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New Japanese Posting Agreement Driven by Small Market Concerns but Could Benefit Big Spenders Instead

December 5, 2013 by William Juliano

Major League Baseball and Nippon Professional Baseball have reached a new posting agreement apparently designed for one purpose: thwart the Yankees and other free spenders from signing Masahiro Tanaka. However, a careful examination of the details suggests the resolution could come back to haunt the small market teams who reportedly pushed for its implementation.

Does the new posting system mean Masahiro Tanaka is destined for pinstripes?

Does the new posting system mean Masahiro Tanaka is destined for pinstripes?

Under the old posting systems, teams placed secret bids for the right to negotiate with a Japanese player. The MLB club bidding the highest amount was given an exclusive window to hammer out a contract, upon which the NPB team would be paid the posting fee. This system placed the player at a disadvantage because it gave MLB teams all of the leverage. If the player refused to sign a contract, his only recourse was to return to Japan. As a result, MLB clubs were able to pass on much of the posting fee to the player in the form of a discounted salary. Although the old system clearly favored the NPB because it produced bloated posting fees, MLB teams still made out well thanks to the extreme leverage those fees created.

Under the new system, NPB clubs will be able to set a posting fee up to, but not more than $20 million, and MLB clubs willing to pay that price will win the right to negotiate with the player. However, because the cap is so low, the best players will likely attract several teams willing to pay the maximum fee. When this occurs, the player will be given the opportunity to negotiate with all of the top-bidding teams, making him a de facto free agent. So, in exchange for reduced posting fees, MLB teams have ceded leverage to the player, who will now be able to play one team off another. Continue Reading »

Posted in Baseball, CBA, Hot Stove, International, Yankees | 2 Comments »

Plan $189 Million Is Dead; Are Yankees Revived?

December 5, 2013 by William Juliano

Plan $189 million is dead. Long live the Yankee dollar.

The Yankees aren’t saying that, of course. On the contrary, just about every article dealing with the team’s free agent ambitions or acquisitions have been careful to cite anonymous sources who maintain the Yankees’ commitment to dipping below the luxury tax threshold. However, actions speak louder than words. Unlike last winter, when every move the Yankees made seem designed to trim payroll in 2014, the team’s aggressive approach this off season leaves little doubt about the fate of plan $189 million.

Even though the Yankees have not signed Robinson Cano, their $160 million offer over seven years indicates the team is willing to allocate at least $22.9 million per year to their second baseman. Should Cano accept that offer, it would place the team’s 2014 payroll around $188 million (figure includes modest arbitration estimates for four other players). Mission accomplished? Not quite. That amount covers only 16 players on the 40-man roster. Even if every remaining member of the team was paid the league minimum, the Yankees would soar past the $189 million level.

Yankees 2014 Financial Obligations (with Cano and Arod)
PAYROLL1

Note: See here for explanation of contract assumptions. Alfonso Soriano’s and Vernon Wells’ AAV are offset by payments made from the Cubs and Angels, respectively.
Source: Cots Contracts for salaries, MLBTR for base arbitration estimates. Continue Reading »

Posted in Arod, Baseball, Brian Cashman, Business and Finance, Hal Steinbrenner, Hot Stove, MLB, Robinson Cano, Yankees | 2 Comments »

Yankees Going All In, but Need Cano for a Full House

December 4, 2013 by William Juliano

The Yankees are back. After lying relatively dormant for three off seasons, the Bronx Bombers have re-opened their heavy wallets by signing two of the winter’s top free agents.

Entering the off season, the Yankees two biggest holes were behind the plate and in the outfield. In 2013, the Bronx Bombers ranked 26th in the majors with a paltry wRC+ of 61 from their catchers, while their combined outfield was next to last with a anemic rating of 89 (below even the Mets much ridiculed collection). Luckily for the Yankees, two of the top free agents on the market, Brian McCann and Jacoby Ellsbury, happened to fit each need, so $240 million later, the Bronx Bombers’ lineup looks more deserving of that moniker.

Although the McCann signing was universally viewed as a no-brainer, sentiment regarding the Ellsbury acquisition has been less than unanimous. Some are concerned about his injury history, others weary of a player who relies so much upon speed, and still others favored Shin-Soo Choo or Carlos Beltran as alternatives. In addition, the contract terms, seven years and $153 million, have led to sticker shock. However, the real question surrounding the Ellsbury acquisition is what does it mean for Robinson Cano?

Strong Up the Middle: McCann, Ellsbury and Cano vs. 2013 Peers and Placeholders
Up Middle

*Includes all outfielders but Alfonso Soriano and Brett Gardner.
Note: Catcher ranking based on minimum 400 PAs.
Source: fangraphs.com

The Yankees are a much better team with Ellsbury than without. Regardless of whether they overpaid or overcommitted, the upgrade over the revolving door of outfielders from last season is substantial. The Bronx Bombers have the financial wherewithal to take on the risk of long-term deals, so it doesn’t really matter how the contract will look in five years. Of course, that assumes the team is, in fact, committed to taking advantage of this luxury. Continue Reading »

Posted in Baseball, Free Agents, MLB, Robinson Cano, Roster Analysis, Yankees | Leave a Comment »

Bonus Time: Can Yankees, Cano Bridge Gap with Front Loaded Contract?

