The Tiresome Rants Against The Yankees Making A Profit

Twitter is full of rants against the owners and brain trust of the New York Yankees caring more about profits than about the fans. Because the Yankees do not want to blow across the payroll tax limit nor be held hostage for overlong, overly pricey free agents, the team is not doing its job for you and me. The constant comparison is made to George Steinbrenner's period of ownership when he would spend at all costs to build his teams. And, of course, the theme is that old George did it for the fans and his son(s) will not. How tiresome.

First of all, take any or all of these ranters and complainers and give them a company to run and see what their boards will say about making the fans happy over profits. That is not how capitalism works. Sure, there is a balance that must be struck between cost, price and what the customer is willing to pay or endure. Finding the right balance is how company's maximize profit. It's just the way it works.

To assume that sports teams are different than other businesses is a fantasy. The old cliche is that a rich guy/gal will tickle the funny bone and cluck his/her feathers for a trophy team may be true once in a great while. But such a purchase is always a business decision. And the team buyer is not in the business to lose money or profit. I will admit it does happen occasionally. The Detroit Tigers' owner did not care how much the team paid in salary as long as the Tigers could win a World Series before the owner died. It does happen. But not very often.

It is also a fantasy that old George did what he did altruistically for the "benefit of the fans." The man was a very proud man. He wanted to be king. He wanted his team to be the kings to prove that he was the king. It wasn't about the fans. However, his flair and his bravado did change the course of the team's history forever, so much so that a $10 million purchase has turned into a multi-billion dollar enterprise. The fans came along for that exciting ride!

To lose sight of the Major League Baseball Luxury Tax is bordering on being cavalier. After the 1994 strike, George Steinbrenner was also coming off of his most recent suspension. Unlike the past two decades, Steinbrenner gave more control to Gene Michael and his front office and stepped back a bit. That was the also the timing of the start of the Luxury Tax in 1997. The system was different in the beginning and the top five payroll teams were taxed between 1997 and 1999. From 2000 to 2002, there was no Luxury Tax and then a new system was put in place starting with the 2003 season.

During the first three years, the Yankees did not pay the most Luxury Tax. The Orioles did. Does that surprise you? One of the reasons is that Gene Michael and his team went to a youth movement and thus the Core Four was born. Of course, that Core Four became expensive as the years went along. But the Yankees did contribute $9.1 million in taxes during that time.

During the second system put in place in 2003, the Yankees lapped the field between 2003 and 2017 and paid over $319 million in taxes. That is about the cost of Bryce Harper! Ouch! The Dodgers were second with almost $150 million. During those years not only did it become extremely expensive to keep Jeter, Posada, Pettitte and Rivera as Yankees but they also got a little willy nilly again with free agents. How many World Series titles did the Yankees have in that period? Yeah, one. So much for making the fans so happy.

The way the system is set up, if a team is over the limit for three straight years, then the team has to pay 50% of whatever amount the team was over the limit. It is 20% the first year and 30% the second. So, it makes perfect sense to "reset" things by being under the limit or you are blowing out 50% more out the window. Not getting under the limit is just plain business stupid. It is akin to not having an inventory system and not caring how much shrink your products have.

Half of the money teams pay in Luxury Taxes is split among the teams that did not go over the limit. Thus, the Yankees and other teams over the limits line the coffers of teams that care more about profits than fans like the Pirates, Marlins, Rays, Royals and other teams that artificially keep their payrolls among the lowest in the league year after year. So the Yankees not only care little for their own fans, but the fans of all those other teams they helped support all these years.

Young players are ridiculously cheap and make no money in the minors and minimum upon entering the Majors. But, there is a huge cost to develop them. There are coaches and instructors and scouts and equipment and medical and on and on it goes. Yes, MiLB team owners pay some of that, but the cost is still large for the parent club. Why would you ignore those costs and not see if they pay any dividends?

Would Gio Gonzalez be that much better than the young talent the Yankees have developed? Would Dallas Keuchel? Who knows? The Yankees have developed their own talent. Use them and see which one will get the job done. If Domingo German would equal Gio Gonzalez at one-tenth the price, wouldn't that be the way to go?

The Yankees have decided to go young. Under the current CBA, young means cheaper and it is exciting to see young players develop. Yankee fans had a ball last year watching Torres, Andujar and Judge grow into what they could be. It brought them 100 wins. That is usually enough. It wasn't last year. There are a sprinkling of free agent veterans that did not break the bank. This team can be great...really great. Let's see how it will play out, shall we?

No business--or perhaps we can say few businesses--exist today out of the goodness of their hearts. As C.S. Lewis once said, "I've never had a selfless thought since I was born." Businesses pay attention to customer service and to quality product because they help maximize profit. It isn't for me to feel great about myself or for you. Apple doesn't give you everything you want for a low price and then throw away a chunk of their revenue. Thy will command the price you will pay whether the new product was better than the old one. Why? Because that is how to maximize profits. To expect a baseball team to act any different is unrealistic and leads to a lot of screaming into the night.

Luxury Tax Is a Weird Thing

The story came out today that the Yankees and Red Sox were the only two clubs that had to pay the Luxury Tax. The Yankees were hit with a tax of $18 million while the Red Sox have to pay about a mil and a half. Of course, the tax is an instrument that rewards less successful teams to create a bit of parity. Supposedly, that money is to be used for player development to help even the playing field. The whole thing seems patently un-American.

Here's what it is like. The Fan lives in northern Maine. This is the home of lumber and potato farms. Let's say you have a group of 30 farmers. Two of the farmers are perhaps on the best land or perhaps they make the most of the land. Or just perhaps, they inherited more money from their parents and can afford better equipment. So those two farmers make more money than the other twenty-eight. The other twenty-eight say it's not fair that two farmers have more of an advantage and can make more money. So the thirty farmers decide to tax the amount of money those two uber-farmers make or not make, but spend to make yield so many profitable potatoes. Those two farmers are taxed and that money is distributed to the other farmers.

That wouldn't happen, would it? And what would those other farmers do? Put the extra money in their pockets just like the baseball owners do. No matter how hard the Fan tries to be open minded and consider all points of view, there are no parity opinions that make any sense to this observer. As long a team is operating under the rules, then all is fair in a free economy. But of course, that's the crux of some of the arguments isn't it? Major League Baseball doesn't operate in a free economy. It is is protected by act of congress with an exemption that allows them to operate as a monopoly. As long as Congress feels that baseball is behaving itself, the exemption is safe.

Okay, the Fan gets that. But still, inside that monopoly are 30 independent entities that plot their own courses, make their own decisions, fly by their own philosophies and either fail or succeed on their own. But they don't have to have great success. The money that all teams make from the marketing of the MLB license nets them all millions of dollars. Any team that isn't making money, simply isn't running their businesses very well. Well, Oakland and Tampa may be exceptions to that with their stadium issues. But still. The point is that inside the monopoly is a free market, which is still the American way.

So why do we add this communistic element of the luxury tax? The Fan is always surprised that the Yankees and the Red Sox never rebel against this system and simply pay their tax every year. If this Fan owned those franchises, there would be some bloody screaming. Those two teams built their brand, took advantage of media deals and built themselves into the most profitable businesses in baseball. So why should they voluntarily give some of that money away to the Pirates, for example, who have been run like they were owned by a twelve year old?

But there it is. The Yankees did cut down their dole out by some $7 million over the previous year, so perhaps the gap is closing and the Yankees, by all accounts seem to have been more fiscally sensitive since the old man stepped aside and then died. It's just weird is all. To make a team pay other teams that aren't successful because they are successful just seems odious to this writer.