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Are the Yankees Miscalculating the Potential Gain of a Reduced Payroll?

January 23rd, 2013 at 6:37 PM
By Bob Moseman

'Hal Steinbrenner' photo (c) 2009, Erwin Bernal - license: http://creativecommons.org/licenses/by/2.0/

While the mantra of Yankees owner Hal Steinbrenner has continuously been reduced payroll, it has been a mantra echoed under the pretense that the Yankees were building for a more stable financial future. However, as FOXSports.com senior baseball writer Ken Rosenthal reports in a very interesting synopsis of the Yankees financial game plan, while they are meeting one goal with their conservative approach, they might be miscalculating the other aspiration from this approach,

“The team would realize one financial incentive by meeting its payroll target — a rollback in its luxury-tax rate from a potential 50 percent to 17.5 percent if it again exceeded the threshold.”

So yes, the Yankees would significantly reduce their luxury-tax rate by getting under Steinbrenner's goal of $189 million for a year. Additionally, by reducing their luxury-tax rate, their penalties would lessen. By alleviating some of the stress of such a high luxury tax, the edict of reducing payroll works. However, it's a point that Rosenthal elaborates on regarding revenue-sharing which makes the Yankees strategy look a little questionable,

“But the second anticipated benefit — a rebate in the new market-disqualification revenue-sharing program — might fall well below the Yankees’ expectations. Under the labor agreement, the 15 clubs in the largest markets will forfeit an increasing percentage of their revenue-sharing proceeds starting in 2013, and become ineligible for any such money by '16.”

To break this down as simply as possible, a pool of money from revenues is allocated to the 15 biggest market teams that did not finish among the top 15 in generating revenue. Rosenthal cites the Toronto Blue Jays as an example of a team that has a big market, however doesn't finish among the top 15 in revenues generated. In years past, teams like the Yankees represented a portion of the pool of money that would be shared with teams like the Blue Jays, and in turn the Yankees would receive a rebate for paying out such funds to the pool.

Fast forward to 2013 and now teams such as the Blue Jays, and even other teams Rosenthal cites such as the Washington Nationals and the Atlanta Braves, are being forced to implement strategy to increase their revenue since they will no be longer given allotment from that aforementioned pool of money. Furthermore, with each team mentioned here improving their rosters drastically, they are all improving with the intention of generating revenue off of successful seasons and fan interest.

Needless to say, with teams being pushed to generate more revenue, it means the Yankees would get less of a rebate than years past, which even further means they are potentially overestimating this rebate. Simply put, the landscape in the game of baseball, particularly from a business side, is intensifying, as teams are being pressed to generate more from a revenue perspective. Therefore, with these teams beefing up their rosters to be a contender, the more opportunity for revenue that they will generate alone and the less revenue they will have to take from the pool, which in turn means less money back in the Yankees pocket.

'Brian Cashman' photo (c) 2012, Keith Allison - license: http://creativecommons.org/licenses/by-sa/2.0/

In conclusion, a final point of interest is that Yankees brass claim to simply not be impressed with this year's free agency class and that the luxury-tax situation is not hindering their spending. While it can be agreed that most of this year's class would've taken up dollars and years that aren't necessary, it is hard to believe the Yankees couldn't budge on an additional year for catcher Russell Martin, even if he did have erratic moments in his time in the Bronx. Even harder to believe, and with only a small exposure of one-year and $1 million, they have no interest in a decent left-handed option behind the plate in George Kottaras.

Needless to say, it must be difficult for general manager Brian Cashman to stay on the sidelines and not touch up a few small question marks, especially when considering the uncertainty of the financials he's staying on the sidelines for.

 

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Tags: Atlanta Braves, Baseball, Brian Cashman, Hal Steinbrenner, MLB, New York, New York Yankees, Toronto Blue Jays, Washington Nationals

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