To Budget, Or Not To Budget?

After a year of planning a team around a $189 million budget, after thousands of blog posts, millions of water cooler chats, billions of comments about how to spend and who to trade, and one unhappy general manager, Steinbrenner might have a change of heart. But before you get too excited, I’ll warn you that this comes from Wallace Matthews.

Despite his reputation for wild speculation, I have to agree with some of Matthews’ conclusions. In the last few months, Yankee fans have grown uneasy with the increasing age of the team, as well as the organization’s reluctance to spend on free agents. The team’s last big signing was Rafael Soriano, and before that you have to look back to 2009. After watching Nick Swisher, Russell Martin, and Soriano walk without the team bringing in reasonable replacements, Yankee fans have grown uneasy. Hal Steinbrenner was taken aback by their disappointment.

“I’m surprised to hear that there’s anger, if you see what we’ve done this offseason. …We’ve signed three or four of the top free agents that were on the market, because we’re going to continue to field a championship caliber team.”

After this, Steinbrenner came out of hiding, and insisted numerous times that the budget was a goal, but not necessarily a mandate if they couldn’t field a “championship caliber” team. As soon as the budget was suddenly no certainty, Robinson Cano‘s looming free agency grew in media coverage. The fact that the Yankee might not be able to afford Cano next season was just another opportunity to call the new Yankee ownership cheap.

“This is the first time since George died that it appears a Steinbrenner is actually running the Yankees.”

Charles Wenzelberg/New York Post

Matthews believes that Hal Steinbrenner, distressed by fans calling him cheap, has decided to pull the plug on the budget. Considering all the comments Steinbrenner made in January about the budget being just a guideline, and his recent eagerness to talk to the media (I’ve probably read about 3 to 4 articles a day on Steinbrenner over the last week) tells me that he’s trying to save face. It seems that he’s exclusively negotiating with Scott Boras and Cano at this point, leaving Cashman out of the picture, and I wouldn’t be surprised if he plans to announce this big extension, a new team policy towards keeping players, and a reconsideration of the $189 million plan all in the same breath.

Of course this is all speculation at this point, and Matthews’ anonymous sources are far from reliable, even the quotes don’t tell much of a story. When you layout the offseason though, Cashman’s unhappiness, the Yankees inability to replace key pieces, Steinbrenner talking about the budget as guideline, and his new eagerness to extend Cano and break team policy look sort of fishy.

On the other side of this thought process, the Yankees have a ton to lose if they completely ignore the $189 million budget. If the team manages to fall below this for just 2014, they stand to save nearly $60 million even with the recent revelation that refunds are decreasing. To go back on this plan they’ve been working on for the last year and a half sounds too good to be true from a fan’s perspective, and from a business stand point, may not be worth it.

But if they do so, the way the team is set up right now could mean bright things for the future. The Yankees have a ton of money coming off the books and a farm system that could be ranked very highly by the end of 2013. If the organization is now willing to spend $20 or $30 million more than they were for next season, the team is in fantastic shape.

When Steinbrenner is asked about the budget over the next couple of days, he’ll probably just reiterate that it was always a guideline. I expect to know what the future plan is after a Cano extension is or isn’t finalized.

Mike is the co-Editor-in-Chief of It's About The Money. Outside of blogging baseball, Mike is also a musician, a runner, and a beer lover.

6 thoughts on “To Budget, Or Not To Budget?

  1. Ralph

    “If the team manages to fall below this for just 2014, they stand to save nearly $60 million even with the recent revelation that refunds are decreasing.”

    I would like to see the math on this, cause I was under the assumption the team would need to stay below the threshold for the next 3-4 years to net anything close to that $60M, considering that article is states the Yankees anticipated just $10M (this obviously doesn’t include the luxury tax savings) if they stayed under 1 year. Considering those numbers could wind up be smaller than 10M and assuming they keep a payroll in the 200-205 range by foregoing the 189 Plan. The potential savings is not all that impressive.

      • Ralph

        Ok, but even in this case its only 41M, compared to the 60M stated in the post above and more than half is related to the actual payroll saved as opposed to rebates and lower luxury tax. If the mgmt is noticing impact to the bottom line in ticket sales (never mind the potential impact of missing the playoffs) the potential savings really isn’t impressive enough that a change of heart makes it poor business sense.

        • It’s a total savings of around $55 million, which is pretty close to $60 million. Though it’s technically more since the team is probably going to go over $210 million this year.

          Just because the money doesn’t come in a rebate, doesn’t mean it shouldn’t be counted towards savings. This is an instance of a $210+ million payroll versus a $189 million payroll. Obviously you save $21 million immediately from the payroll difference, then you double that for the rebates and tax savings, and then you start saving taxes in the three years following. That’s all has to be counted.

          As for the bottom line, I expect that the Yankee front office has much more data than I do. If they think they can pull this off without losing fans or revenue, then who am I to judge? I honestly don’t know enough about the business to say which is a smarter decision.

          But I do have to agree that considering the money they make every year, the $60 million does seem like chump change.

    • Here’s a breakdown I did recently that I think is a little more relevant. Also, the second link addresses the notion that the Yankees may have miscalculated the potential savings:

      http://www.captainsblog.info/2012/11/28/are-yankees-headed-for-fiscal-cliff-a-closer-look-at-teams-plan-to-cut-payroll/18407/

      http://www.captainsblog.info/2013/01/23/flaw-in-the-yankees-budget-plan-breaking-down-mlbs-revenue-sharing-system/18956/

  2. bg90027

    I don’t really see this as big news. The Yankees have always indicated that they would try to bring Cano back, and Hal clarified in the fall that the $189 budget was a goal that was contingent upon being able to field a competitive team at that budget.

    I don’t really see how anything has changed here. I have always thought they would end up abandoning the plan if Pineda doesn’t come back as strong as ever and Nova doesn’t make major strides. It just isn’t realistic that they could field a competitive team at $189 with the current commitments unless they can count on at least three cost-controlled, reliable starters. I don’t think they’ve abandoned the goal yet, but they probably realize that it’s pretty unlikely that they’ll be able to stick to it.

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