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December 4, 2013

Transaction Analysis

Yankees Add Ellsbury, Overpay Only By Other Teams' Standards

by Ben Lindbergh



NEW YORK YANKEES
Team Audit | Player Cards | Depth Chart

Signed CF-L Jacoby Ellsbury to a seven-year, $153 million contract with an option for an eighth year. [12/3]

When the Ellsbury contract is over, it’s not going to look good, dollars-per-win-wise. Let’s just note that up front, accept it, and move on, because you can bet than Brian Cashman already has.

When we rank general managers by how well they’ve deployed their dollars, the Yankees’ GM consistently ranks near the bottom. But even if Cashman cares that his “Payroll Efficiency Rating” places him alongside front-office failures like Bill Bavasi and Steve Phillips, the sight of his five World Series rings (four earned as GM) probably eases the sting. For all we know, he daydreams about giving it all up for a team with an eight-figure payroll and making shrewd moves that people write books about, but he likes life as a Yankee enough to have suckled at the Steinbrenner teat for close to 30 years. In New York, there’s no need to, say, sign a 38-year-old Jose Molina to catch because he offers the best bang for the buck, or to trade for Craig Gentry because he’s more valuable than his traditional stats would suggest, and perhaps could even start someday. Cashman knows these things, but he doesn’t have to settle for players with warts. He can throw money at the players who do all the positive things the ones with warts do, but also have perfect complexions.

That’s not to say that Cashman hasn’t made smart decisions—he’s made many of them. It’s just that there was no way that Cashman could rescue the Yankees from their 2013 morass merely by pitting his wits against opposing GMs and acquiring more undervalued assets over the offseason. (And really, why try, if you’re always a day away from being forced to sign Rafael Soriano after a phone call from Randy Levine?) To quote myself (from the Brian McCann TA), quoting myself (from the podcast):

When Sam Miller asked me a few weeks ago how the Yankees—who were old, injured, and outscored by their opponents in 2013—could put themselves in a position to compete next season, I offered a simple solution: “Sign all the good players.”

In other words, the winter is proceeding as planned. The Yankees have now signed two of the top four free agents on R.J. Anderson’s Top 50 list from last month. They’ll probably add a third—the one R.J. (and everyone else) predicted they’d sign—before the offseason is over. There’s nothing subtle about this strategy—it’s the Veruca Salt approach to team-building. The Yankees end up with a golden ticket to the playoffs so often not because they’re luckier or smarter than everyone else, but because they can afford to buy more Wonka Bars.

Unfortunately for the 29 other teams, the Yankees' "win at all costs" (except the 2014 luxury tax) approach isn't necessarily a losing financial proposition. We know that teams stand to gain lesser or greater returns from each additional win based on where they are on the competitive curve, with a sweet spot around 90 wins. Here’s what that relationship looked like in 2005; adjust those dollar values upwards by 60 percent or so to account for inflation since.

It’s likely that when the offseason dust settles, the Yankees will have a roster whose true talent lies somewhere near that sweet spot, another reason why their “overpay” for Ellsbury isn’t an issue. But what we sometimes overlook is that the shape of the win curve varies by team. According to Diamond Dollars, Vince Gennaro’s book on baseball economics, the Yankees—because of their market size and the fact that their attendance figures are unusually sensitive to on-field performance—have “the steepest and richest win $ revenue curve (the amount of incremental value generated from improving regular season wins).” Here (reprinted with permission) is what their win curve looked like in 2006, compared to Atlanta's, whose corresponding curve was relatively flat.

That incline has only increased since the Yankees opened their new park:

And here’s the additional revenue the Yankees stand to gain from their first postseason appearance after an absence from October, as well as the smaller (but still enormous) windfalls awaiting them should they make it a streak:

Those dollar values are slightly outdated, so the potential payoffs are even greater for 2014. And there’s one more factor to consider: brand value. While this element is closely related to market size and marketing efforts, it’s not independent of win totals. As Gennaro writes, a team that sustains success at a high level “should experience a rise in their baseline revenues and, hence, their brand value. Another way to think of this effect is to visualize the win-curve shifting upward, maintaining its shape and slope but with a higher starting point, or baseline revenues.” Increased brand value, while somewhat abstract, still essentially adds money to the Steinbrothers’ pockets, offsetting what Ellsbury’s paychecks subtract. And again, we see that the Yankees’ brand value is more sensitive than the typical team’s:

Because much of the Yankee brand is built on two pillars—winning and tradition—even the mighty Yankee brand has its fragile points. Our analysis shows that few teams’ fans are as punishing as Yankee fans if the team fails to play competitive baseball. … Partly through their own marketing efforts and hype, the Yankees have inadvertently increased their financial penalty for not winning.

Last year, the Yankees saw their ratings decline by roughly a third, and their average attendance fall by over 3,000 fans per game, the sixth-largest drop of any team. A second consecutive season out of the playoffs would likely cost the Yankees more than they’d have saved by signing someone less expensive—and less productive—than Ellsbury. None of this is to say that we should waste any time worrying about the Steinbrenner bottom line, but it’s important to remember that because of these franchise-specific factors, a contract that fails the generic dollars-per-win test won’t necessarily cost them calzones. Committing “too much” money now might make them more later.

