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Major league baseball owners and players continued their impressive streak of labor peace by tentatively agreeing to a new five-year collective bargaining agreement. Although the final agreement has not been drafted, not to mention ratified, enough details have emerged to allow for an early analysis. So far, the conventional wisdom is the owners were the clear winner, but a closer examination suggests both sides did well, with the only losers being international amateur free agents.

According to reports, the tentative CBA contains some interesting changes, such as a 10-day disabled list, revised free agent compensation rules, and a new system for determining home field advantage in the World Series. However, the most consequential part of the agreement concerns adjustments to the luxury tax structure and revenue sharing system.

Rise in Luxury Tax Threshold, 2003-2021
lux-tax-historySource: MLB

Starting in 2017, the luxury tax threshold will rise 3.2% to $195 million and then gradually climb to $210 million when the deal expires in 2021. Some have portrayed this modest increase as evidence of the MLBPA caving into ownership demands, but the 11.1% increase over the span of deal nearly doubles the 6.5% rise between 2011 and 2016. Not coincidentally, if you take Forbes revenue estimates for the industry (and assume 2016 growth mirrors 2015), then the 30% increase during the just-expired CBA would also be double the 15% bump that occurred during the preceding deal. Is that a coincidence? Perhaps, but the symmetry suggests the revised thresholds are fair to both sides.

Tax Rate Snapshots

lux-tax-snapshots

Another reason the owners have been hailed as victors is the introduction of new surcharges that will be levied against extreme luxury tax offenders. In addition to an escalating tax rate, which climbs from 20% to 30% to 50% for repeat violations, teams will also be slapped with an additional 12% tax on payroll that is  $20-$40 million over the limit and a 40% surcharge for going beyond $40 million (rising to 42% for consecutive violations). Although this has been portrayed as a maximum rate of 92%, the surtaxes only apply to defined overages, meaning a team would have to maintain a payroll of approximately $350 million for three years to end up paying an effective tax rate that high. Still, a habitual offender like the Yankees would end up paying a 69% tax on a $250 million payroll in 2017 (see above), so the introduction of these surcharges is not inconsequential. However, under reasonable assumptions, they are likely to only apply to the Yankees and Dodgers.

2015 AAV Payrolls Compared to 2017 and 2021 Luxury Tax Thresholds
lux-tax-deficit

Note: Based on Average annual value of contracts plus pro-rated items, earned bonuses, and defined benefits of $12,626,624.
Source: MLB releases published by AP (2016 payrolls have not yet been released)

Aside from New York and Los Angeles, there are only two other teams within arms distance of the new threshold, which means 26 other teams are unlikely to approach the penalty. It’s hard to argue that the new scheme represents a quasi-cap when it is only relevant to four teams, and only two in a significant way. Though it is possible that other clubs will be deterred from becoming big spenders over the next five years, most would have had to increase spending significantly just to approach the luxury tax trigger (as illustrated in the chart above). So, even if other clubs pull up short of the new thresholds, the overall increase in their spending would still be a boon to the players.

The new luxury tax system isn’t as onerous as it seems, and certainly doesn’t rise to the level of a de facto cap for all but the Yankees and Dodgers. And, even for those teams, there is mitigation in the form of a revised revenue sharing system. According to reports, the owners have agreed to scrap the supplemental component of the revenue sharing system that used a series of performance factors to increase the shared pool from 34% of local revenues to 48%. And, which teams would have been expected to pay into that supplemental plan? The same big market teams that could run afoul of the stepped up luxury tax regime.

Using estimates I calculated in 2013, the elimination of this plan could result in a $20 million savings to the Yankees. That’s a highly speculative number, but without the supplemental scheme, several big market teams are assured of paying less into the revenue sharing pot. And, if, for example, the $20 million estimate for the Yankees is accurate, it would offset the increased luxury tax and lower the effective tax rate on the $250 million payroll illustrated above to only 33%. That would be a significant discount from the just expired system, which means a team like the Yankees would actually be afforded extra cushion under the new agreement, assuming they want to spend the savings instead of bank it as profit.

Unfortunately, not everyone was a winner in the new CBA. Foreign born amateurs bore the brunt of compromise as the players agreed to a hard cap on international signings in exchange for eschewing an international draft. Adding insult to injury, the new CBA also extended these rules to more players by increasing the eligible age from 23 to 25, leaving talented foreigners with little leverage when it comes time to negotiate a new deal. Full details have not yet been released, and it’s important not to extrapolate too much before the ink has dried, but it’s likely that international amateurs will end up paying the price for the MLBPA’s and owners’ continued good fortune.

