by the Marlins, which, though contingent upon Stanton remaining in pinstripes beyond 2020, is applied to the team’s payroll calculation immediately. The result is a $22 million hit against the luxury tax threshold.

The Yankees began the winter with about $35 million to spend, so even at an AAV of $22 million, Stanton’s contract is still substantial. That’s one reason Starlin Castro was included in the deal. By shedding Castro’s contract, which had an AAV of about $8.5 million (including pro rated bonuses), the Yankees were able to increase their cushion to about $20 million, which should be enough to fill the two remaining roster holes (most notably a starting pitcher) and leave room for a mid-season acquisition or two (click here for a look at the Yankees’ estimated preliminary 2018 payroll).

Without shedding more payroll, the Yankees seem to be in a good position to trim their payroll below the $197 million tax threshold. But, that doesn’t mean Brian Cashman won’t attempt to create more wiggle room. The most obvious way to do that would be by dumping Jacoby Ellsbury’s contract. Even if the Yankees paid 70% of what’s owed on his deal, they’d still save over $6 million. That sum could come in handy at the trade deadline. There are other candidates for savings,  such as Dellin Betances, Chase Headley, and Brett Gardner, but Ellsbury would clearly be the preferred option because of his seemingly limited role on the team.

The Yankees may have rocked the baseball world by acquiring Stanton, but their attempt to dip below the luxury tax threshold remains on solid ground. To the extent that Stanton’s on-field value lessens the need for the Yankees to acquire more (expensive) players, his contract is more than just affordable, it’s a facilitator of the team’s financial aspirations. When you further consider the minimal prospect cost, the Yankees’ acquisition of Stanton is more than just a home run…it’s a walk off grand slam in the middle of December.

 

 

Masahiro Tanaka has decided to remain with the Yankees, and, in the process, confined the Bronx Bombers’ off season plans to a tight budget.

Tanaka’s decision was a linchpin because of the important role he fills in the Yankees’ rotation and the $22 million he gets paid to do it. Because of Hal Steinbrenner’s stated intention to keep player expenditures below the $197 million salary cap threshold, Tanaka’s salary, which is over 10% of that total, is likely to have a constraining effect on the team’s approach this winter. However, that’s not to imply the Yankees are worse off because of the righty’s fondness for the Bronx. With the Yankees already needing to fill at least one, and perhaps even two slots in the rotation, adding a third would have made for a very complicated off season, especially considering the thin pitching market. Now that Tanaka is back in the fold, Brian Cashman can focus his efforts on a much more modest winter plan.

Yankees’ Projected 2018 Active Roster

C Gary Sanchez SP1 Luis Severino
C Austine Romine SP2 Masahiro Tanaka
1B Greg Bird SP3 Sonny Gray
2B Starlin Castro SP4 TBD
SS Didi Greogorius SP5 Jordan Montgomery
3B Chase Headley RP Aroldis Chapman
UT Ronald Torreyes RP2 David Robertson
LF Brett Gardner RP3 Chad Green
CF Aaron Hicks RP4 Tommy Kahnle
RF Aaron Judge RP5 Dellin Betances
OF Jacoby Ellsbury RP6 Adam Warren
OF Clint Frazier RP7 Chasen Shreve
DH/1B TBD

The Yankees have two glaring needs and, based on estimates, about $30 million to fill them. The team’s first priority will likely be finding another starter. Retaining CC Sabathia seems like the most obvious course of action, but that depends on the big lefty’s contract demands and the Yankees’ confidence in his ability to remain healthy. Although Sabathia will make considerably less than the $25 million-plus of his previous deal, he may still receive an offer or two in the $15-million range. That would be difficult for the Yankees to match, as it would cut their luxury tax buffer in half. An alternative might be for the Yankees to structure a two-year deal worth $20-22 million, but with a player opt out. This structure would give the Bronx Bombers’ an attractive AAV of $10-11 million, and provide Sabathia with an insurance policy against injury.