December 3, 2013 by William Juliano

How much is Robinson Cano really worth? According to various reports, the Yankees and their second baseman haven’t come close to answering that question. With the team’s current offer a reported $160 million for seven years, and Cano allegedly asking for nine years and $252 million, a deal doesn’t seem imminent.

The Yankees and Cano both seem steadfast in their demands, so, absent capitulation by one side, or compromise by both, it will be very difficult to bridge the gap. However, there are steps that could make meeting in the middle a little easier. Below is an illustration of how the Yankees and Cano could compromise their position without actually altering their offers.

Total Future Value Comparison of $160mn/7 year Contract with Different Bonus Assumption

cano1

 Note: Analysis assumes all payments are invested and earn a continuously compounded rate of 5%. Bonuses are factored as an initial balance, and salary is amortized monthly.
Source: calculations via www.calculator.net/

One of the Yankees’ chief concerns has been the luxury tax threshold, which will rise to $189 million in 2014. In order to limit their penalty, or eliminate it altogether, the Yankees need to keep the average annual value (AAV) of Cano’s contract to a minimum, which, based on their current offer, would be approximately $23 million. Unfortunately for the Bronx Bombers, that figure doesn’t seem sufficient to meet Cano’s demands. But, what if the Yankees structure his contract with a sizeable bonus? Might that help move the needle? Continue Reading »

Posted in Baseball, Free Agents, Hot Stove, Robinson Cano, Yankees | Leave a Comment »

PEDs, Punishment and Jhonny Peralta; Does Crime Really Pay?

November 25, 2013 by William Juliano

Crime isn’t supposed to pay, at least not as much as Jhonny Peralta is going to make over the next four seasons.

Peralta's new contract has many scratching their heads. (Photo: AP)

Peralta’s new contract has many scratching their heads. (Photo: AP)

In August, Peralta was one of 12 players suspended by major league baseball for their involvement in the Biogenesis scandal. Today, he is the latest free agent to sign a lucrative long-term contract. The juxtaposition of those two events has many in and around the game throwing their hands up in disbelief.

It’s hard to argue with the initial visceral reaction to Peralta’s new four year, $52 million deal. If a “drug cheat” can earn such a substantial contract only months after serving a suspension for his transgression, then what incentive is there for a player to be clean? However, as compelling as that logic might seem, there is a more intriguing question. Although the timing of Peralta’s contract creates a bad optic, the order of events has greater implications.

It’s important to remember that the Cardinals signed Peralta knowing full well that he was linked to performance enhancing drugs. In other words, they decided that his past record was not unduly influenced by the substances he may have taken. And, the Cardinals were not alone in that assumption. Several other teams were reportedly interested in Peralta, which is why he wound up signing such a healthy contract. If teams truly believed the short stop was a product of chemicals, not talent, they would not have clamored to sign him.

So, how seriously do teams regard the use of alleged PEDs? We all know teams pay lip service about PEDs being a scourge, but if the owners and general managers are genuinely that concerned, why aren’t they putting their money where their mouths are? Could it be because teams realize the impact of most “performance enhancing” drugs is minimal? If so, it suggests teams regard the PED issue as being blown out of proportion, in which case, the clamoring for stiffer penalties is really much ado about nothing (or very little). Continue Reading »

Posted in Baseball, Free Agents, Hot Stove, PEDs | 1 Comment »

Can the Yankees Afford to Not Sign Robinson Cano?

November 22, 2013 by William Juliano

The Yankees need Robinson Cano. Such an obvious statement should go without saying, but there has been growing sentiment among fans and media that suggests otherwise. According to this line of thinking, either Cano is not worth his rumored contract demands and/or the Yankees can not afford him. Does such an argument hold up to scrutiny? Let’s first break it down.

  1. Cano is being greedy. He isn’t worth the money, or at least he won’t be by the end of his contract.
  2. The Yankees can’t afford Cano. The team needs to dip below the $189 million luxury tax threshold, so there’s no way they can fit another big contract into that structure.
  3. Besides, the Yankees have shot themselves in the foot countless times with long-term deals, so they should not make the same mistake again.
  4. Cano will be missed, but the free agent market is strong, so the Yankees can replace him with several players, making them a more well-rounded team.

Sounds reasonable, right? Now, it’s time for a closer look

1) Cano is being greedy. He isn’t worth the money, or at least he won’t be by the end of his contract.

New York Times’ columnist Tyler Kepner recently wrote “It makes you question what really matters to him,” when discussing Cano’s contract demands and new agent affiliation. “He is Jay Z’s first baseball client, and nobody knows what the whiff of true celebrity will do to Cano’s priorities.” Not only does such a statement cast Cano’s motives in a negative light, but it also implies that the second baseman is selling flash over substance. However, according to fangraphs’ WAR-based valuations (which, admittedly, are very rough), Cano has been worth $114 million over the last four regular seasons. Based on that calculation, Cano’s rumored demand of a $30 million salary isn’t outlandish.

