The Yankees Found Another Way To Outspend Every Other Team

The Yankees have found new ways to exploit their financial advantage in recent years.  For a long time, they were the team spending the most money on big league payroll by a good margin, then other teams caught up after the addition of the luxury tax along with an Hal Steinbrenner being more focused on the bottom line than his father.  The Yankees never really blew things out in the draft when they had the opportunity, but now there are essentially hard caps on draft spending and extra picks are tougher to come by with recent changes to the CBA.

The Yankees saw these two market opportunities dry up while their revenues stayed high and they pinpointed the international market as a target.  As a result of spending nearly $30 million dollars on teenagers last summer, the Yankees now cannot sign a player for over $300,000 for the next two summers.  If they get lucky with some timing, they may still be able to make this one-year international blowout even more advantageous, but their competitive advantage has mostly passed in these three markets for the time being.

An Under-The-Radar Market

With limited avenues to spend their money, where have the Yankees turned now? Minor league free agents.  Starting today, free agents can sign with any club and most fans will focus on the splashy big money major league signings.  Sometimes, a former standout major leaguer that’s past him prime will sign a minor league deal with a Spring Training invite and fans may hold out hope this player can regain past form.  Below even this radar are the often first time free agents with little to no big league service that are signed to minor league deals with Spring Training invites and little fanfare.  This is where the Yankees have been frustrating most of baseball.

Nearly every franchise has an internal policy for signing these players, with a hard cap for monthly salary over the five months of the minor league season.  These maximums are put in place to control costs and also to give executives a hard line to use in negotiations to make the process go more smoothly; there are clubs that will have dozens of negotiations happening at the same time, so hard-and-fast rules help filter out players that aren’t a fit.  This maximum ranges from $12,000 to $20,000 per month depending on the team.

The second tier of minor league free agents usually wait to see where the first tier signed and for how much money to then figure their market value and the best place to sign to maximize playing time and chance at a big league look.  Some teams will make exceptions and sign a player above their maximum for certain situations, like an experienced 3rd catcher to play in Triple-A with a good chance for a call-up if a rookie catcher falters in the big leagues, but this is the exception rather than the rule; it’s seen as a one-time big league expense.

Enter the Evil Empire

Minor league free agency was a pretty straightforward process until the past few years, when the Yankees starting spending way more money on these players than any other team was comfortable spending.  I was told last offseason that 3B Yangervis Solarte was a target for multiple teams in the minor league free agent market.  Both executives, analysts and scouts from different types of organizations had pinpointed Solarte as being one of the top tier minor league free agents at this point last year.  There wasn’t a huge bidding war for him alone, but multiple teams were calling his agent with offers on the first day of free agency.  This also happened with a couple dozen other players deemed to be top tier free agents.

Logic follows that in this sort of situation, Solarte would sign with one of the teams that spends up to $20,000 per month ($100,000 for the a full season in the minors).  The Yankees ended up signing him last offseason for $120,000 ($24,000 per month) with a split contract (meaning he’d make more than the MLB minimum if he is in the big leagues: $515,000 in this case instead of the $500,000 minimum), a Spring Training invite, provisions to leave for an Asian professional club during the year if he chooses and a guaranteed $66,000 salary ($13,200 per month) for the season even if he’s cut during Spring Training and he plays the whole season for another organization (or stays at home).

Rival clubs tell me that with other minor league free agents, the Yankees will routinely go up to $30,000 or $35,000 per month, include bonuses in addition to that salary, guarantee salaries (minor league salaries are not normally guaranteed like big league salaries) and offer bigger MLB salaries in split contracts.  For the 2014 season, the Yankees gave righty reliever Jim Miller a split contract worth $210,000 in the minors ($42,000 per month) and $525,000 in the majors with a Spring Training invite. He pitched 2.2 innings for the big league team and 57.1 in Triple-A last season.

For the 2013 season, the Yankees paid C Bobby Wilson $180,000 ($36,000 per month) with half of it guaranteed, along with a $675,000 big league split (which he never got called up to collect) and a Spring Training invite.  Wilson was the backup catcher in Triple-A Scranton that year and only collected 253 plate appearances.  A source tells me that at least one other club promised him a starting role in Triple-A with a good shot at some big league time for about half as much money; this sort of decision is a common one for minor league free agents, but the salary gap usually isn’t as big unless the Yankees get involved.

