The Yankees And Opportunity Cost

During a discussion with reporters on Wednesday, Brian Cashman talked about the budget that he was operating under. Or perhaps more specifically, the lack of a fixed budget.

“There’s always the target area (for the payroll),” Cashman said. “But obviously we’ve always been in the position thankfully that depending on what becomes available, how it looks, what our current circumstances are, if we’re quote unquote in trouble, we have an ownership that’s receptive to having conversations obviously regarding that. I’ll give you an example.

“Like last year, Russell Martin became available so we stretched to make that work. There wasn’t an intention there. But that was something that he allowed me to do a little bit more on because … we weren’t expecting that. We were going to go with the young catchers. But when he became non-tendered, and if we could get a deal at a certain amount, it took a lot of conversations with Hal Steinbrenner. He allowed that to happen and it was a real big benefit for us and we appreciate that.

“So you have those give and takes that take place. Sometimes it’s no, and sometimes it’s yes, but obviously the flexibility, as you already know, there’s no set number where you can’t exceed it that obviously exists in other environments.”

Not that this is any real surprise, but the Yankees don’t have a payroll limit, they have a “target area”. Ownership probably wouldn’t go for a $300 million payroll, but as long as Cashman can make a compelling case that there’s value to be had in spending a bit more money, he has the ability to dip into an essentially unlimited pool of resources.

As Cashman notes, this isn’t how it works for most teams. Pretty much every other baseball operations department is operating under a budget that isn’t a moving target, and they have to build out their roster knowing that it can’t exceed a set number of dollars for the upcoming season. Thus, every dollar they spend on one player is money they cannot spend on another player, and every player’s salary represents an opportunity cost. This constraint serves to keep salaries somewhat in line with market rates, as even though teams are operating under different budgets, they’re all still incentivized to try to get the best deal they can in acquiring talent, because resources saved on one deal can be used to make another.

The Yankees simply don’t have that constraint. Their only opportunity cost is roster spots – they can’t have Prince Fielder or Albert Pujols because they already have Mark Teixeira playing first base, not because the salaries are a deterrent. We saw this last year with Rafael Soriano, in fact – ownership overruled Cashman and gave Soriano a monster contract to serve as a setup man because it made the team better and the cash spent on Soriano would not prevent the Yankees from doing anything else they wanted to do.

Being efficient with your money matters when there’s a limited supply of how much you can spend. In the Yankees case, that limit doesn’t really exist, and thus they can build their roster in a different way. They still are incentivized to get quality players who will perform for the length of their contracts, but the constraint is the roster spot, not the salary. With that in mind, the Yankees evaluations can be based more on simply expected production without much regard to whether signing a certain player will affect their ability to retain or acquire a player at another position that they also want.

That’s why, when it comes to $/win analysis of transactions, the Yankees can do their calculations in an entirely different way – their calculations can be based on simply outbidding a competitor, rather than justifying the cost based on their own total budget. The entire concept of efficient spending is driven by the idea that a player’s salary represents an opportunity cost, and getting one guy necessarily comes at the expense of getting the next best thing you could acquire for that same price. In New York, though, Cashman has essentially admitted that they have carte blanche to pursue anyone as long as he can make a case to ownership that it will make the team better.

For the Yankees, the cost of a player isn’t irrelevant, but it’s certainly marginalized because getting Player X has little to no effect on their ability to also get Player Y. This reality essentially puts them on a different playing field than the other 29 teams, and some would argue that it tilts the competitive balance scales too far in their direction. As Bradley noted earlier this week, there is parity in baseball, but there might not be enough parity, and there certainly isn’t an equal process in determining the value of a player. The Yankees simply don’t have to factor in the most real constraint that causes other teams to weigh the cost of acquiring a player.

At some point, Major League Baseball will probably have to do something about this. The league doesn’t need a blunt tool like a salary cap – which is good, because the player’s association would never go for one anyway – but instead could benefit from a more precise limiting tool that would serve only to bring the Yankees back in line with the decision making processes that the rest of the league has to face.

What that tool is, I’m not sure. There are downsides to any spending constraint, and as long as the Yankees are making the revenues that they are now, they’ll simply be able to shift their assets from one area to another if the league restricts their ability to invest in their Major League roster. But, given the reality of the current Yankees situation, I think it is fair to say that they’ve found themselves in a unique position where they’re simply operating under a different set of rules than every other MLB organization.

And that’s a problem. When one organization can simply put aside cost as a significant factor in their evaluation of whether or not they should acquire a player, they’re simply not bound by the same factors as the other franchises. The Yankees should be congratulated for creating an empire that produces the kinds of revenues that allow them to make those decisions, but I’d argue that it’s not clear that they should continue to be allowed to operate in such a manner.