Last night the New York Yankees–as predicted–won the World Series and predictably many Americans booed. They used to boo the Yankees because they were from New York and people like to boo New York. Then they booed because the Yankees had the most obnoxious owner in sports, but George Steinbrenner has exited the stage and that honor now goes to the Dallas Cowboys’ Jerry Jones.
No, now they boo the Yankees because in the midst of this economic crisis they are Wall Street’s team, the best team that money can buy. When they played my hometown Minnesota Twins, dispatching them in three games aided by some questionable umpiring, the team in pinstripes had three players who make almost as much as the entire Twins payroll. For some inexplicable reason, a lot of sports fans resent the idea that you can buy a pennant.
George Steinbrenner tried to do that for years, but given all the money he spent, his results were mixed. But like those banks who seem to just keep getting bigger and fatter while the rest of us worry about our mortgage payments to those very same banks, the Yankees just kept spending more money, until they had acquired a veritable all-star team. If a desirable free agent came on the market it was a pretty good bet the Yankees not only would go after the player, but be willing to outspend everyone else to add another all-star to their roster.
The Sabathia Signing
It is no coincidence that the player who won the MVP award for the American League championship games was C.C. Sabathia, a pitcher who was the most sought-after free agent last winter. The Yankees paid him $161 million in “bailout money” to bring them the championship and Sabathia, who is not only one of the more likeable people in sports but a winner, delivered what was expected.
If you want to know how long it takes for Sabathia to earn your salary ESPN has gladly provided an online meter that let’s you fill in your paycheck numbers. As those who read this blog might expect this immediately sent me to the Census Bureau where I found that the United States median household income is $52, 029. This is detailed in a must-read report issued last month on income in this country.
It showed that citizens in only sixteen states had incomes above that median while 29 states were below that median, most of them in the South and Middle West. Guess which group New York fell into, perhaps helped by Mr. Sabathia’s salary? The report noted that income fell in this country by 1.2% between 2007 and 2008.
Filling the median American household income into the ESPN Sabathia meter yielded the following data:
- It would take 442 years for the average American worker to earn Sabathia’s salary.
- Meanwhile Sabathia earns the median U.S. income by pitching .57 innings or for every .04 games won or every .57 strikeouts.
The Yankees by the Numbers
Sabathia isn’t the only Yankee on the ESPN meter. Mark Teixeira topped Sabathia, signing a deal for $180 million. By the meter this means Teixeira earns the median American income:
- Every 1.33 at bats
- Every .41 hits
- Every .08 home runs and every .28 RBIs.
But Teixeira and Sabathia are only third and fifth on the Yankee’s $208,097,414 payroll, which makes the number two New York Mets (notice a pattern here) look like paupers with an annual payroll of $145,367,987 (More on team payroll numbers to come).
Number one on the list is A-Rod–Alex Rodriguez–with an annual haul of $33 million. Number two is Derek Jeter with $21.6 million. But the most staggering figure of all is that the salaries for the Yankees’ starting nine (using Sabathia as the pitcher) almost equal that of the entire Mets team at a cool $140 million. Throw in relief pitcher Mariano Rivera’s $15 million and you are now over the entire Mets team salary.
The annual salaries of the top three Yankees would rank 17th among all major league teams. The top two Yankees make more than the entire payrolls for Pittsburgh, Florida and San Diego and almost as much as that of Oakland, Baltimore, Washington, Cleveland and Minnesota.
Matsui the Vanishing MVP
The MVP for the series, based on his sensational six runs batted in performance in the final game was Hideki Matsui, the first Japanese player to win the honor. His Yankee contract was a measly $52 million over four years–still more than most major league teams can afford to pay someone whose only job is to hit (Matsui was the designated hitter and did not even play in the three games held in Philadelphia).
His contract is up at the end of the season and many are speculating whether the Yankees will resign him. But the real question is who else can afford him at that rate? Probably not the losing Philadelphia Phillies, who although they ranked seventh in total payroll in major league teams, had only a handful of players making Matsui’s wages, including star Chase Utley’s $11 million a year.
Matsui’s contract is slightly less than the entire $65 million payroll for my Minnesota Twins whose top salary goes to former MVP and All-Star Game home run contest winner Justin Morneau at $11.6 million. American League player-of-the-year and major league batting title winner Joe Mauer currently makes only $10.5 million, although his contract comes up for renewal this winter.
