The Captain's Blog

What If Derek Jeter Opts Out? Extending Short Stop May Be Yankees Best Strategy

December 6, 2012 by William Juliano

As the off season draws on, it’s becoming increasingly clear that the Yankees are operating under self-imposed fiscal restraints. As a result, examining the team’s 2014 commitments has become a required part of analyzing Brian Cashman’s blueprint for this winter. However, there are several variables that are hard to quantify, not the least of which is Derek Jeter’s intentions for next season.

Four more years for Derek Jeter? (Photo: Daily News)

When the Yankees signed Jeter to a four year deal, the player option for 2014 was looked upon as a formality. Considering the aging short stop was already in an apparent decline, it seemed unlikely that he would be in a position to exercise the buyout. Following a resurgent season in which Jeter won the silver slugger, that eventuality has now become a distinct possibility.

If Derek Jeter has a phenomenal season in 2013 and hits all of his performance incentives, his 2014 salary would jump from $9.5 million to $17 million, increasing his AAV all the way to $23 million. Although that would auger well for 2013, it could have dire consequences for the team’s budget in 2014. This ironic circumstance illustrates the delicate balance the Yankees face in shifting from Mission-28 to Mission-$189 million.

Although a career year from Jeter seems like an ironic worst case scenario for the 2014 budget, another event could have an even more negative impact: Jeter deciding to opt out. By virtue of his silver slugger award in 2012, the short stop’s salary for 2014 is currently $9.5 million. However, he also has a $3 million buyout, effectively making his player option worth only $6.5 million. Assuming he doesn’t hit any more contractual bonuses, Jeter could be put in a position where opting out makes the most sense (and cents).

Derek Jeter’s Potential AAV in 2014 ($mn)

Scenario Analysis	2011	2012	2013	2014	AAV
Current Contract	$ 15.00	$16.00	$17.00	$ 8.00	$14.00
If Jeter Takes Buyout	$ 15.00	$16.00	$17.00	$ 3.00	$17.00
If Jeter Exercises (Current Salary)	$ 15.00	$16.00	$17.00	$ 9.50	$15.50
If Jeter Exercises (Max Salary)	$ 15.00	$15.00	$15.00	$17.00	$23.00

Note: Jeter has a $3 million buyout for 2014. He has already earned a $1.5 million bonus payable in 2014. If Jeter takes buyout, calculated AAV would be used to determine luxury tax underpayment from 2011-2013.
Source: salaries from Cots Contracts

Posted in Baseball, CBA, Free Agents, Hot Stove, MLB, Yankees | Tagged Brian Cashman, Derek Jeter | 7 Comments »

Can Yankees Make Ends Meet in 2014? A Closer Look at Team’s Future Payroll Obligations

December 5, 2012 by William Juliano

It’s been a very active winter meetings for major league baseball, but one team has been conspicuously silent. In the past, the Yankees were rumored to be involved with every big name free agent, regardless of need, but now, the team isn’t even considered a contender to retain its own players. Will Brian Cashman make a last minute strike, as he has done so often in the past? Or, is the team committed to shopping in the discount aisle, opting for journeymen like Nate Schierholtz instead of superstar players like Josh Hamilton and Justin Upton? It all depends on plan 2014.

It’s difficult enough for Yankee fans to come to terms with their team operating in a cost cutting mode. However, what makes the Bronx Bombers’ current economic plan particularly frustrating is the lack of details surrounding it. Aside from the questionable motives for the team’s self-imposed budget (i.e., is it strictly economical or a smokescreen for a brief rebuilding period), the uncertainty about just how much the team has to spend has created confusion over what moves the team could and should be making.

If the Yankees were trying to squeeze under a budget for the current season, it would be easy to assess their progress. That doesn’t mean fans would embrace the strategy, but at least they would be able to understand it. However, because the Yankees’ end game takes place in 2014, it has been difficult to follow the team’s strategy, considering all of variables involved. So, in an effort to simplify the team’s current situation a little, below is a snapshot of its 2014 financial obligations.

Yankees 2014 Financial Obligations
Note: See paragraphs below for explanation of contract assumptions.
Source: Cots Contracts for salaries, MLBTR for base arbitration estimates.

Posted in Alex Rodriguez, Arod, Baseball, CBA, Free Agents, Hot Stove, MLB, Roster Analysis, Yankees | 7 Comments »

Arod’s Injury, Aging Roster Could Bring About Day of Reckoning for Budget Cutting Yankees

December 3, 2012 by William Juliano

Already eroded by free agent departures (actual and likely), the Yankees’ projected lineup for 2013 took another blow when it was announced that Alex Rodriguez could miss half the season following upcoming surgery on his left hip.

The Yankees will be without Arod’s bat for a significant portion of next season.

Although an obvious setback to an offense already starved for right-handed power, the loss of Arod doesn’t mean doom for the Yankees…at least not yet. Despite age and chronic injuries, expectations for Arod have remained as high as the three-time MVP’s salary over the next five years. However, for the past three seasons, Arod has not produced at a level commensurate with those benchmarks. So, while the Yankees are probably saying goodbye to Arod’s lofty expectations, they aren’t losing a player who was performing up to them. As a result, in order to replace Rodriguez, the Yankees need not set their sights unreasonably high.

