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The pot of gold at the end of the rainbow

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On Tuesday Jim Salisbury of CSNPhilly.com reported that the Phillies and Cole Hamels were not likely to reach a long-term extension before the start of the season and were more focused on inking Hamels to a one-year deal in 2012, which represents his final year of arbitration eligibility and team control. While assistant general manager Scott Proefrock insisted that there is plenty of time to reach a deal at a later date, this admission represented the strongest possibility yet that Hamels would reach free agency after the 2012 season and hit the open market as the best left-handed pitcher, if not best overall pitcher, available. Salisbury mentioned that Jered Weaver’s five-year, $85M extension with the Angels would be a reasonable comparable for the Phillies and Hamels, but Hamels may have something far more lucrative and long-term in mind.

A lot of digital ink has been spilled and a lot of hands have been wrung lately over the Yankees insistence on watching their payroll. At this point, no one knows whether they’re serious about a long-term reduction in payroll towards a $189M target, or whether they simply have disliked the prices on the free agent market thus far. In the past, the Yankees have always shown a willingness to pay a premium for what they deem to be premium talent. Alex Rodriguez, CC Sabathia, Mark Teixeira and A.J. Burnett are all beneficiaries of this approach, and Cliff Lee could easily have joined them. The operative turn of phrase though is “what they deem to be premium talent”. Their approach towards middle-of-the-road talent is far more mixed. The team has been slow this offseason to pursue current available pitchers Hiroki Kuroda, Roy Oswalt and Edwin Jackson, and they avoided spending $80 or $100M on C.J. Wilson and Yu Darvish, respectively. Is this because they want to reduce payroll, or is it because they don’t deem them to be premium talent and want to keep their powder dry for bigger targets? No one seems to know.

If they’re keeping their powder dry for bigger targets, it would make sense why they haven’t been so eager to snap up one of the currently available pitchers. It would also explain their interest in a one-year deal with one of Kuroda or Oswalt, provided the salaries drop. It doesn’t mean that they’re cheap; it means they’re serious about getting good value for their dollars (A.J. Burnett laughs) and saving room for the players they deem to be truly worth a nine-figure investment. This is where Cole Hamels (or Zack Greinke or Matt Cain, if you prefer), come in. As pitchers go, Hamels would likely be the third best starting pitcher to hit the free agent market in the last decade, behind CC Sabathia and Cliff Lee. As Joe noted to me, one Hamels will actually hit the market with a better track record than Cliff Lee. He would end the Yankees pursuit of a number two starter behind Sabathia. In fact, his career performance really makes him worthy of the title of co-ace with CC: 8.45 K/9, 2.26 BB/9, 1.09 HR/9 and a 3.39 ERA. If you’re going to spend on premium talent, Cole Hamels is at the top of the list.

As the Yankees dance with Kuroda, Oswalt and Jackson over the next few weeks, it’s important to keep the long game in mind. If the team has no intention of moving the payroll permanently to the $225M+ range, then fans should root for them to preserve long-term payroll flexibility over the next ten months until Hamels becomes available. In fact, Joel Sherman noted that they appear to be doing just that and will be pursuing one year deals and one year deals only. If Kuroda or Oswalt can fit into this year’s budget as the team looks towards next winter’s bonanza, then great. If they sign elsewhere for $12M per year (an amount which would actually represent close to $16M to the Yankees with the luxury tax added in), then the team can make due with what they have now and retain the ability to add payroll in July or August via trade. Someone like Greinke or Cain could become available, or someone entirely unexpected such as Ubaldo Jimenez this past season. Regardless, there remains reason to be cautiously optimistic that this team’s rotation could see a temporary improvement this year and a serious long-term improvement next winter.