All data is updated as of the end of the 2016 World Series.

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. Unfortunately, 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 2016 Long/Small Ball Meter, which will not only keep a running breakdown of how runs are scored this postseason, but also present that data in a historical context.

Current Season Data

Long/Small Ball Meter: Regular Season vs. Postseason, 2016

2016-meterb
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, 2016
2016-event-compb
Note: Averages are per team per game.
Source: Baseball-reference.com

Continue Reading »

Sometimes, it’s better to be lucky than good. Or, in the case of the 2016 Texas Rangers, it’s even better to be good at getting lucky.

2016 Pythagorean Differential (Actual minus Expected Winning Percentage)
luck-chart
Source: Baseball-reference.com data, proprietary calculations

Based on run differential, the Rangers should have been a .500 team, not the 95-win juggernaut that ran away with the AL West. However, thanks to a record setting winning percentage of 76.6% in one-run games, the team managed 13 more victories than expected. The result was the third highest Pythagorean differential in major league history (and second highest in a non-strike shortened season), and lots of confused baseball fans left scratching their heads trying to figure out just how they did it.

Ten Highest Pythagorean Differentials, 1901-2016
10-lucky
Note: Excludes seasons shortened by labor disputes. RS% is R/G vs. League Average. RA% is RA/G vs. League Average.
Source: Baseball-reference.com and fangraphs.com data, proprietary calculations

A strong bullpen is one way teams manage to overplay their hand, but the Rangers can’t make that claim. Texas’ relievers posted an ERA of 4.40 and fWAR of 1.7, both in the bottom third of the major leagues, so a shutdown bullpen wasn’t the backbone of the team’s overachievement. But, maybe that shouldn’t be a surprise. When you look at the top-10 teams in terms of Pythagorean differential, a strong bullpen hasn’t necessarily been a hallmark.

Another way for a team to exceed the sum of its parts is to leverage the one thing it does particularly well. Like the 2004 Yankees and 1954 Dodgers, for example, who outscored the league by over 10%. Unfortunately, the Rangers come up short in that regard as well. On a park adjusted basis, the team’s offense and pitching staff were both under par, while in unadjusted terms, its modest advantage at the plate was surrendered on the mound. Continue Reading »

What’s wrong with Dellin Betances? After another meltdown, that question has been echoing throughout the Yankee Universe, but it’s really no mystery. Betances has been the victim of his own success, and the Yankees’ over-dependence on him.

The knee jerk reaction to Betances’ late season struggles has been to question his mental makeup. Maybe he doesn’t have what it takes to pitch in the ninth inning, some have asked? Others have suggested the big righty’s inability to hold runners and throw to bases are cause for blame. These are both plausible theories, but only if you ignore the evidence.

Betances has always been slow to the plate. His difficulty throwing to bases is also well established. Before this month, however, neither of those deficiencies mattered much. Opposing hitters had a hard enough time simply making contact, much less reaching base. So, what changed? Was it the pressure of the ninth inning?

In his first 14 games since being named the closer, Betances converted nine of 10 save opportunities, and did so in spectacular fashion. His 0.57 ERA with 25 strikeouts and only five walks doesn’t exactly resemble a pitcher battling jitters in the final frame. If Betances’ struggles are really rooted in an inability to handle the closer’s role, it seems a little curious that it took over a month for this shortcoming to manifest.

Before and After: Betances’ Performance Since Become Closer on Aug. 1
betances-split
Note: After period begins with 40-pitch outing on September 6, the first time in his career that Betances pitched on three straight days.
Source: Baseball-reference.com

The only thing that has changed with Betances over the last few weeks is how the Yankees have used him. Since becoming manager, one of Joe Girardi’s cardinal rules has been to avoid using a reliever on three straight days. There are always exceptions, but this steadfast belief has given Girardi a well-deserved reputation for deftly managing the bullpen. And that’s what makes his recent use of Betances particularly baffling.

