Wed, Dec 17, 2008 - Page 19 News List

Yankees’ spending makes sense

By Scott Soshnick  /  BLOOMBERG

Former Milwaukee Brewers pitcher CC Sabathia throws during a game on Sept. 28.


You have to chuckle when some team executive like Milwaukee Brewers general manager Doug Melvin questions the fiscal sensibilities of the New York Yankees.

Here’s a baseball man moonlighting as a businessman. And failing miserably.

It was Melvin, mouthpiece for the incumbent Brewers, who wondered aloud why the Yankees would offer CC Sabathia, the top free-agent pitcher available, a US$140 million contract when Milwaukee’s top bid at the time was widely reported to be US$100 million.

“It sounds like they’re overspending,” Melvin’s said. “If the speculation is true that we’ve offered CC US$100 million, why would you offer US$140 million? Why wouldn’t you offer US$110 million?”

We’ll get to the reasoning in a moment. It seems that Melvin’s advice for the Yankees would’ve been to engage in an incremental bidding war, a kind of back-and-forth game of “top this if you can.”

The suggestion shows a complete lack of understanding of a superior athlete’s desire to feel wanted and the business behind baseball in the Bronx, especially at this moment in franchise history.

The Yankees, Melvin should have known, couldn’t afford to swing and miss. A US$110 million offer might have prompted Sabathia to doubt the team’s desire. Free agents like Sabathia want their suitors to fawn. Sure, money matters. So does being made to feel special. That’s why general managers show up at a player’s door the minute free agency begins.

What’s more, Melvin should know what a Sabathia rejection would mean to the Yankees brand at a time when the most prominent US sports franchise is preaching the pricing power of pinstripes.

The Yankees, in case Melvin has forgotten, are opening their US$1.3 billion palace this season. Vince Gennaro, author of Diamond Dollars: The Economics of Winning in Baseball, estimates it might generate an extra US$200 million annually.

As things turned out, the Yankees, much to Melvin’s chagrin and bewilderment, landed Sabathia with — not a US$140 million contract — but US$161 million over seven years. And then the Yankees went out and landed another premier free-agent pitcher, A.J. Burnett, who got US$82.5 million over five seasons. And the Yanks are still shopping.

It’s not that the Yankees are blind to the woeful economic conditions, but they know their fan base demands a winner. They’re aware that a repeat of last season, when the pitching-poor club finished third in the American League East and missed the playoffs for the first time since 1993, won’t draw 4 million fans or sell revenue-driving luxury suites. Fewer fans translate into a drop in the number of hot dogs, beers and Cracker Jack being passed down the aisles.

Don’t forget, the Yankees, Dallas Cowboys and Goldman Sachs Group in October formed a food and retail company.

And then there’s the Yankees Entertainment & Sports Network (YES). The team owns 38 percent of it, which pays them about US$70 million a year. And the club can enjoy some of the profit, too.

Ratings generally don’t diminish in difficult economic times. On the contrary. A winning team means more eyeballs, which translates into millions in advertising revenue.

All of this was lost on Melvin, but not his boss, Brewers owner Mark Attanasio.

“Not only do the Yankees get cash flow, but there’s a valuation on the YES network,” said Attanasio, chief investment officer at TCW Group. “Many of us just get a stream of payments from whoever our cable affiliate is. The Yankees actually have an ownership interest that gives them more value. In many regards, they are on a different playing field than we are.”

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