The $189M Payroll: Part 2 of 2

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This post was written by Moshe Mandel and Stephen Rhoads

In part 1 of this series we went through six different payroll scenarios for the Yankees over the next decade. We were careful to distinguish between total savings and CBA savings, noting that how you treat the difference in payroll can make a big difference. Where you come down on the question of how much the Yankees can save is very much determined by which figures you’re examining. Let’s use Scenario 1 as an example. In this Scenario, payroll goes from $210M in 2013 to $189M in 2014, and then goes back to $210M in 2015. We summarized the savings accordingly:

2014: Payroll at $189M
Payroll savings: $21M
Revenue sharing refund: $10M
Luxury tax savings ($21M*50%): $10.5M
Total saved: $41.5M

2015: Payroll back at $210M
No payroll savings
No refund
Luxury tax savings ($21M*50%) – ($21M* 17.5%): $6.825M
Total saved: 6.825M

2016: Payroll stays at $210M
No payroll savings
No refund
Luxury tax savings: ($21M*50%) – ($21M*30%): $4.2M
Total saved: $4.2M

2017: Payroll stays at $210M
No payroll savings
No refund
Luxury tax savings: (21*50%) – (21*40%): 2.1M
Total saved: $2.1M

TOTAL SAVINGS: $54.625M
CBA Savings: $23.125M

Now, how you account for 2014 really determines whether the savings are significant or not. We peg the initial savings figure for 2014 at $41.5M saved. This number is comprised of a $21M reduction in payroll, a $10M refund from revenue sharing, and a $10.5M savings in luxury tax. However, the $21M reduction in payroll and the $10.5M reduction in luxury tax don’t really have anything to do with the new CBA per se. This $30.5M savings is a savings they could have gotten at any point in the last decade simply by reducing payroll. Thus, the $30.5M is comprised of savings prompted by the CBA, but it’s not comprised of savings emanating from the new CBA. It’s a $30.5M they could have gotten at any point in the last few years and chose not to. It’s still a cash item – it’s not depreciation in a cash flow statement – and it still means more money in the coffers, but it’s not a CBA savings per se, at least in our estimation. This is an important distinction.

In 2015, the payroll goes back to $210M, which means there are no payroll savings and no revenue sharing refund. There is a luxury tax savings though, as the new CBA allows teams to “reset” the luxury tax by going under the threshhold in just one season, an option that was unavailable under the old agreement. This means that any savings reaped due to the reduced tax rate can be attributed to the new CBA and can therefore be included as “CBA” savings. In this particular scenario, these savings are comprised of a $6.825M difference in what their bill would have been had they not gone under $189M in 2014 compared to what it is since they did go below the threshold. In other words, had they not gone under $189M in 2014, their luxury tax rate in 2015 would have been 50%. Since they did, it’s $17.5%. The difference is $6.825M. This is a real CBA savings and it plays out over the 2016 and 2017 as well (rate goes up to 30% and 40%, respective, per the CBA). Thus, the total amount saved in Scenario 1 is about $55M, but only $23M of it is prompted by the new CBA. Here’s the summary, then, of all six scenarios and how much the team could save by going with each option.

Scenario 1 ($210M to $189M in 2014, returns to $210M in 2015 and beyond): total savings of $55M, CBA savings of $23M.

Scenario 2 ($210M to $189M in 2014, stays at $189 for 3 seasons): total savings of $147M, CBA savings of $53M.

Scenario 3 ($210 to $189M in 2014, stays at $189 for 2 of 3 seasons): total savings of $116M, CBA savings of $54M

Scenario 4 ($220M to $189M in 2014, returns to $220M in 2015 and beyond): total savings of $76M, CBA savings of 29M.

Scenario 5 ($220M to $189M in 2014, stays at $189M for 3 seasons): total savings of $199M, CBA savings of $59M.

Scenario 6 ($220M to $189M in 2014, stays at $189M for 2 of 3 seasons): total savings of $152M, CBA savings of $59M.

Clearly the Yankees would save the most total money in Scenarios 2, 3, 5 and 6. In these scenarios, they’re dropping their payroll down to $189M and keeping it there for a substantial amount of time. The most they could save would be in Scenario 5, in which they shave nearly $40M off their payroll and maintain the reduction. In this case they’d net nearly $200M more, $59M of which would be a derivative of the new CBA.

These gains would be real, but they’re not entirely relevant for our purposes. Saying the team could save nearly $200M in Scenario 5 is true, but it’s also true they could save $75M right this moment if they dropped their payroll down by $75M. Of course, they haven’t done that at any point in recent memory. Our concern is the CBA savings.