Before this month, Betances had never pitched on three straight days. Now, he has done it twice. On the first occasion, the hard throwing right hander was brought into a game with a three-run lead and then allowed to throw a near career-high 40 pitches. A high leverage situation might have justified making an exception to the three-day rule, but the Yankees had more than enough cushion to back off. Instead, they wound up pushing Betances to the limit. And then, 10 days later, they did it again. Instead of learning from his mistake, Girardi doubled down by bringing the righty into another low leverage save opportunity. With one out, no men on, and another three-run lead, Girardi hit the gas, and Betances crashed once again. Continue Reading »

Despite providing instant gratification, debilitating long-term deals have forced the Yankees into a prolonged period of mediocrity. That’s the argument the organization has used to explain its relative underinvestment in the team, and which many fans and most in the media have adopted as infallible, conventional wisdom. Unfortunately, all of the available evidence contradicts that claim, with the latest rebuttal coming most emphatically from C.C. Sabathia.

After two seasons plagued by injury and poor performance in 2014 and 2015, Sabathia’s contract became a focal point for those who argue that long-term deals are detrimental to long-term success. It was expected that the Yankees would have to throw good money after bad and shell out another $50 million to the big lefty without getting anything back in return. Instead, what they ended up getting was their money’s worth.

Sabathia’s fWAR heading into his last start of the season is 2.5, which seems modest, until you realize it ranks among the top 60 in the majors and stands above such names such as Zack Greinke, Jeff Samardzija, and Jordan Zimmerman. Why is that trio relevant? Before getting back to that question, it’s worth noting fangraphs.com values Sabathia’s contribution at around $20 million, which isn’t the black hole most expected from the Yankees’ $25 million investment.

WAR-Based Evaluation of C.C. Sabathia’s Contract
sabathia-contract
Source: fangraphs.com

Over the course of his Yankees’ tenure, which includes a seven-year deal signed in 2009 as well as two years added as part of an extension, Sabathia has provided the Yankees with $197 million worth of value in the regular season alone. In return, the Bronx Bombers have paid the lefty $186 million. Even before considering his post season contribution, the Yankees have come out ahead. Throwing in a championship for good measure only sweetens the deal.

Several common mistakes are made when fans and media evaluate long-term deals. The most obvious one occurs when they ignore the cumulative value provided and only focus on the backend. As it turns out, Sabathia has managed to justify his expense in the waning years of the deal, but even if he had struggled this year, the overall value of his contract would have been commensurate with the cost.

C.C. Sabathia’s Extension Compared to 2016 Free Agent Deals

cc-comp

Note: Samardzija’s 2016 salary includes signing bonus.
Source: fangraphs.com

The second mistake results from ignoring the inflationary pressure on baseball salaries and the inevitable need for teams to fill out their roster. And that brings us back to the trio mentioned above. Had the Yankees not extended Sabathia’s deal in 2011, they would have been on the market for a veteran starter this past winter, and the likes of Greinke, Samardzija, and Zimmerman would have headed the list. It took over $400 million in commitments to secure those three pitchers, which makes the final two years tacked on to Sabathia’s contract more than a reasonable alternative.

Conventional wisdom was wrong about Alex Rodriguez. It was wrong about Mark Teixeiria. And, now it’s been proven wrong about C.C. Sabathia. The Yankees’ demise hasn’t been the result of too many expensive, long-term deals. The problem has been having too few. Who knows? With more bad contracts like those signed by Robinson Cano and Max Scherzer, the Yankees’ could be proving the conventional wisdom wrong instead of wallowing in its ignorance.

Gary Sanchez should be the Yankees’ biggest concern heading into 2017. Sounds absurd, right? After all, what trouble could come from a catcher who hits like Babe Ruth and throws like Johnny Bench?

The trouble with Gary Sanchez isn’t the catcher himself, but the degree to which his unprecedented performance may be overshadowing the significant flaws that remain on the team. Many theories have been advanced to explain the Yankees’ improbable resurgence after surrendering at the deadline, but the only credible explanation is Sanchez. Without him, and his historic debut, the Bronx Bombers would probably be close to the bottom feeders that many expected after their late-July purge.

