steven2.f writes:  Vince, What do you think about giving $80M/5 to AJ Burnett?  NoMaas seems to hate the idea, but I think there are worse mistakes than paying #1 starter money to secure a #2 starter.

VG:  I’m definitely not going to argue with you about the need for additional top-of-the-rotation pitching. (See my answer to the next question). First, let me re-adjust your salary scale. A bonafide ace (e.g., Santana, Halladay, Sabathia, Webb, etc.) is more like $20 to $24 million in today’s market—although CC will likely get a premium because the Yankees want and need him. Sixteen per year for a number two seems about right, if the #2 has a normal injury history.

Here’s the issue: if Burnett averaged 26 starts per year from ages 27 to 31, what makes anyone think he will average more than 20 starts per year from ages 32 through 36? Eighty million dollars is a lot of money for 100 or even a 110 starts. With that said, one of the Yankees true competitive advantages is their enormous revenue base and the way they’re able to monetize “winning.” The way to capitalize on that competitive advantage is to gobble up key players in the free agent market—even if they pay a premium to some—rather than trade their assets (players/minor leaguers) to get players. So, while I have some reservations, I would have to agree with you that overpaying Burnett is not the worst thing that could happen.
 

screamore writes:  If you were the Yankees, would you rather spend the available cash on CC-Tex-Pettitte (and round out the rotation with Aceves) or CC-Lowe-Burnett and plug Swisher in at 1b? As the master of the money, what makes more sense to YOU. In both cases you are spending roughly $53M+.

VG:  Last year, the Yankees only got 102 starts from Wang, Mussina, Pettitte, Hughes and Joba—arguably their 5 best starters. They were 29th in # of starts by their “top 5”. Ultimately, they proved to have horrible depth in starting pitching. One of my classes at Manhattanville is finishing a study that looks at the value of roster depth. One of the early conclusions is that the Yankees’ lack of starting pitching depth hurt them more in 2008 than their subpar hitting. This year the Yankees appear to be thinking in terms of 6th, 7th and 8th starters (a group that made 60 starts last season), given the way they are approaching the free agent market. I think that’s a very positive step. My Yankee priorities would be 1.Starting pitching; 2.Starting Pitching; 3.CF; 4.Starting Pitching; 5.Trade-up at 1B. (I’m assuming one of the starters is Pettitte.) They don’t all need to be addressed via the free agent market--you can accomplish some of those thru trades—but that’s my priority list. Your scenario of CC-Tex-Pettitte leaves the Yankees too light in the starting pitching department. CC, Wang, Joba, Pettitte, Aceves, with Hughes as a #6, maybe Coke as a #7? I would not want to go to battle in the AL East with that pitching rotation. So, if I’m forced to choose from your two scenarios, I would have to go with CC-Lowe-Burnett. I’d love to throw CC, Burnett, Lowe, Wang, Joba and Pettitte as my top 6 starters. (Remember, Joba is going to be limited to probably 20 starts max). You should be able to get 140+ starts out of those 6 starters.
 

Screech P. writes:  Please help settle this argument. During the year and the GM meetings, rumors floated around about a Cano for Kemp swap. When you factor in age/salary/position, who is the more valuable player right now according to your formulas? How close is it?

VG:  From a purely financial standpoint—meaning the most efficient use of resources—you would favor Kemp. Running Kemp’s and Cano’s performance history, age (Kemp is 2 yrs younger), position, etc. through my model, their current free agent “market value” is identical at $13.2 million per year. (Don’t forget, Cano is penalized for coming off his horrible 2008. One year ago, Cano would have had a FA market value of about $16 million). When you add in Cano’s contract vs. Kemp going through arbitration (beginning in 2010) Kemp should be considerably cheaper. The way to interpret this is that it is a “more than fair” exchange for the Yankees from a valuation standpoint today. Their market value is the same, but Kemp should cost you considerably less—to the tune of about $10-15 million in total over the next 4 years.
bad.
 

yankeebot writes:  What gives you confidence that the Yankees can afford to sign both CC and Teixeira? With 25% of the premium seats and over half a dozen of the luxury boxes still unsold, I'm not convinced that the Yankees are as recession proof as the fans want to believe.

VG:  I agree that the Yankees are not recession proof. However, even with some unsold luxury suites and premium seats, the revenue growth will be dramatic vs. 2008 in the old Stadium. Some have estimated the growth to be as much as $200 million, although I think that is somewhat high. The more important issue is to think of it in terms of the marginal revenue from winning. At these astronomical ticket prices (particularly for 4000+ premium seats that will average over $400 each), the Yankees revenues will get crushed if they do not make the playoffs. People will be tripping over each other drop their season tickets for a third place team. So, the difference in revenues between a 97-win playoff bound team and an 89-win third place team is probably 5x greater than the difference for any other team. The great news for Yankee fans is that the Yankees have just raised their stakes—with the New Stadium and their ticket pricing they moved all of their chips to the middle of the table. They have no choice but to win.
 