To stay competitive and enjoy all that marginal moolah, the Yankees have to stick to a couple of codes. First, when they do spend big, they must be sure to buy a great player. Even the great ones aren’t worth much by the end of near-decade-long deals, but they earn every penny of what they’re paid for the first few years, and—if they start from a high enough peak—won’t become completely sunk costs by the back end of their contracts. Second, they must make sure that their highly paid stars’ declines don’t coincide. The signings should be staggered such that the planned obsolescence of the older players overlaps with the productive portions of the deals inked by subsequent free-agent imports, so that when one loses a step or some bat speed, another arrives to pick up the slack.

It helps, of course, to supplement the mercenaries with some productive pre-arb players, since not even the Yankees can afford to sign a superstar at every position. But the Yankees won their last World Series with any vestige of the homegrown core that powered the 1996 championship team long since retired or signed to megadeals indistinguishable from those of the players of outside origin. For them (and perhaps for the Dodgers), winning with old, expensive teams is a sustainable model, so long as the money tap is never turned off.

The last time the Yankees missed the playoffs, in 2008, with Jason Giambi and Mike Mussina in the last legs of their long-term deals, they responded by signing CC Sabathia, Mark Teixeira, and A.J. Burnett. Those three players combined for 12 WARP in 2009, and the Yankees added 14 wins and won a title. Five years later, Burnett has received a dishonorable discharge and Sabathia and Teixeira have entered the “uh-oh” phase, but that flag is still flying. That’s the blueprint for this winter, and it might work just as well.

Over the next few years, Ellsbury (and McCann, and maybe Cano) will remain productive, covering for the increasing infirmity of Sabathia, Teixeira, and Alex Rodriguez. And then they, too, will go the way of all free-agent flesh, which will be the Yankees’ cue to sign David Price, Stephen Strasburg, Chris Davis, Carlos Gonzalez, Eric Hosmer, or some other star who decides not to sign an extension. It’s the pinstriped circle of life.

For now, the 30-year-old Ellsbury will breathe back some life into a flatlining lineup. He’s a good-but-not-great hitter who’s averaged 4.3 WARP over the past three seasons (despite a lost year in 2012), thanks largely to his legs. One of the game’s most prolific (and highest-percentage) basestealers, he’s added 12 runs on the bases since 2011, and he plays a strong center field.

Ellsbury hit about half of his career homers in 2011 alone. That season increasingly looks like an outlier, but the move to Yankee Stadium should provide a power boost, just as it did for the last lefty-swinging center fielder who left Boston for New York. A few months ago, Sam and I predicted how many homers Ellsbury would hit over the next five years—I said 50, and Sam said 66. That short porch should decide the contest in Sam's favor, but it won't bring back that outlier power.

So Ellsbury doesn’t fit the mold of some sluggers the Yankees have signed to similarly long deals, like Giambi and Teixeira, and it’s easy to talk yourself into the idea that he’s susceptible to an even steeper decline. We know that speed and defense peak earlier than skills like patience and power; therefore, the thinking goes, when a player like Ellsbury loses a step, he’ll be hamstrung on both sides of the ball and fade into irrelevance earlier. Yet study after study suggests that the opposite is the case: players whose value is derived disproportionately from defense and steals tend to suffer a more moderate decline in production, largely because they retain more of their playing time (perhaps due to better conditioning).

Over the course of seven or eight seasons, the difference in decline rate could amount to an additional 4-5 wins and over $30 million in value, which would make the Yankees’ acceptable losses much lighter. Given that Ellsbury has surrendered large chunks of two of the past four seasons to injury, it might be a stretch to say that he’ll prove durable into baseball old age, but tell that to his historical comps. The contract includes a no-trade clause, so the Yankees are probably tied to him for the long haul regardless, though Ellsbury would have received a NTC from his five-and-10-status anyway by the time he headed into his late-30s.

In the short term, Ellsbury, Brett Gardner, and Alfonso Soriano (with Ichiro Suzuki in a fourth outfielder/pinch runner role) should combine for a fine defensive outfield, and with full seasons expected from from Teixeira, McCann, and Brendan Ryan, the Yankees have the makings of their best fielding unit since their 2009-10 teams. The lineup looks more than a bit unbalanced—if Cano re-signs, the Yankees’ three best batters will hit left-handed—but that’s less of a problem for a team that plays half its games in the Bronx than it would be almost anywhere else. If you’re a Yankees fan, Ellsbury’s arrival is reason to celebrate, despite the dismaying dollar value. If you root for anyone else, this signing calls for a familiar, frustrated sigh.

Ben Lindbergh is an author of Baseball Prospectus. 
Click here to see Ben's other articles. You can contact Ben by clicking here

Related Content:  Jacoby Ellsbury

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