“There was something to be said for [the argument that money buys championships] but there was also something to be said against them, and, according to two people who watched the proceedings, only one commissioner was willing to say it: Paul Volcker. Volcker was also the only commissioner with a financial background. To the growing annoyance of the others, he kept asking two provocative questions:
1. If poor teams were in such dire financial condition, why did rich guys keep paying higher prices to buy them?
2. If poor teams had no hope, how did the [1999-2002] Oakland A’s, with the second lowest payroll in all of baseball, win so many games?”— Michael Lewis, from Moneyball, on MLB’s Blue Ribbon Panel on Competitive Imbalance
In the days since the Yankees marched into Scott Boras’ player shop and took home the the 28-year-old Mark Teixeira with a whopping 8-year, $180 million dollar deal, fans everywhere have breathlessly decried the organization’s nerve at luring away the game’s best players with promises of glory and piles of of cash. The moment the news hit the wire, supporters of small- and middle-market teams (from fans to general managers) took to their lookout towers to crank up their salary cap alarms, warning the land that if something wasn’t done quickly, baseball as we know it could cease to exist. Phil Sheridan, writing for the Philadelphia Inquirer, called the move “the most egregious display of financial irresponsibility in the history of sports.” From Brewers owner Mark Attanasio:
“At the rate the Yankees are going, I’m not sure anyone can compete with them. Frankly, the sport might need a salary cap.”
That “rate” Attanasio is referring to is the $423 million dollars worth of new contracts that the Yankees have signed so far in the 2008-2009 offseason. Here’s a breakdown of what the Yankees are paying their three big acquisitions, in full:
| 2009* | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | TOTAL | |
| Teixeira | $25.0 | $20.0 | $22.5 | $22.5 | $22.5 | $22.5 | $22.5 | $22.5 | $180.0 |
| Sabathia | $23.0 | $23.0 | $23.0 | $23.0 | $23.0 | $23.0 | $23.0 | $161.0 | |
| Burnett | $16.5 | $16.5 | $16.5 | $16.5 | $16.5 | $82.5 | |||
| TOTAL | $64.5 | $59.5 | $62.0 | $62.0 | $62.0 | $45.5 | $45.5 | $22.5 | $423.5 |
* Note: 2009 figures include signing bonuses ($9m for Sabathia, $5m for Teixeira)
Sabathia’s contract (which includes the guarantee of a private suite during road trips) contains an opt-out clause after 2011, so Sabathia’s only on the hook for taking $69,000,000 of the Yankes’ cash before he can try again elsewhere. It also includes full no-trade protection. Teixeira netted himself a no-trade clause as well, while Burnett’s limited no-trade clause gives him the right to block deals to 10 teams per season. As a note on Burnett, he got himself an extra $4,500,000 per year in 2009 and 2010 by opting out of his Jays contract.
Let’s forget, for a moment, that the Yankees’ payroll when all is said and done is not expected to be significantly higher than their payroll in the 2008 season when they missed the playoffs altogether, that payroll being filled with the bloated back ends of ludicrously overvalued contracts for duds like Carl Pavano, Jason Giambi, and Bobby Abreu. Those crying out for an MLB salary cap use various arguments to paint a picture of an anti-competitive world where big-market teams form impenetrable dynasties, as smaller teams cannot afford to sign free agents or retain their top developed talent, because players demand exorbitant contracts that they know some deep-pocketed organization will give them.
In the NFL – a sport with a salary cap – parity demonstrably exists. In 2007, the Dolphins and the Ravens were doormats, combining to go 6-26 while both finishing in the basement of their divisions. A year later, both teams are a win away from playoff berths. Many would say that the salary cap is the direct cause of this: no team can, within the rules, spend more than all the other teams, so teams are free to shuffle their payrolls like decks of cards until the right mix of personnel gets them a winning season and playoff appearance. Football, though, is a totally different sport than baseball, with massive rosters, non-guaranteed contracts, practice squads, special teams, huge injury risks, and an extremely short season. While the particulars may vary, fans argue that the logic does not: salary caps increase fairness and increase the chance that last year’s league-worst team will be this year’s surprise superbowl contender. “And besides,” they’ll ask, “how could a salary cap be bad?”
