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AP has released MLB’s official salary data for 2018, and in many stories there is some conflicting data, particularly with regard to the percentage of revenue allocated to salaries. Following are some clarification and interpretation.

You will often see Scott Boras quoted with a claim that players get a mid-40% share, but it seems like the revenue figures are gross and include MLBAM contributions. Also, only payroll is included (i.e., not benefits and post season share).  This makes sense from an agent perspective.

The union is frequently quoted as saying the share is about 50%. That seems to jibe with a net revenue figure compared to MLB total compensation. I am guessing the revenue excludes Stadium debt, but includes contributions from related businesses.

An owners’ spokesperson will usually cite a mid-50% number, but that includes minor league player expenses and excludes MLBAM contributions (but, reportedly, does not exclude Stadium debt).

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Major League Baseball may be in the midst of a free agency paradigm shift, but Yasmani Grandal’s contract is not the tipping point.

After the 30-year old catcher signed a one-year deal, instead of the multi-year deal he expected, many have wondered whether this will be the last straw that breaks the back of baseball’s recent run of labor peace. Unfortunately, such hyperbole (see below for why Grandal’s contract is not, by itself, unreasonable) distracts from the broader issues that are not only impacting free agency, but also threatening the integrity of the game.

For the first time since 2010, player payrolls and total compensation, including benefits and postseason bonuses, did not grow. As a result, the player’s share of total revenue, as estimated by Forbes, is likely to dip below 50% for the first time since at least 2001 (note: the MLB and MLBPA come to different percentages based on their calculation of applicable revenue and compensation). That’s not a cause for panic, but if the pie continues to shift, there very well could be a labor reckoning down the road.

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Five years after parting, the Yankees and Robinson Cano could be headed for a reunion. The Mariners, who have begun an aggressive tear down, are reportedly eager to shed the $120 million remaining on Cano’s contract, and the Bronx Bombers are one of the teams that has expressed an interest. But, is Cano still a good fit in pinstripes, and, if so, how would such a deal work?

Would Cano have a role on the current Yankee team? Before crunching the numbers, let’s consider that question first. Now 36, Cano’s best defensive days are in the past, and his usefulness as a second baseman is waning, but he can still hit. Looking further out, it’s not hard to imagine Cano serving as a DH in the mold of David Ortiz, who, incidentally, had some of his best seasons after the age Cano is now. For this year, however, Cano’s increased versatility could be of particular value.  With Didi Gregorius expected to miss at least the first half, and the Yankees’ infield now in flux, Cano could be a stop gap at second (even if the team also acquires Manny Machado). In addition, Cano, who played 14 games at first base in 2018, could serve in that role as the lefty platoon complement to Luke Voit, and also DH when Giancarlo Stanton plays the field.

Robinson Cano vs. David Ortiz: wRC+ by Age

Source: fangraphs.com

Getting his bat in the lineup could take some creativity, but the value of doing so is unquestionable. Not only did Cano’s wRC+ of 136 in half a season surpass his career mark, but it ranked 21st in all of baseball among hitters who had at least 300 plate appearances. What’s more, Cano being a lefty and having a relatively higher rate of contact would add needed diversification to the Yankees’ lineup.

The answer is clear. Cano fits. But, does his contract? Continue Reading »

All data is final as of October 29, 2018.

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 2018 Long Ball Meter (click on the links for 2016 and 2017), 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 Ball Meter: Regular Season vs. Postseason, 2018

 

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, 2018

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

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Next season, the Yankees will celebrate the 10th anniversary of their last World Series championship. 2009 was a very memorable season for the Bronx Bombers. The intervening years, well, not so much. Last night’s 4-3 loss to the Red Sox capped off another disappointing end to the Yankees’ season, but, before looking ahead, we need to consider why the Bronx Bombers have become perennial post season also-rans.

One thing is clear. The Yankees did not bow out of the playoffs because they were too reliant upon the home run. During the wild card era, home runs have been a more prevalent means of October scoring in aggregate, and so far, this post season has been no different. Excluding the Yankees, all other October participants have seen the number of runs scored via the homer decline 17%, versus down 27% for all other outcomes. The Bronx Bombers, meanwhile, more closely maintained their level of non-home run scoring, but experienced a much more significant decline in productivity from the long ball. In other words, one reason the Yankees will be watching the ALCS at home is because they didn’t hit enough home runs.

Comparison of Run Production, Regular Season vs. Post Season

Source: Baseball-reference.com

Although the offense certainly deserves part of the blame for the Yankees’ early post season exit, the real culprit was the starting rotation, which had the second worst ERA to date among all playoff teams, ranking ahead of only the Athletics, who used an opener in their lone game. But, even this is too simple of an explanation. In each of the Yankees’ three poor starts, the ineffective pitcher was aided and abetted by his manager.

