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Putting the Yankees’ financial austerity in context

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There might be more to the Yankees’ austerity measures than we thought.

Photo by Donald Bowers/Getty Images for Manfredi Jewels

Final MLB payrolls for this year show the second-largest decline since 2004, according to Forbes. Based on figures provided by the Associated Press, the 30 clubs combined to spend $4.548 billion on player salaries in 2018. That’s $115.4 million less than what they spent the previous year. Forbes cites the Yankees’ decreased spending as a major contributing factor.

The Yankees’ final 2018 payroll for luxury tax purposes was $192.9 million. That figure represents the team’s lowest year-end payroll total since 2003, when they spent $184.4 million. The Yankees’ payroll did not dip below the $200 million mark at any point in between, while peaking at $243.8 million in 2016.

At first glance, those numbers may not seem all that disparate. That impression changes dramatically, however, when we consider the organization’s spending on big-league salaries in proportion to its revenue.

In 2004, the club spent a whopping 84.3% of its estimated $264 million revenue on player salaries, which totaled $222.6 million. The percentage of revenue spent on salary tapered off gradually over the next four years, until it reached 59.3% in 2008. Revenue increased every year during this period, and hit the $375 million mark in 2008.

After the season, MLB owners approved the shift of day-to-day control of the Yankees from George Steinbrenner to his son, Hal. The new Yankee Stadium opened the following spring, and the team spent a then-record $226.2 million on salaries in 2009. Revenues jumped to $441 million, though, so the team only spent 51.3% of it on salaries.

Team spending on salaries as a percentage of revenue continued to drop annually until it reached 47.2% in 2012. Two years later, revenue topped the half-billion mark for the first time, but the club only spend $225.7 million on salaries (44.4%).

Forbes releases revenue estimates for MLB clubs around Opening Day every year, so the most recent data is from 2017, when the Yankees took in an estimated $619 million, but only spent $224.2 million on salaries. The Yankees’ 36.2% of revenue spent on big-league salaries that year was among the lowest in the majors.

Yankees revenue has increased by an average of five percent per year since the new stadium opened, so using that number we could estimate that the club took in $650 million in 2018. The $193 million spent on payroll represents only $29.7% of that figure. This means that the Yankees quite possibly spent the lowest percentage of revenue on payroll among the 30 teams.

The MLB Players Association would like teams to spend around 50% of their revenue on salaries each year. Although this isn’t explicitly mandated in baseball’s Collective Bargaining Agreement (as it is in other sports), league-wide the 30 MLB teams have been pretty consistent with hovering around that mark. For example, in 2017 the 30 teams combined took in $9.46 billion in revenue and spent $4.66 billion on salaries (49.3%). The AP previously reported that the clubs had been right around that 50-percent mark every year for the previous decade, with MLBPA president Tony Clark describing the percentage devoted to players as “fairly constant.”

I don’t expect that they’ll be too pleased with the 2018 year-end report, and the Yankees’ role in the decreasing salaries. When the wealthiest franchise in professional sports spends less that 30-percent of its revenue on player payroll, it certainly isn’t good for the players.

This also leads me to wonder if there’s more to the Yankees recent habit of low-balling free agents. Could the organization be trying to drive salaries down league wide?

The Yankees used to be known as the team that set the market for free agent talent. The last time they did this was 10 years ago, though. They tendered CC Sabathia the largest contract that winter, and also signed the second-most coveted pitcher (AJ Burnett), and the biggest bat (Mark Teixeira).

Since then, the Yankees have continually passed on the biggest free agents available, including one of their own homegrown stars (Robinson Cano) and a string of top-shelf starting pitchers like Max Scherzer, Jon Lester, and David Price. This year, they reportedly didn’t even make a competitive offer on their number-one target, Patrick Corbin, and were said to be unwilling to give Machado the contract he reportedly seeks and is expected to get. They didn’t even make him an offer yet, saying they wanted to wait and see what competitors offer first.

A small part of the fan base has bought into this austerity program, but it’s yet to be seen whether the club can sway the remainder or is willing to risk alienating them. Hal Steinbrenner would do well to remember a truism his father knew and honored: Yankees fans don’t come out to see the team play, we come to see them win.

The Yankees used to be the gold standard in professional sports, but are now perennial runners-up in a five-team division. With the Red Sox boasting three straight AL East titles and four World Series championships in the last 15 years, the pressure is on the Yankees to act. Will the organization remain content with finishing second every year, or will the front office return to the days where winning the World Series was the number-one goal?