The team would obviously save the most by dropping the payroll and keeping it low. Their tax bill would be lower, and they’d receive money back from the revenue sharing refund. However, these CBA-related savings don’t seem to amount to more than $60M. If they don’t maintain the new low payroll, the savings are even less. In Scenarios 1 and 4, in which they drop the payroll for one year and return it to prior levels immediately after, they’d only save $23M-$29M over four years. At most, this amounts to a little over $7M per year. In the latter scenarios, this annual savings figure rises to a little less than $12 million per year.

It’s our opinion that if the Yankees were interested in saving fifteen to thirty-five million dollars a year in payroll and tax, they should have done it already. They could have done it at any point in the last decade. We’re told that the new CBA incentivizes them to get below $189M to incur specific savings, but we see that the only time those savings are truly noteworthy is in the unlikely scenario in which the Yankees stay under $189M for a significant amount of time. Furthermore, we see that the CBA-related savings, at their most extreme, are about $12M a year. Are the Yankees really concerned about $12M a year in “new savings”? Are they suddenly concerned about the fifteen to thirty-five million dollars a year that they could have been saving all along? Perhaps most importantly, are they willing to forgo top free agents and risk missing the postseason to garner those savings?

Without further guidance as to what the true long-term goal is, we can’t get more specific than this. But it seems to be the case that the team will only realize serious, significant gains if they make a permanent move towards a payroll level more reminiscent of the early part of the last decade. Perhaps we’re stuck in the denial stage of the 5 stages of grief. It’s hard for us to understand the prospect of a “new normal” in which the payroll drops 10-20% while the team simultaneously reaps greater and greater revenues from a lucrative television network and new stadium. It’s even harder for us to understand risking contention in an increasingly competitive American League with an already-expensive roster to simply eke out a pittance in savings relative to the team’s balance sheet. But this may be the new Yankees reality, in which the Steinbrenners reach for a modicum of fiscal responsibility at the expense of some performance certainty. If it is, we all need to adjust our expectations accordingly.

The $189M Payroll: Part 1 of 2

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This post was written by Moshe Mandel and Stephen Rhoads

Yesterday Joe walked through the different stages of grief Yankee fans have been going through since learning that a $189M payroll was a realistic option in the near future. Part of my frustration when reading this (still in stage 2, I suppose) was that I didn’t have a firm handle on how much money the Yankees would actually be saving. If the amount they could potentially save ranges into the nine figures territory, then it’s hard to quibble with the team tightening the belt. If it was significantly less, then a whole host of options come into play, including the possibility that the team is not serious about getting below $189M in 2014 and was using Sherman to broadcast their bluff in advance of the Yu Darvish bid.

Accordingly, Moshe and I have run the numbers for six different payroll scenarios. We used the basic parameters set forth by Sherman in this quote to try and estimate the proper figures for each scenario:

For if they are at $189 million or less for the three seasons from 2014-16, they not only avoid paying one cent in luxury tax, which would rise to 50 percent for them as repeat offenders, but they also would get roughly $40 million in savings via the to-be-implemented market disqualification revenue sharing program. However, only teams under the luxury-tax threshold get reimbursed in this program, which is designed to prevent big markets such as Toronto and Washington from receiving revenue sharing dollars, which in turn will lower how much teams such as the Yanks pay (as long as they are under the threshold).

And even if they just went under $189 million for 2014 before going over again in 2015, the Yankees would receive serious benefits. They would get about $10 million in the revenue sharing disqualification program. Also, by simply going under the threshold once, the Yankees would go back to having a 17.5 percent tax rather than the 50 percent that begins in 2014 for them if they never go under. Keep in mind that since the luxury tax went to 40 percent for them in 2005, the Yankees have averaged paying $25.75 million in tax annually.

In the first three scenarios, we use a $210M payroll in 2013, and then assume that they go back to $210M in later years. In the second three scenarios, we use a $220M payroll. In each scenario, we provide savings figures per year. At the bottom of each scenario we provide a total amount saved, and also provide what we’re calling “CBA Savings”. This figure emanates directly from the new CBA, and would include revenue sharing refunds, and luxury tax savings resulting from a new, lowered rate. It would not include the $21M they’d save from going from a $210M payroll to a $189M payroll, for instance. We get down to business after the jump.
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Scouting the Trade Market: Floyd vs. Danks

