Yankees Ignored Inflation in Rodriguez Dealings

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

Can you think of a successful business that routinely offers pay cuts to its best and most valuable employees? I can’t. I can think of struggling businesses that do this, and badly run businesses that do this — but no successful ones. Perhaps the Yankees just don’t have what it takes to be successful.

A week ago, Joe Torre resigned after declining an offer that would have cut his salary by $2 million. Two days ago, Alex Rodriguez decided to leave the Yankees, who were openly preparing to offer him what amounted to a pay cut as well. The team might be better off without them. But it would definitely be better off not making insulting offers to people who have done their jobs well.

The substance of the Yankees’ aborted negotiations with Rodriguez have been lost among all the drama and wailing over his announcement that he will exercise his right to opt out of his contract — and that’s not surprising. The man himself staged the announcement during the decisive game of the World Series, an act of staggering gall that instantly made him baseball’s grandest villain. Immediately, team kingpin Hank Steinbrenner made himself into a laughingstock by telling the Daily News that Rodriguez “doesn’t understand the privilege of being a Yankee.” Such comments, coming in response to Rodriguez’s grandstanding actions, only served to make the whole situation lurid and ridiculous.

More interesting, though, was something Steinbrenner told the Newark Star-Ledger yesterday. “We were going to raise his salary,” he said. “What else do we have to do?”

Either Steinbrenner doesn’t know what he’s talking about, or he’s lying. Whichever it is (he’s probably not lying), this sheds a lot more light on what’s really going on than do either his blustering about pride and pinstripes, or the claims made by Rodriguez’s agent, Scott Boras, that the “decision was one based on not knowing what his closer, his catcher and one of his statured pitchers was going to do.”

As a matter of simple fact, there’s no reason at all to believe that the Yankees were prepared to give Rodriguez a raise. The team has repeatedly and publicly stated that they wouldn’t offer Rodriguez a new deal because the Texas Rangers were subsidizing his contract — $21 million over the next few years. Last August, for instance, Cashman said the Yankees wouldn’t sign Rodriguez to a new deal. “How can we?” he asked. “We lose all our money from Texas.”

The Yankees have held firm to this, always stressing that they would structure a new deal as an addition to Rodriguez’s contract, rather than a replacement for it. And before Rodriguez opted out, they were reportedly preparing a new contract for Rodriguez, a fiveyear, $150 million extension that would begin in 2011.

In real terms, this amounted to a pay cut. The reason for this is simple: Inflation.

Seven years ago, in the first year of Rodriguez’s deal, his annual salary, not counting deferred payments and bonuses and expressed in 2007 dollars, was $25.7 million. The average of the next five highest salaries in 2007 dollars was $16.2 million. Over time, though, both because of wage inflation and the fluctuation of free agent salaries, Rodriguez’s salary has declined, both in real terms and relative to other elite players. Much of his salary is also deferred without interest. Last year, he was paid 10% more than the average of the next five highest salaries. In two of the last four years he hasn’t been the highest paid player in the game.

Over the last seven years, Rodriguez’s salary has, on average, been 28% higher than the average of the next five highest in the game. To match that next year, he would need to be paid $24.6 million. On paper, he’s due $27 million next year. But once deferrals are figured in, he’s actually owed $24 million.

All of this is a bit eye-glazing, but this is the actual logic of contract negotiations. Coming off his best year at the plate, and soon to win his second MVP award in three years, Rodriguez is logically due a raise, in real terms and relative to his peers. But instead, by declaring the three option years on his present contract sacrosanct, the Yankees were declaring that he would not only not be getting a raise, but that they would only negotiate a deal set to begin years from now. This made, and makes, no sense.

From Rodriguez’s perspective, the reported opening offer by the Yankees of five years, $150 million would set his present market value at $30 million a year. Why would he take $6 million less than that each of the next three years? Why would he sign a contract that would essentially pay him less next year than he made this year, coming off one of the greatest seasons in team history? For the Yankees, though, this may have been (and probably was) the only sensible offer. Everyone should remember that because of baseball’s luxury tax, the Yankees could end up paying as much as a 40% surcharge on every dollar put towards Rodriguez’s salary.

Strip away the pride, ego, and hubris and there’s nothing more here than two parties so far apart that there was no way to reach a deal.

In the first year of the contract he just tore up, Rodriguez made 58% more than the average of the next five highest paid salaries in the game. If you set that as a baseline (and with Rodriguez coming off a historic year, Boras will), Rodriguez will be looking for $30.4 million for next year. And he’ll get it. I expect that in the end, he’ll get a deal with a lot of deferred money that will be sold as being worth something such as $30 million for each of the next three years, $32 million for the three after that, and $35 million for the three after that, in which he’ll probably be breaking all sorts of career records. That’s $291 million for eight years. Add in an option year and you reach the magic number: $300 million.

That number is higher than the values of some franchises, which raises, what is to my mind, the real question: Why is Rodriguez bothering with cash? The sport’s collective bargaining agreement bars players from holding interest in the “ownership and earnings” of teams. But that’s a fairly ambiguous phrase. These days, the real money is in sports networks, which are not owned by teams. The YES Network, for instance, is technically not held by the Yankees, and is worth something like $3.5 billion — three times what the actual team is worth. A stake in a network is where the action is. The money has gotten so big it isn’t even money anymore.

tmarchman@nysun.com


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