Monday, December 12, 2005

Cost Cutters

Player2006 Salary2007 Salary2008 Salary
Alex Rodriguez **$19$20$19
Derek Jeter$19$20$20
Mike Mussina$17$1.5*$0
Randy Johnson$16$16$0
Gary Sheffield$13$13$0
Bernie Williams$3.5*$0$0
Jason Giambi$18$21$21
Mariano Rivera$10.5$10.5 **$0
Carl Pavano$8$10$11
Hideki Matsui$13$13$13
Jorge Posada$9$12 ***$0
Jaret Wright$7$4 ****$0
Kyle Farnsworth$5.7$5.7$5.7
Tanyon Sturtze$1.5$0$0
Kelly Stinnett$.67$0$0
Mike Myers$1.2$1.2$0
Committed Dollars$162.07$147.9$89.7

* Buyout
** Texas pays $6 million in 2006, $7 mil in 2007, $8 mil in 2008
*** Option likely picked up/automatically vests
**** Clever buyout clause that is a certainty

Frugality has never been a characteristic of George Steinbrenner’s Yankees – as if we needed a payroll chart to see that. Lavish spending has been George’s foremost weapon in the war against the rest of baseball, and while it has certainly helped, the Yankees have failed to meet expectations when payroll was at its highest.

The reason is simple: misappropriated funds. It’s an easy trap to fall into when you’re in fierce competition over the best players. Unlike most teams, the Yankees have quite a margin for error when it comes to these high-priced players, allowing them to outbid others for attractive players with extra dollars. But the risks add up, and you just can’t win ‘em all. And as we’ve seen in baseball, a lucrative contract morphs into an albatross quite easily.

Quick note: this in no way has to do with reports that the Yankees lost a significant amount of money this year.

Payroll capped last year at over $200 million. Luckily for the Yanks, plenty of contracts were coming off the books, allowing them some maneuvering room in the off-season. But how much room, exactly? Well, first bump that $162 number in the chart up to near $170 to account for the arbitration hearings of Small and Chacon, plus the $300,000 or so for each player who is not eligible for arbitration (Cano, Wang, etc.). And then bump that to $221 when you factor in the 30 percent luxury tax.

We have now reached a crossroads. Down one path lies continued spending. Johnny Damon is chilling down that way, sipping a cocktail. The other way is cost-cutting and efficiency boosting. Carl Pavano and Jeremy Reed exchange places somewhere along the way there.

I’m a firm believer in cost-cutting. I hate to harp on this subject one again because it seems that every Yankees conversation comes back to it, but “back in the glory days,” albatross contracts weren’t nearly as common. Team officials identified undervalued talent and combined them with high price, low risk players. The formula was a slightly above average payroll and a superb team. This new formula of spending yields an astronomical payroll attached to a pretty good team.

Superb > Pretty Good
Slightly Above Average Payroll > Astronomical Payroll

As I said, Carl Pavano and Jeremy Reed meet down the cost-cutting path, and even though the Yankees will probably throw in around $10 million on the trade, it is a good start. It may not shave the 2006 payroll, but it would save $8 million on Pavano’s 2007 salary (the $10 mil he is entitled to, minus the leftover $2 million from the cash payment), and the entirety of his earnings in 2008. Reed has just over a year of service time, so he won’t become arbitration eligible until 2008. Money saved all around.

There is no Johnny Damon in this situation. Carrying an additional $13 million in annual payroll over the next four years for a player like Damon is only going to only set the team back. You know how a certain team won’t sign a particular free agent because his position is spoken for? Well the Yanks already have too many players at the same position, the position of inflated contracts. Sorry, Johnny, there’s just no spot for you in this payroll.

The Yankees have committed to three players beyond the 2008 season: Derek Jeter (2010), A-Rod (ditto), and Matsui (2009), plus a $5 million buyouyt for Giambi in 2009, which adds up to about $59 million in 2009 (yes, for three players) and $41 million in 2010 (for two). To make further commitments with big dollars would be a mistake, unless those dollars are going to a young pitcher or an ace in his prime.

Another step in this process is to nurture the minor leaguers. Sure, not all of them will be on the 25-man roster some day, but by keeping a steady influx of talent via the amateur draft, the Yankees can re-strengthen their minor league system to the level it was at in the early 90s, when guys like Russ Davis netted us Tino Martinez and guys like Derek Jeter came through huge.

Sure, frugality may not be as sexy as lavish spending, but to paraphrase Billy Beane, we’re not trying to field a team of supermodels, we’re trying to field a team of ballplayers.

All figures in this article come from Cot’s Baseball Contracts and Unofficial Major League Baseball.

Update: Thanks to commenter momo, I have reviewed the information and realized that I slipped on Giambi's contract, not realizing that 2009 is an option year with a $5 million buyout. The numbers have been adjusted accordingly.