If the Yankees are unable to come to terms with Sabathia, chances are they’ll end up fishing in the shallow end of the pitching pool. Free agents like Yu Darvish and Jake Arrieta will likely command salaries well in excess of the Yankees’ budget. Also, neither pitcher is the bona fide ace who would merit breaking the bank. A better approach would be finding a free agent with good value potential, and two stand out from the others: Lance Lynn and Alex Cobb. Because AAV would be the Yankees’ biggest concern at this point, the team might have to tack on an extra year to make up for a lower annual salary, but both Lynn and Cobb are young enough, despite recent injury concerns, to warrant a three- or four-year deal. Of course, if several other teams feel the same way, the bidding could escalate quickly, putting even the best of the second tier outside the Yankees’ price range. Continue Reading »

All data is final as of November 2, 2017.

One of baseball’s most often repeated axioms states that, although home runs work just fine in the regular season, once the calendar turns to October, small ball becomes a more effective method for scoring runs. This mantra is proclaimed with such certainty that all who hear it seem to unquestionably accept its infallibility. However, since the dawn of the wild card era, history has suggested otherwise (though home runs have declined in the post season since 1995, runs scored by other means have dropped more significantly). So, as a service to those home run fanatics who refuse to accept the short comings of the long ball in the post season, the Captain’s Blog Presents the 2017 Long/Small Ball Meter (see here for 2016), which will not only keep a running breakdown of how runs are scored this postseason, but also present that data in a historical context. In addition, a historical comparison (since 1995) of the share of post season innings by role is also presented.

Current Season Data

Long/Small Ball Meter: Regular Season vs. Postseason, 2017
Note: Long/Small Ball Meter compares the rate of runs scored via the home run to all other means. Regular season data is for playoff teams only.  Averages are per team per game.
Source: Baseball-reference.com

Long Ball vs. Small Ball Tactics: Regular Season vs. Postseason, 2017

Note: Averages are per team per game.
Source: Baseball-reference.com

Continue Reading »

Since the tragic death of Indians’ shortstop Ray Chapman, who was beaned in the head by Yankees pitcher Carl Mays, the Yankees have used their uniform as a means of offering tribute to the passing of legendary figures or commemorating tragic events. Below is a list of such honors:

 

Forget about WAR, FIP,  wOBA and other saber creations. EBITDA (earnings before Interest, Taxes, Depreciation and Amortization) is the metric baseball fans should get to know.

The Chicago Cubs won the World Series in 2016, but, using EBITDA as a barometer, the Philadelphia Phillies had the last laugh, presumably on their way to the bank. According to Forbes’ annual report on MLB finances, the fourth place Phillies led all teams with a whopping operating profit (defined by Forbes as EBITDA) of nearly $90 million. And, not only were the Phillies the most profitable team in 2016, but it also scored the highest EBITDA figure reported by Forbes since at least 2003 (Forbes has conducted the study for 20 years). In fact, four other teams would have qualified for that distinction had the Phillies not claimed the honor. In total, all but five clubs ended up in the black, with the industry as a whole topping $1 billion in profit, a 50% increase over 2015.

Top-5 and Bottom-5 Teams by Valuation, Net Revenue, EBITDA – 2016
Note: Revenue for each team is net of stadium debt and revenue sharing.
Source: Forbes.com

MLB’s profit picture was boosted by continued steady revenue growth and stable cost management. Industry income of $9 billion-plus, which differs from gross figures reported by the league, represented a 7% increase from 2015, while player expenses remained relatively flat (Forbes estimates player costs are 57% of operating expenses; I have calculated player cost at just over 50% of net revenue). The rising tide of revenue also lifted nearly every boat. Only the Reds (-3%) and Royals (-10%) collected less money than last year, while eight teams enjoyed double-digit increases.

Total Player Compensation as a Percentage of Net Revenue, 2003-2016
Note: Revenue is net of stadium debt service. Total compensation is actual payroll + player benefit costs + players’ share of the postseason revenue pool. Benefit costs are determined by working backward from the known 2015 amount and assuming a 4% growth rate (CBA calls for increases up to 10%).
Source: MLB releases published by AP (actual payroll), baseball-almanac (postseason revenue) and Forbes (net revenue)

With such healthy income statements, it’s easy to see why team valuations continued to soar across the league. In 2013, only five teams had an enterprise value above $1 billion, but now the average is $1.54 billion, a 19% jump over last year. Every team in the survey enjoyed at least a nominal bump, while all but four advanced double-digits. As a result, the relative debt levels of the league have fallen, giving each team a much more stable operating structure. Continue Reading »

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