The first question that needs to be asked is “what exactly is the goal here?” The majority of people would probably point to “parity” as the answer: a sport is best-off when teams have equal opportunity to obtain assets, and by extension, when any team could go from worst-to-first in a given year. Note that “parity” isn’t equal to every team going .500. Rather, it removes the variable of organizational wealth from the equation: if every team spends the same amount, then the determinants of success will be factors like scouting, savvy negotiating, managerial cunning, and player effort. When massive ownership coffers are neutralized, the marginal value of intelligence rises dramatically, which naturally seems better for the fans, as it’s much more fun to support a brilliant manager than an autocratic billionaire owner. This is true in theory: if teams couldn’t use money to win, they would have to use things besides money to win, some of which inevitably would be what could generally be called “skill.”
The problem with this argument is that the underlying implication – money leads to wins, especially postseason wins – remains controversial. Ironically, it is the Yankees themselves who brought this issue to the fore. From 1996-2000, the Yankees averaged 97 wins per season, winning four World Series titles and establishing themselves as the premier baseball dynasty of the era. Ostensibly, they accomplished this by outspending everyone else: in 1996, the Yankees’ payroll (led by Cecil Fielder, Ruben Sierra, and Paul O’Neill) sat $6.3 million above that of the second-highest team, the Orioles (Cal Ripken Jr., Rafael Palmeiro, Bobby Bonilla). By 2000, the payroll gap had increased to $18.4 million, fueled by contracts to Bernie Williams, David Cone, and Derek Jeter that doubled the salaries of what the fourth-highest-paid Yankee in 1996 made (2000’s second-highest payroll was the Braves: Greg Maddux, Tom Glavine, Andres Galarraga). People sat up and took notice. How, they wondered, were smaller-market teams ever going to compete with the likes of the Bombers?
A number of ways, as it turns out. For baseball fans old enough to recall 2001, the clearest mental image is likely that of Luis Gonzales running up the first base line, jumping and waving his arms in celebration as his World Series-winning blooper off Mariano Rivera dropped into shallow left field. This is not because of a fondness for Gonzalez or the expansion Diamondbacks; rather, its clearly because the team on the losing end was the hated Yankees. The Diamondbacks had the eighth-highest payroll in baseball that year, and were led offensively by Luis Gonzalez (who hit 57 home runs that year) and Reggie Sanders. It was their 1-2 punch of Curt Schilling and Randy Johnson, though, that really propelled them to the world title. The 2003 series didn’t feature as memorable a single image, but is still noteworthy for the Marlins’ slaying of the Yankees (Florida’s payroll was less than one third that of New York’s). They were led by Mike Lowell, Derrek Lee, and Pudge Rodriguez, but again, it was the pitching heroics of Josh Beckett, a product of the Marlins’ farm system who made less than $2 million that year. The Yankees have not been back to the World Series since then, despite leading the league in spending every season this decade, and in 2008, failed to even reach the playoffs. The baseball postseason is an entirely different beast than the regular season: series are shortened to five- and seven-game contests, making defense and pitching (or lack of hitting for the other team) perhaps the most crucial factors in determining success. Oh, and random chance. Some of that, too.
Putting away the paying-for-wins argument, salary cap proponents also claim that unbridled free agency hits the fans the hardest, particularly in their wallets. “Skyrocketing” player salaries are often tabbed as the primary cause behind rising attendance prices (tickets, concessions, merchandise, etc), a major gripe of the sport’s fans. The connection here is a highly dubious one. Ticket prices are set by owners, who naturally function as businessmen, setting prices 
that reflect demand schedules. An owner with a team payroll of $1 million will display the same behavior as an owner with a team payroll of $100 million: they will charge as much as they can without turning fans away. It’s the fans’ behavior that changes: when fans are willing to pay more, owners raise ticket prices. It’s easy, of course, to see the connection: fans pay more to see better players, and better players cost more. Fans’ dollars don’t really care how much the catcher is making; a good catcher making the league minimum will be just as popular as that same catcher making $6.7 million a year, and fans will pay the same amount to watch both catchers play, regardless of what either is earning. As BP’s Neil DeMause points out, attendance costs have been jumping primarily because of “mallparks” attracting hordes of higher-income fans to games, who are willing to shell out more money for wider concourses, gourmet food menus, more comfortable seats, and bigger jumbotrons. Demand for entertainment – including baseball – shot up during the nineties. Ticket prices, naturally, have followed suit.