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The trade of Sergio Santos from the White Sox to the Blue Jays signaled that the White Sox were beginning the process of rebuilding, a word which the GM Kenny Williams used himself. Yankee fans have long hoped for the acquisition of the Chicago lefty John Danks, and this was the clearest indication yet that he would become available by trade. Yet Danks isn’t the only pitcher Chicago is now willing to deal. They also expressed willingness to move righty Gavin Floyd. Given the Angels’ signing of C.J. Wilson and Albert Pujols, one has to wonder if the Rangers will be extra aggressive in their bid for Japanese righty Yu Darvish. If so, the best route available to the Yankees for the acquisition of another starting pitcher may in fact be a deal with the White Sox. All things considered, who is a better fit for the Yankees, Gavin Floyd or John Danks?

From a performance perspective, it’s difficult to see a lot of daylight between the two pitchers. Over the past five years, they’ve both averaged a strikeout rate around 7.0 and a walk rate around 3.0. Their career ERAs are only 0.07 apart (3.85 for Danks, 3.92 for Floyd) and their career FIPs differ by only 0.03 (4.06 for Danks, 4.03 for Floyd). For all intents and purposes, they get roughly the same number of ground balls.

From a pitching repertoire approach, Danks is your prototypical lefty. He leans heavily on his fastball, but thanks to the tutelage of pitching coach Don Cooper Danks also throws a mean cutter. This isn’t one of those weird Pitch F(x) classification issues, either. Cooper is famous for teaching his pitchers how to throw the cutter. Danks will also mix in a slider on occasion, but his real go-to offspeed pitch is the changeup. Floyd is a similar pitcher, throwing a straight fastball and, yes, a cutter. Floyd will also mix in a changeup infrequently, but his main offspeed pitch is the curveball. From a velocity standpoint they both sit in the low 90s with their fastballs.

There are a few key differences between the two pitchers though. To start, Danks is a lefty and Floyd is a righty. Further, Danks is a solid two years and three months younger than Floyd, and won’t turn 27 years old until the second week in April. Floyd does have a four-inch height advantage over Danks, though, standing in at 6’6″. The biggest difference is perhaps their contract statuses. This is Danks’ final year under contract with the White Sox, and he’ll become a free agent after this season. Floyd will make $7M this year and has a club option for $9.5M for 2013, so he’s under team control for one more year at a desirable salary. Even if the Yankees were to ink Danks to an extension after acquiring him, they’d surely have to pay him more than $10M per season.

From a performance perspective, the two are virtually equal. Danks has an advantage on Floyd in youth, but Floyd’s contract situation is more desirable than Danks. That said, Danks still seems like the preferred candidate amongst fans. Perhaps it’s the fact that he’s a lefty and hearkens one RAB writer back to Andy Pettitte, or perhaps it’s his age and frame that leads one to believe that the best is yet to come. Regardless, the relative proximity in quality between Danks and Floyd will mean that the team’s rotation will be upgraded no matter who they get. Just as long as they get someone.

Sick of this.

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Yesterday Larry chronicled how past offseason activity compares to the current state of “no news yesterday, today or tomorrow”. Given the healthy condition of the Yankees roster and the dearth of good options on the free agency or trade market (for now), Larry concludes that this peaceful offseason is a actually a blessing, even if it is a bit boring:

However, in the aftermath of the Cliff Lee non-signing, standing relatively pat for the remainder of last offseason…and continuing to stand his ground at the trade deadline back at the end of July, Brian Cashman’s strategy of waiting things out — and perhaps not even making a significant move at all — may not be such a bad thing. Especially if Kenny Williams finally comes calling bearing gifts of John Danks and/or Gavin Floyd.

This is true, of course. There has hardly been a good opportunity squandered by the Yankees since the Dan Haren deal, and their inactivity is really more of a function of the market than reticence or over-caution. In fact, the front office’s ability to keep calm and carry on and not sell the farm on risky ventures is a testament to their intelligence, and patience.

Yet, I can’t help myself in feeling just a little bit antsy, and quite a bit bored, with how the Hot Stove season has gone so far. It’s been weeks and weeks since the Yankees were eliminated and the most interesting news to come out of Yankeeland and MLB writ large has been the re-signing of CC Sabathia, something of a fait accompli in my mind, and the changes to the Collective Bargaining Agreement. That’s it. No rumors of a blockbuster trade, no mystery team, no secret meetings. Just nothing but boring. Like the kid in Sandlot, I don’t think I can take much more. As Patrick Henry famously said, “Give me [rumors] or [take away my Internet access].”