In the past teams like the Twins could not afford to keep players like Mauer because they could not pay them what the Yankees could (and would the Yankees love to have a new catcher like Mauer). They lost ace pitcher Johan Santana to the team with the second-highest payroll, the New York Mets, who are paying him $18.8 million a year. Sources are gambling that home-town star Mauer will be willing to settle for less.
A Disclaimer
Let me interject here that I have no objections to Matsui or Santana or C.C. Sabathia making every penny of their salaries. If someone is willing to pay them that much, then they have earned it. It is not that the players are raking in big bucks it is that the owners are willing–and able–to pay it. The Yankees are the richest team in baseball because they play in the richest market in baseball. They ARE Wall Street’s team.
The Yankees’ revenues are $327 million–the highest in sports. But the reason they could afford to pay Sabathia, Matsui, A-Rod and company is their new stadium.
“The new Yankee Stadium will change the economics of all baseball,” says Robert Boland, a sports agent and a professor at New York University’s Preston Robert Tisch Center for Hospitality, Tourism and Sports Management.
One source estimates:
Plug in the $74 average ticket price implied in the team’s 2009 projections, and the team’s seat and suite revenues should reach about $312 million next year.
Note that average ticket price–$74–a figure that puts even one Yankee game out of the reach of most American families. That is why I call them Wall Street’s team. If you happened to follow the camera shots of fans during the playoffs you may have noticed something about the demographics of the folks who made it on camera–there were not many faces of color.
Now guess who is paying for that stadium? I don’t even need to answer that question, because you know the answer. Yankee Stadium is baseball’s version of the bank bailout.
The Stadium Chase
These days every team in every sport at every level is angling for a new stadium. The main reason is that the older stadiums were largely egalitarian affairs lacking the luxury boxes and suites that separate the rich folks from the rest of us. Yes, they did have box seats, but I can remember as a kid sitting in a box seat because someone gave my family or me their tickets. They don’t do that with luxury boxes.
Luxury boxes are the sports equivalent of the gated community, making sure that ordinary folks are literally walled off from those who make the big bucks. I wrote about these two years ago including the million dollar suites for the Dallas Cowboys.
The Detroit Pistons basketball team web site describes its individually-designed luxury suites which rent from $350-450,000 per year:
Each 400-500 square foot suite, which holds 22 people, has high-end amenities including a 45-inch LCD television, espresso and cappuccino machine, wine chiller, ice-maker, mini-kitchenettes, and powder room. Each suite is assigned a suite captain whose sole purpose is to cater to every need of the suite holder.
It is the income from these suites that separates the haves from the have-nots in professional sports and also is turning them into a playground for the rich only. The rest of us watch on TV–and even have to pay for that privilege.
Can You Buy a Championship?
Professional sports like to talk about equity, but in the wake of the Yankee’s victory last night many Americans are starting to wonder if professional baseball is really all that competitive. Does the Yankee strategy pay off? Can you buy a championship?
In baseball, the four American League teams in this year’s playoffs ranked 1, 4, 6 and 23 (the Twins) in team salaries. The team the Twins beat in a one game playoff, the Tigers, ranks 5th. If you count just American League teams, three of the top four finishers are–surprise, surprise–the top three in salaries. Had Detroit made it you would have had an American League playoff between the top four salaried teams.
As for the National League, their playoff teams ranked 8th, 11th, 13th, and 21st (Colorado) among all major league teams. Within the league, three of the finalists placed 2nd, 4th, and 7th.
So for this year, the stats seem to say that the more you pay for your players, the better your chance of going to the World Series. But is this a statistical anomaly, or does it hold true for past years?
USA Today maintains a salary database that goes back over a decade. It allows you enter players and teams to see how what one author called “money ball” fairs. Let’s take last year’s playoffs. In case you have forgotten, the final eight last year were the White Sox, Red Sox, Angels and Tampa Bay in the American League and the Dodgers, Phillies, Milwaukee and Cubs in the National League.
These eight teams ranked 4th, 5th, 6th, 7th, 8th, 12th, 14th, and 28th (Tampa Bay). Inexplicably Tampa Bay made it to the World Series, defying the money ball odds. But was Tampa Bay an anomaly?
The 2007 playoffs featured three teams not in the top fifteen: Colorado, Arizona and Cleveland. In the 2006 series five of the final eight were in the top fifteen and in 2005 seven of the finalists were in the top fifteen and the eighth was 16th.