Bruce writes:  I'm curious as to why it seems that salaries have gone up so fast. In 1997, Albert Belle signed a record breaking 5-year, $55m deal. It was the first deal over $10m value, and 12-years later, it's about what you would spend on a #3 starting pitcher. Were players not appropriately valued as a piece of baseball revenue? Are they overvalued now? How much higher can this go?

VG:  It was less about players being undervalued relative to revenue and more about the dramatic growth in revenue. (Actually players’ salaries as a share of revenue have declined over the last 5 years, in part because teams have done a better job of drafting and developing players, which keeps payrolls down.) MLB has struck more lucrative TV deals with Fox, TBS and ESPN and MLBAM (mlb.com) didn’t even exist in 2000 and now has revenues estimated at a half-billion dollars. As teams’ player development organizations have become more productive, turning out more inexpensive ML players, teams seem to be willing to spend the savings on free agent players—particularly teams that consider themselves to be 85-win teams and are searching for the last piece of the puzzle to make the playoffs. So you have some salary escalation (the best free agents) and a lot more inexpensive players (pre-arb).

There is no question that revenue growth will slow. For one, the economic conditions will guarantee it. Second, another source of revenue growth over the last 15 years was the flood of new stadiums. We’re now at the end of that cycle. I would also expect MLBAM revenue growth to slow now that it’s maturing, and if we have a few more Tampa Bay World Series, Fox will not renew their postseason TV contracts at the same healthy rate. With revenue growth slowing it will be interesting to see how the free agent market responds.
 

Procstylee writes:  How much will baseball be impacted by the recession? Will some teams be affected more than others? Detroit for example -  Will the fate of the auto industry have a direct impact on how much the Tigers can spend since the Detroit manufacturing market might become decimated?

VG:  I think the recession will have a big impact across MLB—affecting some teams more than others. Detroit will be very hard hit from a fan and revenue perspective. Ironically, they are one of the few teams to have announced aggressive ticket price increases. The Tigers seem to indicate that they will maintain payroll, however they might end up being less aggressive than they claim. For many teams, season ticket renewals have been lagging and some corporate sponsorships will be reduced. Many teams have held ticket pricing from last year and some have reduced prices for 2009. This is all happening at the same time Yankee and Met revenues are jumping by $100+ million each, probably leading to a robust top end of the FA market. I think mid-market teams will be more conservative in the free agent market. You may have to look closely to see it, as I would think the pullback might (and should) come in terms of the number of years rather than average annual value of contracts.
 

Herode writes:  Vince, do you expect teams to think about the contracts they hand out this year with deflationary eyes? It's one thing that has routinely saved franchises from very bad contracts: the fact that they simply devaluate over time because of rapid salary inflation. If the US becomes Japan, even for a couple of years as many people now start to think, do teams realize they are going to be stuck with stupid contracts that look more and more stupid with every additional period of deflating prices?

VG:  I don’t think they will explicitly view it that way, although it is a very astute insight that could come to fruition. For that view to become pervasive, most teams would need to hold that perspective. If half the teams viewed the environment as deflationary, it still may not translate into more conservative contracts, since the market gets set by the most optimistic teams. In general, it’s very difficult to imagine teams anticipating this development and preventing a “bubble”.

If we do see deflation, I think the better alternative would be to trade assets (players) for assets, rather than use cash for assets. However, if a team does not have a stocked farm system, it is difficult to use trades to make a significant short-term improvement in a team.
 

Mike Silva asks:  According to your models, what kind of value have the Mets gotten over the course of the Beltran contract so far?

VG:  The Beltran deal is so far a very good one for the Mets. The value the Mets gotten to date is driven primarily by Carlos’ monster year in 2006. Beltran has made $13m, $14m, $14m, $18.5m and will make $18.5m through 2011 (my year-to-year #’s include $5 million of bonuses paid out in the first 3 years). His “market value” in those years is $13m, $12m, $25m, $22.5m and $23.5m for 2009. Unless he misses the better part of a season due to injury, or falls off dramatically, the Mets will have gotten good value from the deal, although they stopped short of converting his best season into a WS appearance.
 

Vince Gennaro is the author of Diamond Dollars: The Economics of Winning in Baseball and a consultant to MLB teams. Over his 30-year business career, he served as a CEO of a public company, was President of a billion dollar division of PepsiCo and an owner of a women’s pro basketball team. His innovative analytical work on the business of baseball has been featured in The Wall Street Journal, CNNMoney, and The New York Times, and he has written for The Hardball Times and Yahoo! Sports. He teaches in the Graduate Sports Business Management programs at Columbia University and Manhattanville College and has an MBA from the University of Chicago.