Interview with Biz of Baseball’s Maury Brown
I had the pleasure of sending in some questions pertaining to the financial side of the Yankees and the new CBA to Maury Brown. For those that do not know, Brown is one of the most respected writers/analysts on the topic of Business & Sports and is the founder of the Business of Sports Network, including the site The Biz of Baseball. He is also a contributor to Baseball Prospectus, was formerly on the staff of The Hardball Times and also formerly the co-chair of SABR’s Business of Baseball committee.
Brown has been sourced for analysis and commentary in mostly every major sports publication including the NY Times, Time Magazine, USA Today & NY Daily News. He’s been on ESPN2’s First Take, CNBC’s On the Money & CBS Evening News as well as being featured regularly on XM Radio’s Home Plate and other shows. In short, he knows what he’s talking about! His complete bio can be seen here.
The questions I asked were all Yankees-related but for context’s sake, they were asked just before the blockbuster Montero-Pineda trade. Thanks again to Maury for taking the time! Now to the questions:
1) The new CBA brings only a $10M raise in the Luxury tax threshold over 5 years after increasing by $42M over the last 5 years. Along with the 50% tax for repeat offenders, the roughly $10M in incentives per team to stay under the threshold and the huge limits placed on Amateur Bonuses, this deal seems to greatly inhibit team spending in many ways. How did the MLBPA agree to all of these things without much fight and what, if any, effect will it have on the next negotiation when this agreement expires?
M.B. – When you think about it, there really are only a handful of clubs that can come close to spending near or over the threshold levels. As one person who was made abreast of the creation of the CBT (Luxury Tax) said to me, “It really should be called the ‘Yankees Tax’.” So, the “concessions” by the MLBPA are there, but really only influence approx. five clubs. In that, I believe the changes work to suppress spending by those clubs, while other changes in the CBA offset that aspect by creating incentive to spend at the middle and toward the bottom.
2) There has been a lot of speculation that the Yankees want to get under the CBT Threshold when it increases to $189 Million in 2014. Do you think the financial benefits are great enough that the team is serious about this or just using it as a negotiation tactic with agents?
M.B. – No. I believe they honestly will spend less. It may not be that way every year (it depends on who is available via free agency and how the market is set), but both the Yankees and Red Sox are likely to spend “less” in the coming season.
3) For Luxury tax calculations, the AAV of a contract is used. Derek Jeter signed a 3yr – $48M deal with an $8M player option for 2014 and $3M buyout. Do the Yankees have any say whether Jeter comes back in 2014 and what would be his AAV for Luxury Tax purposes if he plays or retires in 2014?
M.B. – The option year on his contract is, for all intents and purposes, a “player option.” I would expect him back. If that money becomes active, it’s factored into the AAV for the contract life.
4) ARod’s monstrosity of a contract includes a $30M Marketing Agreement that pays him $6M every time he hits a milestone HR. What does this mean and how will that money effect the AAV of his deal for Luxury Tax calculations?
M.B. – It does factor, minus the AAV. The money in the marketing deal gets amortized differently. But, it counts against the CBT and revenue-sharing, once they kick in.
5) It seemed the Yankees received a nice financial bump through added attention, attendance, PR & Advertising when Hideki Matsui was signed. I felt the Yanks should have bid aggressively for Yu Darvish. What kind of financial boost will Texas get by signing Yu?
M.B. – The Rangers will see new incremental revenues through marketing with Darvish, just as the Yankees did with Matsui, or the Mariners with Ichiro. It will arrive in the form of new sponsorship revenues from Japan.
6) The Yankees are constantly picking at the end of the Draft but were able to build a strong Farm System in recent years by paying over-slot bonuses in later rounds and by being aggressive in the International Market. With the severe penalties imposed on over-slot spending, how do you think the Yankees will react and will their young talent begin to dry up?
M.B. – I think the Yankees will simply pay the penalties with the new Luxury Tax on the Draft, just as they have with total player payroll.
7) Why aren’t small-market teams who receive Revenue Sharing forced to apply the money to payroll and do they have to give an accounting of how they spend this money?
M.B. – It’s not quite that way, and it will be interesting to see how the language in the CBA is once released to the public. In the last CBA, the language was that revenue-sharing money is to be used to improve the talent on the field. That could come in different forms. You can invest in scouting or academies with revenue-sharing proceeds, or spend on free agents. That should continue. Where you likely will see some change is around whether clubs can use that money to pay down stadium debt, etc., which goes against the prior CBA, but was done, regardless by some clubs.