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What the Padres’ spending reveals about the financial landscape of baseball

On the Padres, rising payrolls, and what is reasonable to expect from the Yankees.

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NLDS: Dodgers vs Padres

To say the Padres have been busy this offseason would be an understatement. They handed out an 11-year, $280 million mega-contract to Xander Bogaerts after missing out on the Aaron Judge sweepstakes, and brought in an array of depth-boosting additions, including Matt Carpenter, Nelson Cruz, Robert Suarez, Nick Martinez, and Seth Lugo. Then on Thursday, they announced a six-year, $108 million extension with Yu Darvish. Between that extension and their free agent signings, San Diego has committed upwards of a half-billion dollars in one winter.

This should come as no surprise to anyone who has been keeping tabs on Padres over the last few years. Their championship window opened with the marquee signing of Manny Machado and the emergence of Fernando Tatis Jr., and they have basically thrown the kitchen sink at trying to secure a title in this time frame. I’d argue that this latest spending spree reveals a good deal about the financial landscape of baseball and what is reasonable to expect from the Yankees.

San Diego is the fourth-smallest TV market in baseball while they sit middle of the pack when it comes to franchise valuation and owner net worth. What’s more, they sell their broadcast rights to Bally Sports, whose owner Diamond Sports Group is currently on the brink of bankruptcy (they are expected to miss a $140 million interest payment later this week) thanks to careless behavior by parent company Sinclair. Sources around the industry forecast that the 14 MLB teams who sell their rights to one of the regional Bally Sports networks will not receive their rights payments as a result of the bankruptcy — a loss of tens of millions in revenue for each of the baseball clubs. However, this has done nothing to discourage a franchise-record winter outlay and what projects to be a franchise-record payroll by more than $30 million.

There’s a handful of lessons we can take away from this lavish behavior. The first, as I initially relayed when responding to Rockies owner Dick Monfort’s recent comments, is that there are no small-market teams; there are big-market teams and there are bigger-market teams. It’s a fairly safe bet that every team in baseball can comfortably spend beyond where their respective payrolls currently sit, especially when several clubs can basically cover their operating costs from the sale of tickets and concessions alone.

It also appears that the Padres feel pretty secure about their future financial outlook. They’ve now dished out a pair of nine-figure contracts that will take their respective recipients into their forties, with rumors suggesting a third may be close to follow in the form of a Manny Machado extension. Not long ago, it was seen as anathema to pay a player into his forties, but that trend seems to have been flipped on its head this offseason with teams looking to spread out the cost of big money deals across a longer term to lessen the AAV hit to payroll.

My take is that in addition to this artificial lowering of the CBT number, teams in contention are looking to reap the surplus value in the first years of the deal, while also remaining confident that the “dead money” paid to aging players will not be as onerous as the luxury tax thresholds continue to climb in this CBA and the next. Those veteran contracts become less constraining as the percentage of the payroll they take up shrinks. Basically, teams feel safe that the money will be there in the future, both in terms of revenue and room under the “cap.”

What does this all tell us about the Yankees? While I’m hesitant to criticize a team with a near-$300 million payroll, they are the most valuable franchise and beneficiaries of the largest market, yet sit less than $30 million ahead of the “small-market” Padres. Oh, and the Yankees actually own a controlling interest in their TV network, YES. Sinclair are minority stakeholders in the network, but the fact remains that New York is far more insulated from the fallout of a potential Bally bankruptcy.

The Padres do not have the benefit of this shielding — heck, they could miss out on $50 million or more in revenue from a missed rights payment in 2023 — yet San Diego does not seem worried at all about being a top-three spender in baseball. In fact, by spring training they could surpass New York’s payroll should a Machado extension come to fruition, and that is a fact that should not sit well with Yankees fans.