This problem is compounded by thorough and analytical coverage here at River Ave Blues. Whenever a rumor surfaces, readers can count on Joe or Mike to quickly put together a Scouting the Market piece and examine the pros and cons of the target. Yet they always provide three or four good reasons why a trade won’t happen. I know everyone’s trade proposal sucks, but yeesh fellas, let a guy dream on Cole Hamels or Andrew McCutchen for a day before you kill the idea.  It’s gotten so bad (and they’ve gotten so good) that they often will quash a trade target before I even know the player is available. They’re murdering my Hot Stove Dreams faster than I can dream them up.

Sick of this.

Part of the consolation of a baseball-less half-year is the fact that the offseason unfolds in a manner unlike any other sport. Much like the game itself, baseball’s free agency is a languid and leisurely process, dawdling and lingering before wrapping up in January; trade rumors kick up in the first set of winter meetings and refuse to die for weeks; and avid fans are treated to a solid eight or more weeks of news and gossip before February settles in and the countdown to Spring Training begins in earnest. Aside from the absence of actual games, at times it feels like baseball never leaves.

So while I’m generally comfortable with the team’s roster, I’m with Larry and others in hoping the club can add one or more starter pitchers this winter. And before they ink these pitchers to shiny new deals or ship out prospects to get them, I’d very much like to have a lovely drawn-out period in which the team is linked, truthfully or not, to all the names out there. All of them. Tell me Prince Fielder wants to live in Alpine with CC and let me try to figure out how in the world they could pay $180 million for just a DH, and with Montero on board to boot. Tell me Cash had dinner with Big Papi at Tap. Tell me Jack Z. and Felix just aren’t getting along. Tell me Tim Lincecum cut his hair and has been spending time in the Village. Tell me all of it.

It’s been a long time since Ben, Mike, Joe and I gnawed our way through our hats and watched in agony as the team failed in Game 5 of the ALDS. It’s been a long time since Joe and I stood at the mezzanine level in the bottom of the 4th with the bases jacked and one out and ate our hot dogs and banged on the metal tables and hollered until security told us to stop, and then acted like we forgot and did it again, only to see Martin and Gardner pop out and the rally die. But it hasn’t been long enough. A new year is almost here, and that means a new team. And until I get that new team, I’d like very much to dream on what could be. Help a brother out; it’s starting to get cold.

The Anti-Cliff Lee

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Nearly a full twelve months after the Yankees watched Cliff Lee spurn New York and depart from Texas for Broad Street in Philadelphia, they find themselves yet again eyeing a big name free agent starting pitcher. This year’s premium talent is lefty C.J. Wilson, and he’s reportedly seeking six years and $120m, a hefty sum for a pitcher with just two years of experience as a starter in the major leagues. Aside from the fact that he’s a lefty from the Rangers seeking big money, Wilson really is the polar opposite of Lee. In a lot of ways, C.J. Wilson is everything that Cliff Lee was not.

The easiest place to start is their performance. Cliff Lee is a savant when it comes to control, while Wilson is one of the most wild starters in baseball. In the last two years, only three people have walked more batters than C.J. Wilson’s total of 167 (Gio Gonzalez, Ubaldo Jimenez, and Ryan Dempster). Not even A.J. Burnett has walked as many as Wilson over this span. By comparison, in the two years prior to hitting free agency, Lee walked a mere 61 batters, tied for the lowest amongst any pitcher with at least 200 innings pitched. Their career walk rates (Wilson 3.75 BB/9, Lee 2.15, but not higher than 2.00 since 2007) really drive the point home.

Wilson and Lee are also very different in their personalities and home lives. Based on what I could gather from watching the way Lee handled his negotiations and subsequent press conferences, he seems to be a very laid back guy. He’s from Arkansas, not just geographically but also in the sense that it’s his home. It’s where he’s from. Like a smart husband, Lee also placed a very high premium on the wishes of his wife and family when choosing a new team. The positive experience his wife and kids had in Philadelphia went a long way towards convincing him to stay. By comparison, Wilson is a hipster from California, to put it bluntly. He tweets with the best of them, he’s outspoken on political issues, and he’s gregarious. He’s also not married, a factor which he emphasized when talking about his pending free agency. Wilson’s a free bird, limited only by his suitors.

