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Maury Brown of The Biz of Baseball recently wrote about the Yankees profligate spending over the last decade in an article special to MLB Trade Rumors. Here was his basic point:

To be exact, I have now have pulled together end of year payroll figures for the last decade. In looking over the totals, this much is clear: the Yankees spend, and outspend all comers by a considerable margin.

To place this in perspective, the Yankees have never ranked any lower than 2nd in total player payroll at the end of a season since 1999. At the end of the 2001 season they had a player payroll of $114,457,768, second only to the Dodgers at $115,478,346.

But, what should show how much more George Steinbrenner and Co. enjoy spending is that the Yankees have spent over 42 percent more than the Red Sox over the last decade, and have exceptionally close outcomes.

I took issue with the implication that the Yankees spend inefficiently from a business perspective, and the following email exchange occurred, excerpted and reprinted with Maury’s permission, with my initial email first:

I understand the purpose of figuring out the cost of a win, but wouldn’t you say that the club really does not care about how much they are paying per win as much as they care about the expansion of the brand? Fact is, the Yankees of the last 15 years have gone from being a team to a brand, as you have noted in the past, and their big spending definitely helps in that regard. Even if the spending is not entirely efficient, big time free agents bring people to the ballpark and makes them turn on their TV sets. I would guess that if you compared payroll to increase in total profits since the mid 90′s, you might find that the Yankees as an enterprise do better than everyone else. My point is, that they definitely would like to be more efficient, but some of the things that they do that may be inefficient from a baseball perspective are profitable. Thoughts?

Maury’s response:

Possibly, but I would say that the growth of the Yankee brand comes from the World Series wins and mostly, plus the players developed, not gained through FA. While A-Rod is certainly an FA that draws, Rivera, Posada, Jeter, Bernie Williams, etc. came up through the system.

My contention is that spending in high figures in and of itself is not bad. However, one could argue that if the reasoning for the spending has to do with competing with the Red Sox, they have overspent. A classic example is the deal given Burnett this off-season… Over market value. There are other examples… Pavano is a great case.

All that said, the growth of the Yankee brand has occurred in part from some FA signings. The foundation, however, has been built on the veterans of the club that were developed.

My rebuttal:

Thanks for getting back to me, and I would agree with much of your point. However, I think that something like resigning A-Rod last offseason was more about star power than baseball. I bet they resign Jeter in a few years to a contract well above market, for the same reason- Jeter is a part of the Yankee brand. I just think that the difference in spending between the two clubs comes from the fact that not all of the Yankees moves are made with baseball in mind. The Yankees would never replace Nomar with Cabrera and Meintkeiwicz, purely from a business point of view. When they lose Pettitte, they dont dip into the minors, they trade for Kevin Brown. Some of these make baseball sense, but the need to have big names definitely plays a part.

Maury later added:

There are very, very rare occasions where a player’s star value can be quantified. Manny with the Dodgers could be easily seen, and certainly Fernandomania was another. But, the Yankees as a brand are bigger than some of its players. Jeter is the face, and I would sign him, just as they did with Rivera. But, beyond that, all the players appear expendable from a star power draw point, and that includes A-Rod.

When A-Rod joined the Rangers, television ratings went down. When he left, they went up. Winning cures all ills, or if you are the Yankees, Red Sox, and Cubs in the last 10-15 years, your brand is a greater draw than all but a handful of names on the team. When I go to see the Yankees, it’s to see the name associated with all the incredible history. The players are simply part of that great legacy.

I concluded the exchange with the following:

Well said. I would just point out that Yankees attendance went up in every year since 2000, even though they stopped winning championships. The Yankee brand in of itself is plenty, and combined with winning it makes for large numbers at the gate. But I wonder why those numbers went up even after the titles stopped, which leads me to the big free agents thing. When you win the offseason, you create excitement, and people run out and buy tickets to see the “new and improved” Yankees before a single inning is played.

Where do you stand on the issue? Do you agree with Maury, and feel that the Yankees have spent inefficiently with no real added benefit from their higher spending when compared to a team like Boston? Or would you side with me, and feel that the Yankees sometimes make inefficient baseball decisions because they are better for business and the Yankee Brand?

No Responses to “Is Yankee Spending Inefficient?”

  1. Just to clarify my last point- you sell tickets in the offseason, so bringing in big names helps a lot. The Yankees get Sabathia, I bet they get more calls the next day, same with Teixeira. They may think that smaller aquisitions like the Red Sox made would be more efficient, but they would prefer the cache and hype that comes with buying the big names.  (Quote)

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  2. Not sure about the brand thing – it’s tough to analyze b/c we don’t have access to most of revenue stream data, but re: efficiency, I think it’s overly simplifying the case to just divide salaries by # of wins to get efficiency. I think it often costs more to win those few extra games to assure yourself of a playoff berth than it does to simply stay afloat. Many times the Yanks are spending extra money on those 5th starters and back of the pen guys that will are there to shore up the starters in case of injuries or decline. Often, the Yanks are taking on salary at the trade deadline to get those extra couple wins or to replace an injured player. Other teams would just call it a year and try again next time. The Yanks don’t cost-cut b/c they want to have a chance to win every year. Like Moshe says, it’s not really inefficient if they’re generating enough money to cover these extra expenses. Efficiency isn’t really the Yankees goal, profit and winning are.  (Quote)

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    Moshe Mandel Reply:

    I think maximizing profit=efficiency, regardless of the actual results on the field.  (Quote)

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  3. I don’t know about the rest of it, but he’s completely wrong about Arod. When he came aboard, attendance jumped quite a bit. I would guess that the old adage ‘all publicity is good publicity’ is in effect when it comes to the incredible amount of ink he gets Whatever the reason, Arod’s arrival saw a spike in attendance.
    (Another thing: what does Texas’ attendance vis a vis Arod have to with anything? The Rangers have very little in common with the Yankees.)  (Quote)

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    Moshe Mandel Reply:

    I think his point, which I dont agree with, is that stars do not bring more people in, and that the Yankees would see increases in attendance regardless.  (Quote)

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  4. The only meaningful way to look at spending is as a pecentage of revenue, not in absolute dollars. The Yanks can afford more because their revenues are higher.