In addition, these high salaries set the player’s market higher in subsequent seasons. That 2013 deal with the Yankees was his Wilson’s first free agent deal and in 2014, he got a split $130,000/$600,000 deal with the Diamondbacks, a Spring Training invite and picked up 4 plate appearances in the big leagues in September.  For reference, in the six years of control before minor league free agency, monthly salaries max out at about $2,500 per month at the upper minors and closer to $1,500 at lower levels; each club has it’s own policy/scale for salaries by level for these players, though all the scales are similar.  If you’re a player that signed for little to no bonus as a amateur, being a middle to top tier minor league free agent is actually a chance to cash in and earn market value for the first time.

Why Just The Yankees?

An executive with a medium market club told me last year that his team had a target list of about a dozen minor league free agents to target on day one of minor league free agency and the Yankees signed about half of those players to salaries that his team couldn’t come close to matching.  Why don’t other teams spend what amounts to a trivial amount of money to get the minor league free agents that their scouts and analysts are telling them to target? I still haven’t gotten a satisfactory answer after asking a half dozen front office people.  As mentioned above, part of it is cost control and having limits in place to make the negotiation process go smoother and more quickly with dozens of players in play for each team at any given time.  The rest of it, as I’m told, are various versions of “this is the way things are done.”

One exec said if his team spent an extra $1 million to get all of their targets and none of those players ended up contributing to the big league team, it would open him up to scrutiny for taking money from another department, trying something different and wasting $1 million.  On average, most teams will get a couple useful big leaguers if they sign their dozen top targets, but risk aversion decision making, akin to how NFL coaches treat fourth down decisions, seems to be holding back even the most forward-thinking clubs in this area.

Limits, Risks & Rewards

Executives caution that there is a theoretical limit to how much a team can pay a minor league free agent, with speculation that both MLB and the Players’ Association would tell a club that wanted to pay a minor leaguer a $300,000 salary that he should just be given a major league deal to avoid creating a big/small market disconnect in Triple-A.  The Yankees haven’t gone that high yet, but they also don’t have much sustained competition in this market, so you’d have to think at some point this may become an issue if another team joins them.

Stockpiling deep upper minors rosters is the reason the Rule 5 Draft was created, but there is a way to work around these rules.  These big minor league deals are often signed after the early Rule 5 Draft in December; both Wilson and Solarte signed their contracts in January.  If the player is signed before the Rule 5 Draft, he could be taken by a team that doesn’t mind paying his big league salary, as happened in 2004 with Chris Gomez.  In Miller’s case, his minor league split was so high, the Yankees could feel safe that he wouldn’t be selected; Miller signed in November.

A Yankees source told me they could break even financially with a $500 million payroll expenditure (including luxury tax), so this minor league free agent expenditure is still a trivial amount of money for them, though it would be less trivial for a small market club.  Credit is still due to the Yankees for being open-minded enough to do the rational thing and spend their considerable resources in whatever way is available.  Not every team does this, normally for bureaucratic reasons; you’d be surprised how difficult it is to move a seven figure sum from one department to another even within baseball operations.

It’s peculiar to me that, for a small amount in the scope of player acquisition budgets, a club could almost surely get an additional big league contributor and very few clubs seem inclined to shift their strategy to do it.  In the case of the Yankees 2014 minor league free agent class, Solarte was good for the Yankees, then was half of what acquired Chase Headley for the 2014 stretch run, who himself created almost three wins in less than half a season with the Bombers.  The profit from just the one-year Solarte signing/trade transaction is about $10 million, or roughly enough to pay for this minor league free agent strategy for another ten seasons.

Kiley McDaniel has worked as an executive and scout, most recently for the Atlanta Braves, also for the New York Yankees, Baltimore Orioles and Pittsburgh Pirates. He's written for ESPN, Fox Sports and Baseball Prospectus. Follow him on twitter.

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9 years ago

Spending a few more $$$ on AAA depth really seems like a no-brainer. It’s an insurance policy, and if you end up never needing it that doesn’t mean buying it was a waste. At a cost of $5-6M per win at the MLB level, spending an extra $1M on MiLB FAs seems terribly inconsequential.

9 years ago
Reply to  #KeepNotGraphs

Except this strategy only works if 1 team over-spends. As more teams overspend on minor league FAs you are just going to see the price of this group increase and the advantage disappear.