There’s also the interest factor. It’s hard to know how much Lee really likes New York and would have been happy playing here. Personally, I never got the sense that he was dying to spend his off-days in Central Park and go out to dinner in SoHo, but that’s just post hoc explanation. Like a lot of free agents in high demand, Lee made the Yankees, and several other teams, fly down to Arkansas to pitch him on a new deal. By comparison, Wilson seems to want to play in New York, or at least have the Yankees bid up his price. He even had his agent ask the Yankees if C.J. could come to New York and visit the Yankees to discuss a new contract. After the way the Lee negotiations went, it’s almost refreshing.

But here’s the rub, and here’s where their greatest dissimilarity stands out most prominently. As of this morning, the Yankees still hadn’t gotten back to Wilson’s agent to let him know if they want him to come meet with them. Unlike Cliff Lee, over whom the Yankees front office and fan base nearly salivated, no one in New York seems to want C.J., certainly not at any price. No one seems to be clamoring to open the vault in the Bronx for the Texas lefty. Perhaps this and all the other differences between Wilson and Lee will create a commonality between the two after all: hitting free agency only to end up in a new home other than New York.

What does it take to get a save in this place?

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It would be hard to find a segment of the free agent market in which saber-minded analysts and general managers differ more than on the value of relief pitchers. Second only to the uselessness of the pitcher win stat, the futility of paying relievers big money and chasing the save statistic is likely the biggest saber cause célèbre in town. The argument goes something like: “The save stat is stupid, and relievers are volatile. Don’t chase the save, and don’t pay relievers big money, because they’ll likely just blow up in your face”.

By and large, this line of thinking is correct. Yet if its constantly regurgitated by the masses with no critical thinking behind it, and if no attempt is made to understand why teams do what they do, then we’ll never really advance the proverbial baserunners. We’re just spinning our wheels, beating the same old dead horse and never learning anything or trying to understand the people making the big decisions.

In any walk of life, one quick way to open yourself up to embarrassment is to assume that those around you are either unable or unwilling to comprehend the complexities of your worldview, to borrow a turn of phrase from Confederacy of Dunces. I’d wager that most General Managers have a pretty good idea that relievers are volatile creatures, and that they are also aware of the failure of these relievers to live up to the contracts given to them. So, avoiding the arrogance that would suggest that they’re just irrational actors, what would drive a GM to pay a premium for a reliever? It boils down to predictability.

Paradoxically, the volatile nature of relief pitchers drives GMs to pay big money for relievers whom they don’t believe will be volatile. Thus, relievers with a long track record of health and consistently superb performance are the most likely candidates to get big money. Like it or not, teams also value closer experience. Late inning relievers with a track record of ably manning the ninth inning will pull in a premium over those without it. Anecdotally, relievers with fewer than ten saves signing multi-year deals after the 2010 season averaged $3.8M per year. Relievers with more than ten saves averaged $8.3M, although this number is driven higher by the Soriano and Rivera deals. This illustrates the point that for whatever reason, most clubs are averse to handing big money to someone to close out games if they’ve never seen them close out games before.

This is all perfectly illustrated by the Phillies pursuit of Ryan Madson. Madson has a long track record of being an excellent reliever, and has shown a decent enough health record. Yet not too long ago, the Phillies weren’t interested in committing big money to Madson because he lacked the “closer’s mentality”. After a solid year closing out games for the Phils they were on the verge of guaranteeing him of $44M over 4 years. The deal has since been put on hold, but Madson will likely see a huge payday.

Teams crave predictability, which is why you’ll often see teams with decent budgets pursue relievers whom they believe to be predictable. They’re looking for relievers who can make a nine inning game an eight inning game, and when they find them or believe they’ve found them, they’re willing to pay a bit more than one might expect. It’s just the way it is. As our understanding of how to properly value relievers evolves and develops, it’s important to keep in mind the principles under which various organizations appear to operate.  Who knows, we might even learn something from the people who are doing this for a living.