Just because the Yankees are not losing the Arod of old doesn’t mean his absence won’t create a big hole in next year’s lineup. Even in a diminished state, Rodriguez has remained a well above average player, so finding a suitable replacement should immediately become a priority for Brian Cashman. Free agent Kevin Youkilis seems like the perfect solution, but there has been no indication of interest, perhaps because his demands do not fit into the Yankees’ new budget? If so, players like Mark Reynolds and Stephen Drew could wind up filling the bill, although neither comes close to the caliber of the former Red Sox All Star nor combines the offense and defense that Arod provided. In other words, the Yankees’ ability to supply the deficiencies left behind by Rodriguez’ injury could depend on how much money they are willing to spend.

Because the injury announcement came so early in the off season, the Yankees still have plenty of time to compensate for Arod’s lengthy absence. And yet, the loss illustrates the precariousness of the Yankees’ current situation in light of the team’s new cost cutting approach. With as much as $90 million owed to Arod, Mark Teixeira, CC Sabathia, and Derek Jeter in 2014, the Yankees are looking at an expensive aging core that has suffered more than its share of injuries over the past two seasons. If the Yankees remain steadfast to their new philosophy of fiscal restraint, it will become increasingly difficult for the team to overcome the money tied into aging veterans being paid for past performance. So, while Arod’s injury does not represent a day of reckoning just yet, if the Yankees aren’t prepared to spend their way out of similar predicaments, one is assuredly coming.

Posted in Alex Rodriguez, Arod, Baseball, Hot Stove, MLB, Roster Analysis, Yankees | Leave a Comment »

Excuses Follow Russell Martin’s Exit; Time for Yankees, Cashman to Enter No Spin Zone

November 30, 2012 by William Juliano

Answers may not come as easily for Cashman this off season.

Brian Cashman has been used to dispensing big money contracts as general manager of the Yankees, but lately, the only thing he has been dishing out are excuses. As front man for the organization’s new policy of thrift, Cashman has been forced to rationalize the team’s frugality. Following the recent departure of Russell Martin, however, the spin may be getting a little out of hand.

In response to Martin’s decision to jump ship to the Pittsburgh Pirates, Cashman made several comments that should have Yankee fans at least a little concerned about the team’s plans for the future. Listed below are a few statements from Cashman (courtesy of Bryan Hoch’s Bombers Beat) that seem to belie the current state of the roster as well as disguise the team’s intentions for the future.

Listen, without a doubt, in terms of catching and throwing and running games, I’d line those guys up with some of the best catchers in the game on the defensive side, game planning and handling a pitching staff.”

The Yankees currently have three catchers on the roster, Francisco Cervelli, Chris Stewart, and Austin Romine, as well as Eli Whiteside, who was recently designated for assignment, but is expected to clear waivers. None of them are remotely considered to be among the best defensive catchers in the game. Stewart and Whiteside have decent reputations, but neither 30-something backstop has come close to catching a full season’s worth of innings. Romine is regarded as a defensive prospect, but it takes time for rookie backstops to develop. In the meantime, Romine, who missed most of 2012 with back inflammation, first needs to prove he can stay healthy enough to be a starter before the Yankees depend on him as a frontline catcher. Finally, Cervelli has struggled significantly on defense during his time in the big leagues, so much so the Yankees had to acquire Stewart just before the start of last season. Unless Cervelli has been taking a crash course from Johnny Bench, there’s no reason to believe his defense has improved to the point that he is now capable of being a starter. Continue Reading »

Posted in Baseball, Free Agents, Hot Stove, MLB, Roster Analysis, Yankees | Tagged Brian Cashman | 8 Comments »

Can Yankees Use CBA Loophole to Avoid Luxury Tax in 2014? Would Selig Let Them?

November 29, 2012 by William Juliano

Although the justification may be suspect, the Yankees’ actions this winter clearly imply that the team is serious about trimming its 2014 payroll below the $189 million competitive balance (aka luxury) tax threshold, which includes approximately $11 million in benefit expenses, leaving about $178 million left for actual salaries. Because of this pending restriction, the Yankees have not only been unable to pursue other teams’ free agents, but they have also been limited in the ability to retain their own. However, a closer look at the CBA suggests that the team may not have to be so frugal. If the Yankees are willing to jump through loopholes, there may be a way for the team to sign free agents without derailing its attempt to fall below the luxury tax limit.

Can the Yankees’ financial brain trust come up with a way to ease the team’s self-imposed budget crunch? (Photo: Getty Images)

For the purposes of determining the competitive balance tax, Article XXIII, Section E, Part 2 of the CBA defines payroll as the sum of the “average annual value” (AAV) assigned to each team’s player contracts. The AAV is calculated by adding the base salary (cash and non-cash considerations) in each contract year along with signing bonuses, certain buyouts, and deferred compensation and then dividing it by the number of guaranteed years. The emphasis on guaranteed years is a key point, one that creates the loophole the Yankees may be able to use this winter.

