Over at The Sports Economist fellow George Mason alum Brian Goff performs a “rough experiment” to identify the “Yankee premium,” which is the amount the club pays for similar talent on other teams in MLB. Here is what he finds:

Players filling similar roles with better numbers on other teams make anywhere from the league minimum up to around $2 million per season. In total, the Yankees are paying around $165 million for players whose mirror images on other teams are making under $80 million.

And what’s the explanation? Goff provides three, but I agree with him that this one is the best.

Players negotiating with the Yankees are aware of the higher media revenues that the team generates. Rather than permit Steinbrenner to pocket all of the difference between their value to other teams and their value in NY, these players negotiate deals that capture some or most of these additional revenues.

I’m sure that Brian would be willing to hear other ideas. Good work, Brian.

Addendum: I’ve thought some more on this, and I think there is one problem with this explanation. If players are holding out for rents then Steinbrenner should be leading the charge for some sort of salary cap or maximum salary. But, media reports have Steinbrenner very much opposed to these types of controls. It doesn’t doom the explanation, I’m just pointing it out.

Monday, June 13th, 2005,
by JC and is filed under "Moneyball ".
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4 Responses “The Yankee Premium”

Re: Addendum
If there was a salary cap, there is no immediate indication that the players would change their demands from NYY coffers.
If the players held to the established Yankee pay schedule and the cap were implemented (likely along with more revenue sharing), Steinbrenner would lose two times over.

If Steinbrenner seeks to win (rationally or irrationally), then he should want to keep his main advantage.

Perhaps a bigger issue would be 4 of his MLB salary comparables were not set by the FA markets yet. Or that he uses inferior evaluation techniques.

Either way, the Yankees suck now, will suck later, and I am loving it.

As I see it, one of the central reasons for the Yankees overpaying for talent that can be had at half the price elsewhere is name recognition. The Yankees can be counted on to sign players who are more well known household names. They are only interested in players who have experienced some success at the major league level in the past, and are frequently uninterested in players who might be of similar quality (or better), but don’t have the cache of the more known players. Those players tend to cost more money than players of a similar (or better) talent level.

There are numerous examples of this. The signing of Carl Pavano over Matt Clement, Gary Sheffield over Vlad Guererro, and Tony Womack over anyone not currently deceased.

You ever shop with your wife, and she sees a great item, and you tell her: “Honey, why don’t we wait a week or two for the inevitable sale?”. And she responds: “But, what if by that time, the item is already gone?”.

I think the premium is that Steinbrenner gets what he wants. Every players comes there with a MSRP, and the other 29 owners wait for a sale and Steinbrenner doesn’t.

As well, almost all free agents are overpriced, and that’s what George likes.

Comparing Jeter to Young is ridiculous. Jeter is a “poster boy”, and George paid an extra 10 million a year for that image.

This doesn’t even consider the “real” payroll, adjusted for the luxury tax, at about $50 million this year.

It’s still amazing to me that nobody, in the MSM or blogosphere, has dug into the story that they Yanks are apparently maxed out where they are. I have to wonder if it’s because it doesn’t mesh with the sterotype of the big, bad Yanks with the unlimited payroll (and I’m an avowed Yankee-hater all my life).