The pattern from 2005-2009 means that of 40 teams in the playoffs, 30 of them–or 75%–ranked in the top fifteen or better in major league salaries. In short, the stats for the past few years say that while you cannot buy a championship, the more you pay the more likely you are to be in the running.
For those fans who are interested, the teams that have consistently done better than their salary rank game are Minnesota and Colorado. Those two teams account for 40% of the “poor” teams’ performance.
Implications
As someone with an interest in statistics these figures astounded me. Their implications for the competitiveness of professional baseball are troubling, to say the least, as we end a World Series between number one and number seven. The numbers don’t lie–a team ranking below the top fifteen in team salaries has virtually no chance of making it into the playoffs, let alone the World Series.
One of the most troubling parts of this has to do with that favorite sports mania–betting. I am sure the Las Vegas odds makers have already figured this one out, but if each year in the past five years you had put $1 on each of the top fifteen teams to make the playoffs you would have been richly rewarded. Had you put $1 on each of the top fifteen to go to or win the World Series you would have won every year! To save yourself a bit of money, if you only bet on the top ten every year you will come out ahead.
One online odds-making site is already listing the odds for next year’s series winner. The Yankees will pay 11-4 to repeat, the Phillies 9-1. Here are the odds for the rest of the top ten: Mets (2) 15-1, Cubs (3) 15-1 ,Red Sox (4) 13-2, Tigers (5) 25-1, Angels (6) 10-1, Houston (8) 75-1, Dodgers (9) 11-1, Seattle (10) 50-1. Of the teams not in the top 15, only the Cardinals have reasonable odds at 10-1. The Twins, who made the playoffs this year only to be sewpt by the Yankees pay 25-1. So Las Vegas gets it.
The question is does major league baseball, for alone among the major sports they have resisted any attempts at parity or revenue sharing, which may be why the pro football and basketball races cause more excitement and why a small-market team like Green Bay can still dream of a championship.
So the implications of baseball’s lack of competitiveness extends far beyond merely the boredom of seeing the money ball teams winning an inordinate share of the prizes. It means that from a betting point of view the sport has become noncompetitive. When Las Vegas books on baseball it probably makes most of its money from local fans who want to bet on their below top fifteen long shots.
But people will bet on long shots for only so long.
The Big Picture
It is more than a coincidence that the team from Wall Street should be in the World Series at the same time President Obama is complaining about the salaries of Wall Street bankers who accepted federal bailouts.
Bank of America head Kenneth Lewis took home $20 million in 2007. Citi’s head made $3.1 million. I invite any of you to put these salaries into the Sabathia meter.
President Obama proposes to restrict the executive salaries of those getting bailout money to $500,000. Predictably Wall Street cried as if the measure would have them out on the streets holding a tin cup and a sign saying “Will Work for Food.”
“That is pretty draconian — $500,000 is not a lot of money, particularly if there is no bonus,” said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. “And you know these companies that are in trouble are not going to pay much of an annual dividend.”
As with baseball, the big picture is competitiveness. As was pointed out previously in this blog, before the repeal of the Glass-Steagall Act in 1999, there was less concentration in the financial world. All of us can verify that from a personal point of view: once we had several banking options or our bank was a local or regional institution rather than a national one. In essence what happened in banking is what has happened in retail stores, hardware stores, and even specialized niches such as office supply.
Of course, trusting your personal impressions can be dangerous. According to 2008 FDIC data:
The number of commercial banks and savings & loans in the United States has fallen in the past 20 years to 8,451 as of June, compared to 16,574 in 1988.
In 2004 the FDIC pointed out:
At the end of 2003, the 25 largest insured banks and savings institutions held 56 percent of total industry assets, with the 10 largest holding almost 44 percent, up from 19 percent in 1984.
So the banking business is not much different than baseball: put your money on the big spenders and you are more likely to “win.”
The Final Word
As sports fans know, Moneyball is a book about how to win baseball championships without spending bundles of cash. Unfortunately the title–not the message– is all too true. It may not be possible to buy a World Series trophy, but if you are in the top ten or fifteen in team spending, you will have a better chance of it.
Someone once said that baseball is a weathervane of American life. At no time is that truer than the present. Both Wall Street and Wall Street’s team warn of the peril of economic concentration. With incomes more out of kilter than at any time since the so-called Gilded Age, the Yankees World Series win should have all Americans thinking about more than baseball. They need to think about the future not only of the so-called “national pastime” but of the country.
Things are in the saddle, Emerson once said, and when things are in the saddle, things ride people.
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