    For example, If the Red Sox spend 150 mil based on 300 mil of gross revenues, and the Yanks were to spend 200 mil based on 450 mil in gross revenues, the Yanks are being more fiscally responsible. The Yanks are spending 45% of gross revenues wheras the Red Sox are spending 50% of gross revenues. The Yanks are being more conservative with their resources.  (Quote)

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    Moshe Mandel Reply:

    Great point- the real question we asked here is regarding the methods of profiting- Maury sees the method as being winning, which then leads to profit. I see the method being either winning or star power, both of which lead to profit, in my eyes. But your point really comes from the other angle- not all spending was created equal, as it depends on the revenue stream.  (Quote)

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  5. The only meaningful way to look at spending is as a percentage of revenue, not in absolute dollars. The Yanks can afford more because their revenues are higher.

    Today’s issues of the SportsBusiness Journal reports that the Yankees should have total revenues in excess of $450 million. So, yes, they have plenty of green to spend.

    The growth of the Yankee brand can also be tied to the creation of YES, just as the Red Sox has increased brand growth with NESN. As for the brand… Forbes ranks the Yankees as MLB’s biggest brand, and is ranked (straining to remember) I believe 5th behind several European League soccer teams.

    Lastly, the Yankees won Championships without the need to over spend in the FA market. I’m sure that there are many here better than I that could prattle off a list of bad contracts that the Yankees have taken on. You have to admit that the massive player payroll as of late has not turned into postseason gold.  (Quote)

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    Moshe Mandel Reply:

    Most definitely. But we have seen steady increases in attendance, even as postseason success dried up and more ways to watch at home came into being. I think that the payroll and constantly “winning the offseason” helps a lot in regard to preseason ticket sales. Thanks again Maury for your input.  (Quote)

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    Steve S. Reply:

    Yes, and as Moshe pointed out we’re clearly arguing two separate, distinct points. You ‘efficacy’ and me ‘affordability’. I don’t disagree with anything you wrote.  (Quote)

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  6. I think the thing about winning in the post-season adding to attendance is a bit overstated. I think always competing to get into the play-offs with a solid chance of getting there is more important. Having brand name players that people know something (or a lot in Arod’s case) about and always being in the thick of it ‘puts fannies in the seats’ and The Boss so aptly described it.  (Quote)

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  7. I tend to remember when the Yankees were having a poor season a few years back, then they announced Roger Clemens was coming back. They ran commercials with him every single day as they continued to lose. That entire time the stadium was still selling out because people had this idea that the season wasn’t lost, hope was on the way. They spent a lot of money on Roger, but I always felt like it paid off because attendance was up even when they were losing. I thought it made up for the difference in what they paid him.  (Quote)

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  8. First of all, I believe his facts are a bit off. Calling A-Rod a free agent is a bit questionable. The Yankees got him in a trade and gave up significant talent to do so (Soriano). They re-signed him when he opted out, but in my mind, that doesn’t qualify as the same thing as signing a player from another team. Also, the Red Sox were in on the bidding for Pavano, they were just lucky enough to lose. I find all of the talk about spending a bit tedious. Calculating the cost of a win is ridiculous. There are so many factors that impact a team’s record during the season and the payroll is the least of them. Players are paid according to market value, past performance, future potential and team needs. It has absolutely nothing to do with translating to wins and losses. The Yankees pay players what they think they are worth according to those factors. The fact is that they have a tremendous amount of resources available and they use them in order to try to build a winning team. Perios. No further need for discussion. I am a bit tired of this subject and people talking about how the Rays won last year with a low payroll. Maybe it had something to do with the fact that they finished DEAD LAST for 10 years. Picking first every year in the draft has a tendency to build talent in an organization. How many of those guys do you think they will be able to keep? And now that they aren’t picking first anymore, how long do you think they will be able to maintain the talent level in that organization?  (Quote)

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  9. I would contend the Red Sox merely got lucky several times or had some of their potential financial mistakes covered up by the fact they were beaten to the punch several times by NY. I firmly believe Ortiz going to Boston and developing into a star was in many ways luck. That shifted the entire equation as there was NO way Boston wins those championships without him. So while there is some value to managing risk (much like the Red Sox offseason this year) the Red Sox were simply beaten to the punch by the Yankees on several top Free Agents over the years. This results in a lower than desired payroll and increased value to every marginal win.

    Simply stated when the Yanks make mistakes they make big ones and a couple isolated samples (luck) shifted the balance of power this past decade. The Yankees just have a different level of risk tolerance due to their greater revenues. This shouldn’t be seen as lack of efficiency but a different business model. The Yanks win on volume. Their brand drives their revenues and their brand isn’t Derek Jeter or Mo its winning. From a marketing perspective their entire plan is based on Yankee “Legends” (eg-winners) and the winning tradition. It doesn’t matter if its Goose or Mo or if its Munson or Posada the entire brand management campaign is built on New York fans associating themselves with a “classy” winner whereas Boston’s marketing focus has been recently as the “scrappy underdog” or the workman-like gamers (bye bye Manny). There’s a reason Jeter and Varitek are the faces of their franchises. They represent the team’s brand strategies perfectly.  (Quote)

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