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Or, why ARod is worth $35 million to the Yankees and nobody else.

Update: This is a re-write of an earlier article, using correct numbers.

Most major league organizations wouldn’t do well if they spent their entire payroll on free agents. Free agents are overpriced and tend to be on the wrong side of the aging curve. For the fun of it, let’s see how good a team like the Cardinals would be if they spent their entire $90 million budget on free agents:

$90 Million Isn’t Close To Average; $200 Million Is Better
A team of replacement level players making the league minimum would cost about $14 million dollars, leaving $76 million dollars for improving beyond the 48 wins of a replacement level team. Free agents cost about $4 million per marginal win these days, which would give our team 19 additional wins (76/4). Obviously, 67 total wins for a $90 million payroll just won’t cut it. I think we can agree that building your team through free agency is a poor plan for most teams. Free agents are just pieces to fill holes.

On the other hand, the Yankees’ $200 million payroll would be expected to buy 47 marginal wins [(200-14)/4] via free agency for a total of 95 wins per season. That’s playoff caliber, and is pretty much what they’ve done recently.

Now, the Yankees don’t spend every dollar on free agents, so why haven’t they done better than 95 wins? Well, one reason is that they spend their free agent dollars poorly. In 2007, all of these guys cost more than $4 million per win: Mike Mussina, Derek Jeter, Jason Giambi, Roger Clemens, Andy Pettitte, and Carl Pavano. Oh, and New York paid $9 million to players on other teams. Ouch. (For the record, ARod was 10 wins better than replacement, fully earning his contract. Considering the Yankees only paid two-thirds his salary, ARod was a steal.)

You Can’t Realistically Spend $200 Million On Free Agents
The other problem with buying 95 wins through free agency is that there’s a limited number of roster spots that contribute to the team. It’s nearly impossible to fill them all with adequately priced free agent talent. Assume that you need to sign nine position players, five starting pitchers, and three top relievers. That’s 17 players to pay with $186 million dollars, or $11 million each. For $11 million dollars, you’re expecting almost 3 wins per player. In 2007, there were about 100 position players at least 2.5 wins above replacement. However, just under half of those 100 have ever been eligible for free agency, meaning the Yankees would need to sign one out of every five top position player free agents (again, assuming they could properly identify them). The pitchers would be a similar ratio, I’m sure. I don’t see signing one out of every five players to reasonable contracts as a realistic plan. They need to do something else, too.

How The Yankees Should Handle It
Every off-season, the Yankees identify their holes and then either sign the best available free agents or make a deal for the best available high-priced trade-bait. The problem is that having the money to spend doesn’t mean that there are the right players to spend it on. Giving Barry Zito $150 million doesn’t make him perform like a $150 million player.

Therefore, like every other team, the Yankees need to develop some talent from within. They need to begin by building like a small-market team: accumulate draft picks, give bullpen roles and back-of-the-rotation spots to young pitchers, and consistently have guys like Robinson Cano available to step in when older players are wisely allowed to leave.

Only after the Yankeees spend their first $75 million intelligently and efficiently should the they do things other teams can’t afford. These other avenues are inefficient spending compared to the first $75 million, but if the Steinbrenners are willing to spend extra to win, this approach will get them the most wins, well above 95:

1. buy out their own players’ arbitration years — In return, those players will likely commit to a year or two of free agency at below-market value. This is an approach even smaller market teams can take, but the Yankees should do it with anybody of value — it’s cheaper than signing a free agent from another team.
2. international scouting and signings — I don’t mean large posting fees from Japan, as those guys really fall in the same category as MLB free agents. I’m talking about scouting Latin American countries and offering moderate contracts to young players with potential. Not everyone will work out, but throw enough spaghetti and… you know the rest.
3. trade cheap non-stars for more expensive talent — Melky Cabrera’s an issue for the Yankees. He’s slightly better than league-average and makes next-to-nothing, so obviously he’s a deal. But if the Yankees are aiming for 110 wins, that’s not good enough. They should trade him to another team in return for a better player earning a bit below the free-agent rate, Carl Crawford for example. Both players are bargains, but each fits better with the payroll of the other team. Robinson Cano, on the other hand, is as good as almost anyone the Yankees might look to sign, and thus is a definite keeper.
4. big-sticker draft picks — This approach is becoming known as the Detroit Tiger strategy (Andrew Miller and Rick Porcello are great examples). Some high school and college players fall in the draft because their demands for signing bonuses scare low-payroll teams. Most of them are still worth the price tag (expected return well under $4 million per win) and the Yankees should jump all over them. It’s like signing cheap free agents and the only downside is that you have to wait a few years to reap the benefits.
5. the best of the best free agents — The Yankees can’t sign an All-Star at every position, but they should sign future Hall Of Famers whenever possible, even though they cost $4 million per marginal win. You just can’t spend a full $200 million on small-market approaches. And for all the fiscal responsibility they’d be showing, the Steinbrenners wouldn’t be happy with a consistent 85-win, $125 million payroll. The last piece of the puzzle is shelling out $35 million per season to Arod and $25 million to Johan Santana. Whenever you can get one player who’s worth 8-10 wins on their own, you do it. Why? Because one BMW is better than five Jettas. If two-thirds of the team is built internally, there are a limited number of players you’ll be signing as free agents. In order to spend your entire free agent budget, you need to find players that are deserving of high salaries.

For the Yankees, the key is to build a foundation of reasonably priced players so that they’re only overspending on the best of the best, not on everybody. If the Yankees learn to develop stud young players to contribute alongside free agent stars, 110-win teams are not an unreasonable expectation. The first $75 million should create an 80-win team, and the additional $125 million tacks on 30 wins. George is right when he says his team should be better than 95 wins given a $200 million dollar payroll.

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This entry was posted on Thursday, November 1st, 2007 at 6:10 pm and is filed under Baseball. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.