Gary Effect: Yankees’ Offensive Performance With and Without Sanchez
gary-effect
Source: baseball-reference.com

If you remove Sanchez’ performance from the team’s offensive totals, the sudden improvement mostly dissipates, and that’s without replacing his production. Although it’s possible that more at bats for Alex Rodriguez, Mark Teixeira, Austin Romine, etc. would have mitigated the absence of Sanchez, their performance this year suggests the problem would have been exacerbated. Also, while other players have contributed during the Yankees’ recent hot streak, the aggregate aside from Sanchez has pretty much been the status quo. So, as the Bronx Bombers’ brain trusts looks to 2017, they shouldn’t assume Sanchez will continue his extraordinary performance, and more importantly, overlook the fact that the rest of the team remains offensively deficient.

If the Yankees ride Gary Sanchez’ production from a white flag to a checkered one, the accomplishment won’t be lessened by its concentration around one player (two players if you include Masahiro Tanaka’s season long performance on the pitching side). However, simply being in the wild card race isn’t worthy of a victory lap. And, the team’s resurgence since unloading at the deadline should not be viewed as a harbinger for next year. The Yankees still have a lot of work to do during the offseason, and if the goal really is to build an “uber team”, Sanchez is going to need a lot help.

Flags fly forever, and nowhere have more championship banners been hoisted than at Yankee Stadium. This year, however, the flag flying in the Bronx is a white one. With the Yankees fresh off their first in-season surrender in nearly a quarter-century, there has been a lot of focus on how well Brian Cashman performed at the deadline, but what the Yankees do from this point forward will have more to say about how quickly they re-emerge as an elite team than the trades they made last month.

Before looking ahead, it’s worth debunking a popular narrative about what brought the Bronx Bombers to the point of surrender. The argument being advanced by the organization and parroted in the media is the bill had finally come due on the Yankees’ long run of success. According to this logic, the Bronx Bombers’ recent dominance had been built on an unstainable level of spending that was further complicated by rule changes designed to foster competitive balance. So, after four years of valiantly trying to compete amidst inevitable decline, the Yankees finally swallowed their pride and acquiesced to a rebuild. It’s a compelling story…if only it were true.

The Yankees were not forced into the role of sellers because of the excesses of the past. On the contrary, cutbacks in the relative level of player investment is why the team has gone from chasing pennants to waving the white flag. Had the Yankees made the right free agent acquisitions over the past few years, the team could have tacked on several more seasons to its run without exceeding the investment levels of the recent past. Instead, the front office promoted profit over performance, and mediocrity became the middle ground. That strategy failed, and the end result wasn’t a contender, but an organization pretending to be one.

The purpose of re-litigating the past isn’t to say “I told you so”, but point out that the Yankees’ in-season capitulation doesn’t have to happen again anytime soon, including in 2017.  As long as the team is willing to use its resources, which now include not only more money than any other club, but more prospects as well, the Bronx Bombers can hasten their transition and even compete for a championship while the course is being corrected.

Where do the Yankees go from here? Before the Yankees can look ahead to next year, they need to take stock of the roster, at both the major and minor league levels, and decide which players are part of the long-term future. That includes taking a look at prospects like Aaron Judge, Gary Sanchez and Tyler Austin, but also seeing if Alex Rodriguez has anything left in the tank. Although the idea of simply releasing Arod has started to gain steam, the fact remains that his contract will represent an adjusted average value (AAV) of $27.5 million in 2017. Clearly, if Rodriguez has anything left, the Yankees have millions of reasons to find out.

Arod and the kids will be the focus of the last two months, but the Yankees also need to determine the long-term plan for some of their more entrenched veterans. Jacoby Ellsbury’s contract is unmovable, but there may be wiggle room with Starlin Castro, Brian McCann, and Brett Gardner, all of whom are signed through at least 2018. With Sanchez on the rise, and Judge and Clint Frazier close to cracking the outfield, McCann and Gardner, in particular, seem expendable. Presumably, the Yankees will spend the off season trying to move both players, and, if successful, it would better align the team’s needs with the upcoming free agent market.

It’s possible that, after this season concludes, the Yankees will determine 2017 is a lost cause. This would particularly be the case if the likes of Judge and Sanchez appear not quite ready. If so, then any additions in the winter should be purely cosmetic (and, more importantly, inexpensive and short term). However, if the front office believes there is a reasonable basis for optimism next season, it shouldn’t be afraid to use its resources. Whether that’s a trade for a top starter and/or a free agent acquisition, the right combination of moves could set the Yankees up for a quick rebound without sacrificing their financial and roster flexibility for the much coveted 2018-19 free agent class.

2017 Yankees

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