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Posts Tagged ‘Contract Negotiations’

Part 2 of 2

Yesterday, I went in depth into comparing Derek Jeter‘s value, based solely on performance. But as discussed, Jeter’s true value to the Yankees doesn’t end with his performance; it only begins there. I noted how even Yankee GM Brian Cashman has favorably compared Jeter to Lou Gehrig. Just to muck up the water some more, both Cashman and Hal Steinbrenner have alluded to Jeter’s iconic status during these contract negotiations.

Based on yesterday’s statistical analysis of how much a player of Jeter’s ability can honestly expect to receive, I came to the conclusion that on the open market Jeter should anticipate an annual contract value between $12 and $12.6 million; but if paid on the scale that the Yankees have traditionally paid players of his ability, then he could expect an annual contract worth $17.7 million. Based on those numbers, the Yankees reported $45 million, 3 year offer is reasonable and a good point for beginning negotiations. The main point of contention is how much is that Derek Jeter/New York Yankees relationship worth to each side?

Unfortunately, we don’t really have a great way to statistically analyze that number. The Yankees are not a public corporation, so we can’t peer into their financials to see how much Jeter has meant to the team in strictly a dollars and cents way – nor do we have access to their revenue projections, and you can bet that Derek Jeter merchandising and PR is part of those numbers. But we can take an educated guess at how much value the Yankees have placed on the relationship in the past.

For starters, look at what we do know about the team’s finances and how they’ve paid Jeter over his career. The last year before Jeter joined the Yankees, they drew 1.7 million fans into Yankee Stadium, good for 7th in the American League. Team payroll in 1995 was $11,623,500 and the franchise’s net worth was around $580 million. In Jeter’s first year, 2,250,877 people filed into Yankee Stadium (still only 7th in attendance, though) and the franchise value was around $600 million. Fast forward to 2010: the team’s attendance last year was 3,765,807 (the top draw in baseball for the 7th time in the past 8 seasons). In fact, over the past ten seasons, the Yankees have drawn 3.5 million more fans than the next closest team, the Dodgers. Forbes reports that the Yankees franchise was worth around $1.6 billion at the beginning of the season and recognized a 7% increase in value from 2009. In a nutshell, Jeter’s Yankees have tripled in value, along with annual attendance figures. Before Jeter, the Yankees were a middling team in terms of payroll, franchise value and attendance. They were also perennial cellar-dwellers in the standings, with only two winning seasons in the previous 7. Since his arrival, the Yankees have dominated baseball financially the same way as the dynasty teams of the 40’s and 50’s – and have turned into perennial pennant contenders. (It should be noted that the Yankees threw that monetary weight around back then, too – the current era is not the only one when the team is accused of “buying championships.”)

It is an undeniable fact that the partnership of Jeter and the Yankees has worked out well for both teams. The question remains, though, how much of the teams financial success is directly attributable to number 2? We don’t have a way to measure that, per se, although there are sabermatricians out there working on developing models. We can, though, get an idea on how much the Yankees value Jeter’s contributions to the overall financial well-being of the franchise. How? By comparing Jeter’s last contract with those of his peers from that time.

Yesterday, I charted player’s salaries vs. their WAR over the past 5 seasons to determine Jeter’s present value, based on performance. The same can be done for when Jeter signed his last contract, in 2000:

1996-2001

2001

Amount overpaid

Rk Player

WAR/pos

$/WAR

1 Alex Rodriguez

37.8

$ 2,910,052.91 $ 1,250,254.33
2 Jeff Bagwell

36.3

$ 895,316.80 $ (764,481.77)
3 Mike Piazza

31.1

$ 2,181,901.77 $ 522,103.19
4 Chipper Jones

30.0

$ 1,722,222.17 $ 62,423.59
5 Ivan Rodriguez

29.4

$ 1,394,557.82 $ (265,240.75)
6 Mark McGwire

28.6

$ 1,923,076.92 $ 263,278.35
7 Craig Biggio

28.0

$ 1,383,928.57 $ (275,870.00)
8 Derek Jeter

27.4

$ 2,299,270.07 $ 639,471.50
9 Nomar Garciaparra

27.0

$ 1,342,592.59 $ (317,205.98)
10 Roberto Alomar

24.9

$ 1,556,224.90 $ (103,573.68)
11 John Olerud

24.0

$ 1,395,833.33 $ (263,965.24)
12 Barry Larkin

23.8

$ 1,890,756.30 $ 230,957.73
13 Jim Thome

23.6

$ 1,668,432.20 $ 8,633.63
14 Jeff Kent

23.3

$ 1,287,553.65 $ (372,244.93)
15 Jeff Cirillo

23.2

$ 1,045,258.62 $ (614,539.96)

Chart 1: MLB Top 15 players 1996-2000

Jeter was, when compared to his peers a decade ago, paid a $639,471 “bonus” vs. the MLB average in WAR dollars. Let’s assume that Jeter is, in terms of being a commodity, worth a similar amount today and factor in inflation – the $639,471 2001 dollars would be equal to $663,898, using the US Government’s inflation calculator.