2018 Post season Starting Rotations (as of 10/10/18)

Source: Baseball-reference.com

In the Wild Card game, a tiring Luis Severino escaped a harrowing fourth inning, and, as he roared off the mound following an inning ending strikeout, it seemed obvious to all, including the pitcher, that his night was over. Aaron Boone, however, had other ideas. Severino started the inning, but promptly gave up two hits. Luckily, Dellin Betances was able to clean up the mess, saving his manager from having to answer for his late hook. Unfortunately for the Yankees, Boone’s reprieve did not result in a lesson learned. In fact, he repeated the same mistake in each of the team’s three losses in the ALDS. Boone’s insistence on trying to squeeze outs from clearly ineffective starters (a tendency he displayed throughout the regular season) not only placed his offense in a hole, but also mitigated against the team’s relative bullpen strength.

So, it’s all Boone’s fault, right? Well, not so fast. Although the deleterious effect he had on the team’s pennant hopes is unquestionable, it’s only fair to point out that his mismanagement was a byproduct of the rotation’s ineffectiveness. And, that is why assigning blame is more nuanced than just pointing a finger at the most glaring failures on the field. After all, if the Yankees had been willing to exceed the luxury tax last season, Justin Verlander would have not only been wearing pinstripes instead of beating the Yankees in 2017, but he would have been the workhorse Boone needed this season. Also, the presence of Verlander might have allowed the Yankees to ease the burden on Severino, who, even without that assist, should have been given some time off during the summer. So, because the Yankees were frugal with Verlander and negligent with Severino, the team entered October with a worn down rotation. Continue Reading »

“Wall Street bankers supposedly back the Yankees; Smith College girls approve of them. God, Brooks Brothers, and United States Steel are believed to be solidly in the Yankees’ corner. The efficiently triumphant Yankee machine is a great institution, but, as they say, who can fall in love with U.S. Steel?” – Gay Talese, There Are Fans – And Yankee Fans (1958)

The Yankees used to be backed by Wall Street bankers. Now, they are run by one. With a self-described “finance geek” at the helm, the Bronx Bombers have a new bottom line. Gone are the days of win at any cost. A successful season is now measured by profit margin, not championships, and to this point, the Yankees are having a banner year.

What about next season? According to recent reports, the best free agents in the game are lining up to wear pinstripes, but the Bronx Bombers may not be interested. Clearly, these are Hal Steinbrenner’s Yankees, not his father’s.

Yankees’ Payroll/Luxury Tax as a Percentage of Team Revenue, 2001 to 2018E

Note: Revenue for each team is net of stadium debt and revenue sharing, and includes non-MLB events at the ballpark. Also excluded was the $18 million payout to each team from the sale of BamTech to Disney as well as profit/loss from RSNs in which teams own equity. 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.  For 2018E, revenue is Forbes 2017 kept flat, and payroll is set at the luxury tax threshold of $197 million (for a proprietary tracking calculation of the Yankees 2018 payroll, see here).

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

As evidenced by the chart above, the Yankees have adopted a new set of financially motivated priorities. With revenue and payroll headed in opposite directions over the past few years, the team now sits near the bottom of the league in terms of revenue spent on players. The numbers don’t lie. And, if you’re not a finance geek, forget about the math. The ring on Justin Verlander’s finger and the pinstripes that aren’t on his back tell the same story.

The Yankees have a lot of money. Sure, the league as a whole is more profitable, and teams from all markets are enjoying heightened income and inflated valuations. And yet, the Yankees still stand well ahead of the pack. According to Forbes, the Bronx Bombers easily led the majors with revenue of $619 million (net of stadium debt and revenue sharing). How accurate is that figure? Well, from verifiable public sources, the Yankees earned over $470 million from ticket sales, suite licenses and local/national TV money alone. That still leaves ownership interests in digital properties (such as the approximately $65 million payment made to all teams following the sale of BamTech), licensing, concessions, sponsorships, postseason ticket/suite revenue and derivative activities such as other businesses and events that benefit from association with the Yankees’ brand (i.e., Legends Hospitality, Pinstripe Bowl, NYFC, etc.).

Forbes estimate may not be exact, but it seems like a pretty good ballpark figure. That’s why, when judged against their means, the team’s recent investment in players has been miserly. There really is no debate in this regard. Uncertain, however, is whether the team’s self-imposed budget is temporary or permanent. Conventional wisdom suggests the Yankees are just waiting to get below the luxury tax so they can open their checkbook once again. However, that optimistic sentiment doesn’t mirror the public comments of Hal Steinbrenner, who has often questioned the need to spend $200 million on frivolous things like champagne, pennants and shiny rings. To a finance geek, intrinsic value only exists to the degree it can be monetized.