So, what is a guaranteed year anyway? The CBA defines the term as “any championship season included in a Uniform Player’s Contract for which more than 50% of the Player’s Base Salary is guaranteed by the Contract in the event of termination”. This definition applies to all contracted seasons that are not deemed to be options years, but there are some other inclusions. Mutual and player options are also considered guaranteed if the contract buyout is not more than 50% of the salary. In other words, if the contract gives the player a heavy incentive to exercise his opt out, the year is not considered guaranteed.

A more important question for the Yankees’ purposes, however, is what is not a guaranteed year. Aside from a player option with a high buyout, the other non-guaranteed contract year is a team option. There is no ambiguity about this point. Part 5 of Section E clearly states, “Club Option Years shall not be considered ‘Guaranteed Years.’”

So, how can the Yankees put this important distinction to good use? Let’s take Nick Swisher as an example. Based on market rumblings, a four-year, $65 million contract seems like a reasonable target for the right fielder. Under such a contract, Swisher’s AAV would be $16.25 million. With well over $100 million already (or likely to be) committed in 2014, the Yankees would have a hard time fitting such an amount into their budget. However, if the AAV could be front loaded into 2013, they just might be able to afford Swisher after all.

Posted in Baseball, CBA, MLB, Yankees | 5 Comments »

Are Yankees Headed For Fiscal Cliff? A Closer Look at Team’s Plan to Cut Payroll

November 28, 2012 by William Juliano

The Yankees’ austerity plan, which seeks to trim the team’s payroll below the $189 million luxury tax threshold by 2014, has placed the franchise in an unfamiliar position this off season. Instead of pursuing the best free agents, including re-signing several of their own, the team has eschewed long-term contracts in favor of value-laden one-year deals. These are not your father’s Yankees any more… at least not Hal Steinbrenner’s father.

Why have the Yankees decided to cut payroll? Before discussing the merits of the team’s new cost conscious approach, this question must be answered first. In particular, it is important to examine whether or not the Yankees need to reign in costs in order to maintain economic viability as well as determine the exact benefit derived from lowering payroll beneath the luxury tax limit.

According to Forbes’ snapshot of the team’s financial condition in 2011, the Yankees continue to enjoy industry leading revenue, a skyrocketing franchise valuation, and EBITDA in the black. At the end of July, S&P also 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’ Financials Snapshot: 1997-2011

Note: All figures are in $ millions. Revenue is net of stadium-related payments.
Source: Forbes annual baseball valuations

Just because the Yankees don’t need to cut payroll, doesn’t necessarily mean they shouldn’t. If the financial incentive to dip below the luxury tax threshold is strong enough, why shouldn’t the Yankees consider taking advantage? That question would be easier to answer with a better understanding of what exactly the team stands to gain from reducing its payroll.

Posted in Baseball, Business and Finance, CBA, MLB, Yankees | 13 Comments »

Hamilton, Greinke Head Free Agent Class, but Rumored Deals Fail to Discount Risk

November 26, 2012 by William Juliano

Wish lists are a big part of the holiday season, and baseball is no exception. However, general managers around the league do not have the advantage of Black Friday bargains. Teams forced to satisfy their needs in the free agent market usually pay full price, and then some, so making an imprudent purchase can prove costly for years to come.

Hamilton’s battle with substance abuse is just one of the many red flags surrounding the 2010 MVP.

Free agency is a risky proposition for baseball teams. With the exception of the truly elite who hit the open market while still in midst of their prime, free agents are often seeking to cash in on past performance. That’s why doubts always linger when mulling over a big acquisition. However, this year’s free agent class seems to have more than its fair share of question marks. Even the cream of the crop has a greater potential to turn sour. In particular, Josh Hamilton and Zack Greinke, the best player and pitcher on the market, are not only saddled with additional risk, but they are also being held to the standards of recent award winning performances that have never been repeated. However, because of the recent trend toward long-term extensions that has thinned out the talent level of the free agent pool, both could break the bank when they eventually come to terms on a new deal.

Hamilton and Greinke have taken a similar path to their current position. Both players were early first round draft picks who entered the professional ranks as highly touted prospects, only to see their careers derailed by personal difficulties. At times written off, Hamilton and Greinke not only re-emerged as productive contributors, but they eventually went on to win an MVP and Cy Young, respectively. However, neither player has lived up to their award winning performances since being honored. And yet, they are both on the precipice of a major payday.

Although Hamilton probably won’t come close to the $200 million figure that was floated around during the season, the lefty slugger is still a good bet to command an average annual salary north of $20 million for at least five years. Considering Hamilton has never come close to approaching his 2010 MVP campaign (his next two highest bWAR ratings combined are barely better than his result that year), such a commitment would be hard to swallow even without the outfielder’s unusually high risk profile. However, when those factors are entered into the equation, it’s even harder to justify the numbers being bandied about.

Josh Hamilton, Yearly Comparison, 2007- 2012