(It’s worth noting that demand for “entertainment” rose, not just demand for baseball, which has actually slightly declined relative to others sports: the cheapest seat at an Oakland Raiders game is $36.00. It’s true that there’s fewer football seats than baseball seats to go around, but the fact remains: price is set by demand, which is unaffected by player salaries).
One rather natural source of inequality amongst baseball teams is that, over the course of a grueling 162-game season, true talent is revealed more often than not, both at the individual level and at the team level. Teams can’t be expected to use lucky breaks to hide behind their skill level, which is the reason that Pythagorean win expectancy formulas work more often than not. As such, a team generally knows whether it will win closer to 70 games in the upcoming season, or closer to 100. The Yankees are a team that perennially finds themselves in the second basket: they can usually count on at least 90 wins, and they need to, because they play in the AL East. Over the past 10 seasons, the average minimum number of wins required to win the AL East outright has been 93; if you shrink the window to the past 5 years, the figure becomes 95 wins. To put that in perspective, there were only four teams in baseball that won at least 95 games last year, and two of them – Boston and Tampa Bay – hail from the AL East. A team that wins 94 games has had an incredibly successful season, but if they play in the AL East, they will probably not make the playoffs.
It is common sabermetric knowledge that playoff wins are worth far more to a franchise than regular season wins. So too is the fact that not all wins are created equal – if you go from a 71-win team to a 72-win team, that marginal win is basically meaningless. However, if you go from a 93 to 94 wins, that one extra win could easily propel a team to the postseason, and all the added revenue that a postseason appearance entails. Let’s say that Mark Teixeira is worth six wins, which is generally the benchmark for an top All-Star caliber hitter. If you assume that the general talent levels from 2008 will be carried over by clubs into the 2009 season, Teixeira would boost a poor team like the Pirates – who finished in last place in the NL Central in ’08 – from a 67-win team to a 73-win team. They would still have been the worst team in the division, one win behind the 74-win Reds. Add Teixeira to the Yankees, though, and they go from an 89-win team to a 95-win team, which we have just shown gives them a high-probability shot at winning the AL East. Because the Yankees clearly believe that a Sabathia/Burnett/Wang combination can be lethal in the postseason, they might expect, if they make it, to at least make it deep into the ALCS, resulting in tens of millions of dollars of additional revenue on top of what they made during the regular season. A six-win player is worth vastly more to a team on the cusp of the postseason than a team that cannot realistically expect to be competitive.
But where does this “worth” come from? The obvious answer is “money,” but that’s not quite being clear enough. To be
more specific, a player’s worth comes from the value that fans of a team derive from watching him play for them, captured by the organization in the form of revenue. This information is captured in a team’s market size: how many people value the ballclub, and how much are they willing to pay to support it? If you picked up Yankee Stadium and dropped it in the middle of Kansas City, Missouri, it’s not as though the fanbase of the Kansas City Yankees would suddenly rival that of their former fanbase in New York. New York is a huge media market, and people in New York are rabidly passionate about baseball. They are, quite simply, willing to pay more for it: to pay more to watch a game, to buy a souvenir soft drink cup, to purchase a replica jersey, to fund YES, and the like. It’s the same reason you can’t plop a soccer team in the middle of Giants Stadium and lure Thierry Henry to the states: no one really cares that much about soccer. Those New Yorkers would rather pay for baseball.
