Major League Baseball

Will Yanks try to squeeze Jeter?

Published Nov. 5, 2010 5:58 p.m. ET

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Ken Rosenthal

I love when the New York Yankees start talking about how they’re “running a business,” as if they’re mom-and-pop proprietors adhering to a strict budget.

The Yankees are the only team to pay the luxury tax seven years running — and that’s not counting their tab for 2010, when they again exceeded the threshold, and ’11, when they will blow past it once more.

So, forgive me for chuckling when owner Hal Steinbrenner talks about “needing to keep a level head” in the Derek Jeter negotiations because “we’re running a business here.”

Hal can’t help but be more budget-conscious than his father, the late George Steinbrenner. Yankees general manager Brian Cashman would rather be known for his brains than his team’s financial brawn. But the only real question with the Yankees, as usual, is how high they will go.

For Jeter. For Mariano Rivera. For Cliff Lee.

Rival executives doubt the Yankees will hand Lee a blank check the way they did CC Sabathia two years ago; Lee, 32, is four years older than Sabathia was then. Thus, the Texas Rangers might actually have a shot at Lee. Problem is, the Yankees can counter every possible Texas advantage.

No state income tax in Texas? Lee can make more money in endorsements in New York, and his post-career earnings potential also would be far greater.

The relative proximity of Lee’s home in Benton, Ark., to Dallas? The Yankees can offer frequent air travel for his family to New York on top of their $100 million-plus bid — plus a soundproof booth to protect Lee’s wife, Kristen, from all those nasty New York fans.

But hold on.

If the Yankees are so serious about “running a business,” is it really in their best interests for them to commit to another 30-something player, albeit one who is undeniably brilliant?

One rival GM actually believes the Yankees’ rather public obsession with Lee is a ruse, that they secretly want Tampa Bay Rays free-agent outfielder Carl Crawford, 29, instead.

There is zero evidence, mind you, to support such a contention. The Yankees love left fielder Brett Gardner and would be forced to scramble for starting pitching if they lost Lee to another club and Andy Pettitte to retirement.

But who knows?

The Yankees pulled off major surprises after the 2005 season when they signed Johnny Damon and after the ’08 season when they signed Mark Teixeira. Crawford would make them younger and enable them to trade another outfielder for starting pitching. The Yankees also could mine the Japanese market for rotation help and turn to some of their own pitching prospects.

Such a strategy would leave the Rangers to commit an excessive portion of their payroll to Lee — or perhaps push the left-hander to a National League club such as the Nationals or Cubs.

Either way, the Yankees could rationalize their decision to go younger with Crawford, who just happens to be a target of two of their other AL rivals, the Angels and Red Sox.

In any case, Lee is the more likely play. But know this: The Yankees already have $144 million committed to 10 players next season, one of whom is the immortal Kei Igawa. The addition of Lee and returns of Jeter, Rivera and Pettitte (or a replacement) would send the team zooming past the 2011 luxury-tax threshold of $178 million and into the $200 million range.

Say, for the sake of discussion, the Yankees pay Jeter $17 million next season. Their actual cost, once they exceed the threshold at the maximum tax rate of 40 percent, would be nearly $24 million. If the Yankees paid Lee $23 million, Sabathia’s average salary, their actual cost in 2011 would be more than $32 million.

Ahem.

For the Yankees, such excess is nothing new; they consider the luxury tax to be just another operating expense. But if they actually were rational about “running a business,” they also would consider the ramifications of the revenue-sharing system.

The way revenue sharing works, all teams contribute 31 percent of their local revenue, minus stadium-related expenses, with each receiving 1/30th of the total pool in return.

And yes, player salaries enter the equation.

“For player valuation purposes, ignoring this ‘tax’ is bad economics,” says Stephen Walters, a professor of economics at Loyola University Maryland, who has written about baseball and served as a consultant to several clubs.

“You’re going to get your 1/30th share of the pool whether a particular free agent is on your team or not. But if he pumps up your revenue, you’re going to pay more into that pool. So, you should limit his salary to his net contribution to revenue.”

In Walters’ valuation model (published in The Journal of Sports Economics), Jeter is worth $13.3 million. That’s probably more than he would get on the open market if he wasn’t Derek Jeter. But it’s almost certainly less than he will get from the Yankees, who must account for Jeter’s significance to the franchise as well as his performance.

The early rhetoric from both sides indicates that a prolonged negotiation is possible. Walters points out that if the Yankees were truly rational, they might lose Jeter to a team that is not subject to the tax and could assign him a greater value. But in the real world, Jeter is still Jeter, the Yankees are still the Yankees and no other team will be a factor.

The Yankees are running a business, all right.

As only they can.

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