Let’s give Hal Steinbrenner the benefit of the doubt and assume he is willing to exceed the luxury tax threshold in 2019. The next question becomes, “by how much”?

Clearly, the Yankees are not returning to the days when they spent nearly 90% of revenue on payroll. And, quite frankly, it would be unreasonable to demand they do so. However, there is a lot of room between that peak and this season’s nearly 30% rate. Is the approximately 45% average for all teams a fair expectation? How about the 56% level recorded by the Bronx Bombers in the five years before the team began its belt tightening in 2013? Both seem like credible figures, so let’s take a look at what level of spending would be commensurate with these rates of investment.

Hypothetical Player Costs versus Estimated Revenue for 2019

Note: figures in $ millions; Revenue range is from 5% below Forbes $619 million 2017 estimate to 10% above. Total Player Costs include Payroll + luxury tax (including surcharges). Blue shaded cells represent rates commensurate with 2017 league average. Green shaded cells represent rates commensurate with Yankees’ average spending level from 2009 to 2013).

Source: Forbes (revenue estimate), MLB CBA, proprietary calculations

Based on a range of revenue assumptions, the Yankees could increase their payroll by about $50-$90 million and still end up spending a league average level of revenue on player costs. And, if the team’s five-year, pre-2014 rate is used as a barometer, the Yankees could increase payroll by a whopping $90-$130 million. Granted, the chart above is not stress tested beyond 2019, at which point the team’s tax penalty will start to rise and cost-controlled players will reach arbitration. However, even if the Yankees boosted 2019 payroll to $270 million, their relative rate of player costs would still be about 56% in 2021 (in line with the pre-2014 five-year average), assuming 5% revenue growth and 7.5% annual payroll increases (team payroll increased 2.5% per year from 2003 to 2013).

Hypothetical Payroll Stress Test, 2019-2021

Note: Revenue is based on 5% increases from Forbes 2017 revenue estimate of $619 million. Payroll is increased by 7.5% each season. Total Payroll Cost includes Payroll plus luxury tax (including surcharges).

Source: Forbes (revenue estimate), MLB CBA, proprietary calculations

The models provided above are by no means exact. They rely on revenue growth assumptions that could prove to be too aggressive, and do not contemplate the terms of the next collective bargaining agreement (the current CBA expires in 2021). And yet, they illustrate the degree to which the Yankees have under-invested in players. So, if there is a debate this off season, it shouldn’t be about signing either Manny Machado or Bryce Harper; the question should center on signing both (or some other combination from next year’s star-studded free agent class). For Yankee fans’ sake, hopefully that decision will be made by an owner who values winning baseball games. The investment bankers, however, will be rooting for the finance geek.

The Bronx Bombers may be cutting back on payroll, but that’s not because there is a shortage of Yankee dollars. According to Forbes’ 2017 business of baseball survey, the team’s enterprise value has reached $4 billion, or 33% greater than the second ranked Dodgers (click here for an analysis of the league-wide data). The Yankees’ revenue also reached a lofty plateau, topping $600 million, or nearly $100 million above Los Angeles. The pinstripes may have fallen short of the World Series last season, but from a financial standpoint, 2017 was a banner year.

Yankees’ Financial Snapshot, 2003-2017

Note: Revenue for each team is net of stadium debt and revenue sharing, and includes non-MLB events at the ballpark. Also excluded was the $18 million payout to each team from the sale of BamTech to Disney as well as profit/loss from RSNs in which teams own equity.
Source: Forbes.com

Despite the Yankees boasting the second largest revenue increase among all 30 teams (behind only the Braves), the bottom line did take a substantial hit, falling from $39 million in 2016 to $14 million last year. Forbes did not identify the reason for the drop in profit margin, but the culprit wasn’t player costs. In 2017, the Yankees spent $224 million on payroll plus the luxury tax, or almost $30 million less than the year before. As a result, the Bronx Bombers’ percentage of revenue spent on player costs plummeted to 36%, which was not only well below recent norms, but also ranked as the fifth lowest in the major leagues.

Yankees’ Payroll/Luxury Tax as a Percentage of Team Revenue, 2001 to 2018E

Note: Revenue for each team is net of stadium debt and revenue sharing, and includes non-MLB events at the ballpark. Also excluded was the $18 million payout to each team from the sale of BamTech to Disney as well as profit/loss from RSNs in which teams own equity. 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.  For 2018E, revenue is Forbes 2017 kept flat, and payroll is set at the luxury tax threshold of $197 million (for a proprietary tracking calculation of the Yankees 2018 payroll, see here).

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

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