Should baseball forgo these massive revenue streams in the name of “competitive balance?” The long and short answer are both “of course not.” Even as the Yankees lay waste to cowering organizations and block NL West teams from reaching the postseason, Major League Baseball’s revenues have continued to grow. The tentacles of the league 
have slowly spread across the globe, from Latin America to China, Korea, and baseball-crazy Japan, allowing the league to explore previously untapped international markets (there’s no Japanese point guards or wide receivers). Intelligent new marketing strategies and the gradual embracing of the sabermetric community have seen baseball’s pockets grow deeper and deeper over the past 10 years. If the league’s raking in more dough than ever, tell me: what is wrong with the business model? Some have even gone so far as to make the argument that megateams like the Red Sox and the Yankees are actually good for baseball. Not only are they the league’s top local markets, but they have the financial sway to become conglomerates unto themselves: both the Red Sox (NESN) and Yankees (YES) have created small media empires, by which they are able to pull in additional advertising and merchandising dollars. They ensnare casual fans who enjoy watching players like David Ortiz but would rather swallow a fork than watch Mark Ellis for three hours. The teams themselves become symbols of cool, and draw massive away crowds at other teams’ ballparks, because regardless of whether your team is winless or undefeated, ticket demand is higher when better teams are in town.
Without even considering the Luxury Tax and Revenue Sharing, much time and energy can be spent defending Major League Baseball’s current system from those who would wish to see it corralled and “brought back down to earth.” If baseball’s financial system is broken, where are the disgruntled fans who have abandoned the game en masse? Where are the bankrupt ballclubs selling their franchises off for sixty cents on the dollar? Investments that lose money are not long for this economy, and it seems quite clear that MLB and its constituent teams are not on the verge of collapse. Whether the Yankees spend $200 million or $200 billion on payroll, seven other MLB teams will still make the playoffs, some of these – see: 2007 Rays – at the Yankees’ expense. Jeter, Matsui, and Damon could be playing with canes by July, Wang and Hughes could struggle, and ask we speak, someone is preparing a Wikipedia paragraph on A.J. Burnett for the Winner’s curse examples section.
Back to Phil Sheridan: is this move really, as he puts it, egregiously irresponsible given the current financial climate? Many have looked at the Yankees’ spending, looked at the Down Jones Industrial Average, and then looked back at the Yankees again, with bewildered and angry expressions on their faces. The notion behind this mass clucking of tongues is a familiar one: when people have less, they are upset with people who have more, perhaps thinking that the $180 would’ve been better spent had the Yankees donated it to New Yorkers without healthcare, or who are defaulting on their home loans. But this is not the Yankees’ place, and the angry sentiments are among the oldest in the book.
Some will always have more, some will always have less, and at the risk of making a “there are starving children in Africa argument,” people need to understand exactly what the function of money is: a medium of exchange, a unit of account, and a store of value. If a person is willing to pay the listed price for a good or service, then one of three things is true about that good of that good or service:
1. It is fairly priced
2. It is underpriced
3. It is overpriced, but is an absolute necessity controlled by some nefarious all-powerful entity
This is baseball we’re talking about – not food, not water, not shelter, baseball. It’s pretty easy to knock #3 off the list: if baseball games cost $1,000 to go to, parks would be mostly empty, lesser teams would fold, and the league would be in crisis. Baseball by definition cannot be overpriced, because as a form of entertainment, it would be replaced, either by other sports (basketball, hockey), other mediums (movies, concerts), or simply other venues for baseball (independent leagues, college games). It is either underpriced – which, admittedly, gets less and less likely as the cost of attendance rises – or it is fairly priced. Until fans start rejecting the game, the masses crying foul will have little evidence upon which to base their arguments.
Having spent the better part of the last decade as a second-rate ballclub, the Yankees are getting back to their mid-nineties bread and butter: scare the hell out of everyone by making loud noises and throwing dollar bills everywhere. Love them or hate them, people care about the Yankees, and the more pompously despicable they seem, the better the drama manifested in their being. Every loss will be relished that much more, every stroke of misfortune celebrated with renewed vigor, and Yankees fans who are game for the dynamic are dusting their jerseys and caps off already. Baseball is a business forged on competitive fires, and for all the whining that bad owners, incompetent GMs, and fans of losing teams do, it is showing no signs of slowing or breaking.
Have another donut, C.C.
Champions of America's Pastime 