Robinson Cano’s Estimated Value vs. Salary, 2005 to 2013
cano sal val

Source: Fangraphs (value) and baseball-reference.com (salary)

But, what about the end of the deal? If the Yankees signed Cano to a 10-year contract, could he possibly maintain his value over that period? The likely answer is no. However, that shouldn’t be the barometer used to measure free agent contracts. After all, no one seems concerned by the over $100 million surplus the Yankees have enjoyed during Cano’s first nine seasons. Nor should they be. The major league baseball CBA is structured so that players are underpaid at the beginning of their career and then overpaid at the end. That doesn’t mean teams should  indiscriminately pay players for past production, but neither should they be scared away by the free agent premiums built into the system, especially when it comes to retaining a homegrown player from whom the organization has extracted a benefit. So, if Cano does sign a new $300 million deal and underperforms by $100 million, why should the Yankees, and their fans, be worried about coming out even?

2) The Yankees can’t afford Cano. The team needs to dip below the $189 million luxury tax threshold, so there’s no way they can fit another big contract into that structure.

This argument is relevant only in the context of Yankees’ artificial financial restraints. But, why do the Yankees need to avoid the luxury tax? Unfortunately, very few people seem to be asking that question.

The Yankees are doing very well financially, at least according to independent estimates from Forbes and Bloomberg. Also, last year, S&P painted a rosy picture of the Yankees’ financial strength, upgrading the debt rating of the team’s holding company and adjusting its outlook from stable to positive. These two assessments came before the Yankees agreed to a multi-billion dollar contract extension with YES that will see the value of the team’s television rights rise from $85 million presently to approximately $350 million by the end of the contract in 2042. Business has been good for the Yankees, so it doesn’t appear as if the team’s emphasis on cost control is being driven by financial distress.

Yankees’ Payroll as a Percentage of Team Revenue
rev payroll

Source: Cots Contracts (opening day payroll) and Forbes (estimated revenue) Continue Reading »

Posted in Baseball, Free Agents, Hal Steinbrenner, Robinson Cano, Roster Analysis, Yankees | 1 Comment »

WAR Over American League MVP a Two Front Battle

November 16, 2013 by William Juliano

Miguel Cabrera and Mike Trout have vied for the last two American League MVP awards, but the real battle has taken place off the field. Not only have sabermetricians and old school members of the BBWAA gone to war over which criteria best measure a player’s value, but they can’t even agree on the definition of the word.

Using WAR as the barometer, Trout was the hands down MVP in both 2012 and 2013 (and Robinson Cano and Josh Donaldson were the rightful runners-up). However, Cabrera was the runaway winner each time, thanks in large part to his offensive prowess (exemplified by OPS), which helped disguise subpar defense and poor base running. As a result, the Tigers’ third baseman took home the hardware despite posting a WAR that was only 67% and 78% of Trout’s league leading total in each respective season. Clearly, the decision to overlook Trout’s all around excellence was a travesty of justice. Or was it?

From the standpoint of WAR, it’s impossible to argue against Trout’s MVP candidacy. However, WAR is not definitive. Many reputable sabermetricians acknowledges the metric’s limitations, especially the uncertain accuracy and interpretation of defensive data as well as the logistics of properly quantifying an all-in-one statistic. In other words, WAR is an excellent concept with flawed inputs. It is a statistic that should neither be ignored nor taken at face value because, while it does a very good job framing a comparative analysis, it doesn’t come close to painting the whole picture.

valu·able: adjective \ˈval-yə-bəl, -yə-wə-bəl, -yü-ə-\
: worth a lot of money
: very useful or helpful
: important and limited in amount

Source: Merriam-Webster.com

In order to shift the battle from the sabermetrician’s home turf to the comfort zone of a writer, many members of the BBWAA have taken refuge in linguistics. At the crux of their argument is the meaning of “valuable”, not the method used to quantify it. According to this segment of voters, the record of a candidate’s team should not only be considered, but weighed heavily. After all, how could a player have been “worth a lot of money” or “very useful or helpful” if his team did not contend all season? That line of thinking was summed up perfectly by Pittsburgh Pirates GM Branch Rickey in response to Ralph Kiner, who was seeking a raise after leading the league in home runs for seven straight seasons. “We finished in last place with you,” Rickey told the slugger. “We can finish in last place without you.”

Top-10 MVP WAR Discrepancies in AL and NL, 1931-2013
MVP_WAR_GAP

*Team made postseason.
Note: In 1979, Willie Stargell was co-MVP with Keith Hernandez, whose WAR was 7.6.
Source: Baseball-reference.com (data) and proprietary (calculations) Continue Reading »

Posted in Awards, Baseball, MLB, sabermetrics | 2 Comments »

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