I was going to touch on this in a later post, but RAB’s Mike Axisa beat me to it: the Yankees’ policy of not offering contract extensions to players isn’t really compatible with their suddenly tight budget plans:
These two ideas, getting under the luxury tax threshold and avoiding contract extensions, are technically mutually exclusive. In reality, the two ideas are at odds with each other. Getting under the luxury tax means the team will operate within defined financial limits, but avoiding extensions means the team will also have to pay market value for players. Paying market value and having a hard salary limit are not going to mix well, even with a payroll as large as $189M.
The Yankees, specifically Hal since he made the comments, want to have their cake and eat it too. They want to stay under the luxury tax threshold in the future and that’s fine even if I disagree with it, but they also don’t want to hand out contract extensions to young players. They can do both, but it won’t be easy.
I’ll go a step further and note that what really makes the Yankees’ no-extension policy work is their willingness to embrace the advantages being the sport’s richest franchise provides. A team like Tampa Bay or Kansas City can save some money and guarantee the services of a talented young player by handing them a contract extension in their first few years in the big leagues, but it’s risky to bet on somewhat unproven players with a commitment you don’t technically have to make. In practice, however, those teams do have to make those early commitments, because if things work out well for the kids, the team won’t be able to afford to pay them market value for their services, and the long-term payroll uncertainty created by their arbitration years can become a hindrance to long-term planning.
The Yankees have been able to avoid this “problem” by doing what they do best: throwing money at it. Brian Cashman has never had to worry about whether or not a young pitcher’s arbitration years salary will over-extend his budget, and everyone knows that (short of doing something really crazy) no other team can financially muscle the Yankees out of the running for any of their own players on the open market. In other words, the Yankees’ strategy has been to pay the extra cost in order to minimize performance related risk as much as possible, and it hasn’t really hindered them at all because that cost was miniscule in relation to the amount of resources they were willing to expend on the team’s payroll.
Now, of course, those available resources have shrunken dramatically, as ownership has imposed a hard salary cap on the team and Brian Cashman has to navigate his way through his prior-existing commitments to put a roster together that can compete while still coming in below the luxury tax threshold. If this is going to be a long term thing (and by all accounts it will be), spending this premium to avoid the need to make any long term commitments to players before they reach free agency will suddenly account for a much bigger burden in terms of opportunity costs.