So, by adding his value in terms of performance and what both player and team agreed to as his marketing and PR value a decade ago, you arrive at this:

Derek Jeter’s 2011 contract should be between $12.6 million and $18.3 million.

Well, there you have it. Let us know what you think!

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Part 1 of 2


The principle topic of discussion in Yankeeland for the past week has been, how much should Derek Jeter make on his next contract? The debate has raged on since Sunday, when details began leaking of the Yankees $45 million, 3 year offer and Casey Close’s “bafflement.” Yesterday, I saw a bunch of tweets about Jeter asking for 6 years and $150 million. I don’t know where those rumors started, but I also saw a bunch from Close stating those figures were “rubbish.” I’m also hearing that the $15 million average salary offered to Jeter represents a number perhaps twice his true market value, which sounds like so much rubbish to me. But before I start tossing around opinions, I thought I would do a little research into the matter.

The central questions to all of this tug-and-pull remains what, exactly, is Jeter’s worth to the open market and what is his worth to the Yankees? I think pretty much everyone with a little common sense understands that Jeter is for more valuable to the Yankees than to any other team and for the Yankees to pay him based strictly on what he is worth to, say, the Giants is ridiculous. And Jeter would be just as ridiculous to expect the same type of money from the Giants as he would from the Yankees. Harvey Araton of the NY Times has a good article today in which none other than Brian Cashman compares Jeter to Lou Gehrig. Like Gehrig, Jeter is a for more valuable commodity to the Yankees than to any other team.

So what is Jeter’s worth?

To start, I looked at what a typical major league team pays for players of Jeter’s caliber. By using WAR, we can determine how much a player is paid based on how many wins he is better than a typical replacement:

2011

2011

Rk Player

WAR

Salary

$/WAR

1 Albert Pujols

42.6

$ 16,000,000.00 $ 1,877,934.27
2 Joe Mauer

33.8

$ 23,000,000.00 $ 3,402,366.86
3 Chase Utley

30.8

$ 15,000,000.00 $ 2,435,064.94
4 Hanley Ramirez

29.1

$ 11,000,000.00 $ 1,890,034.36
5 Alex Rodriguez

26.3

$ 31,000,000.00 $ 5,893,536.12
6 Mark Teixeira

26.2

$ 22,500,000.00 $ 4,293,893.13
7 Miguel Cabrera

24.9

$ 20,000,000.00 $ 4,016,064.26
8 David Wright

24.8

$ 14,000,000.00 $ 2,822,580.65
9 Chipper Jones

24.1

$ 13,000,000.00 $ 2,697,095.44
10 Kevin Youkilis

23.2

$ 12,000,000.00 $ 2,586,206.90
11 Adrian Gonzalez

22.9

$ 5,500,000.00 $ 1,200,873.36
12 Robinson Cano

22.1

$ 10,000,000.00 $ 2,262,443.44
13 Derek Jeter

21.4

$ –
14 Justin Morneau

19.8

$ 14,000,000.00 $ 3,535,353.54
15 Jose Reyes

19.4

$ 11,000,000.00 $ 2,835,051.55
ML Average –> $ 2,945,945.95

First up, Derek Jeter is the 13th most productive player in all of MLB since 2006. I think that lost in all of the acrimony and discussion of how bad Jeter was last year is that simple fact – only 12 players in MLB have been more productive than Derek Jeter. That’s pretty amazing, if you consider that more than 600 individuals have donned a major league uniform over that time. (I went back 5 seasons, so as to get a representative sample). You’ll also notice that even with some horrendously underpaid performers (Hanley Ramirez and Adrian Gonzalez) in the top 15, the average compensation per win in 2011 is nearly $3 million. Using that figure as a yardstick, fair compensation for Jeter – based solely on performance – would be his WAR dollar value of $12,608,648.65. If you were to pay him based on WAR dollar value of players at similar ages/careers, then the number drops slightly to $12,096,338.26 – or, to put it another way, teams realize players of Jeter’s age probably won’t continue to produce like they did when they were 30 and the average “age discount” is roughly $510,000. Also, you can see that there are four Yankees in the top fifteen: besides Jeter, Alex Rodriguez, Mark Teixeira and Robinson Cano. Their average compensation per win in 2011 is $4,149,976.76 – if Jeter were paid on the Yankee scale, then his value would be $17,761,818.37.

All of a sudden, that $15 million figure offered by Cashman doesn’t represent a number that far from Jeter’s value based on performance. Best case for Cashman, they’re offering Jeter a $3 million bonus. Worst case, the offer represents shortchanging Jeter by about $2.5 million. Based strictly on performance, the two sides probably could come to a pretty quick accommodation. But the principle sticking point in this negotiation is that Jeter is worth far more to the Yankees than to any of the other 31 teams in baseball. Jeter knows it. Cashman knows it. The obvious problem is coming to an agreement on just how much value Jeter represents to the Yankees vs. other teams. Or, to put it in Cashman’s own words, how much this century’s Gehrig is worth to the Yankees.

There really isn’t any way to statistically analyze that number. Since the Yankees are not a public corporation, we don’t have access to their financials, nor do we have access for their revenue projections for the next 5 years. But we can make an educated guess.

And I’ll discuss that tomorrow.

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