Is Johnny Damon really overpaid?

by jc3 on Jan 24, 2006 4:55 PM EST

Is Johnny Damon overpaid? That is the question.

Well, from an average player perspective, yes he is. He is not one of the best players in baseball. But, from a baseball economics perspective, you can make an argument that he is not.

Let's use round numbers and say that the Yankee payroll is $200 million (it's probably more). If that is the case, Damon's salary is 6.5% of the payroll, hardly egregious. For perspective, that is the same as the following (using estimates of payroll):

$125 million payroll (e.g., Boston): 8.125 million
$100 million (e.g., LA Dodgers): 6.5
$60 million (e.g., Oakland): 3.9

So, basically if you are the Red Sox GM and you had 8.125 million to spend on him, would you do it? Yes. As a matter of fact, they actually offered a higher percentage of their team salary than the Yankees did! It's just the advantage the Yankees have in revenue. For reference, Esteban Loaiza's contract with Oakland will cost them more than 10% of their total payroll. Could that end up costing them Barry Zito?

In another thread, Damon was compared to Mark Kotsay, who is not as good of a player. There's not a HUGE difference, but all things being equal, most would select Damon to be on their team. In 2005, Kotsay made $6.5 million (from USA Today) and Oakland had a $55.4 million dollar payroll. So, he made 11.7% of Oakland's payroll, nearly twice as much as Damon's percentage. Who's more valuable to his team payroll-wise? I understand that Kotsay would have more trade value based on total salary, but if you intend to keep Damon, who cares about that? Damon's salary does not preclude the Yankees from making any further moves to strengthen their team. Kotsay's might.

Want examples of overpaid?

Jermaine Dye (Oakland, 2004): 11.67/59.4 = 19.6% (265/329/464). Bad contract.
Mike Sweeney (KC, 2005): 11/36.9 = 29.8% (300/347/517). Best player on the team, but is this the way to balance a small payroll?
Preston Wilson (Col, 2005): 12.5/48.1 = 26% (258/322/491 @Col). Numbers a little off because he was traded, but you get the idea.

I could go on, but I think it's simplistic to say that Damon is the most overpaid or even one of the most. It should all be taken in context. Mike Lowell is taking more of Boston's payroll than Damon is from the Yankees. There are different rules for the Yankees and everyone else. They have more money and they are willing to (over)spend it to fill their own needs.

Is that really fair? No, I don't think it is fair. If they could implement a salary cap in baseball, I would be all for it. But, it is reality that the Yankees have at least 3 times as much money to spend as the A's do. Any time a Yankee salary is examined, I find it to be comical because they don't care about spending it. The small and medium market teams need to worry. To some extent, even Boston and the Mets need to, although in my opinion, that is completely overblown.

In the end, I don't believe he is overpaid in the context of being a Yankee.

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well

i think the conclusion you came to is obvious, the part about the context. I mean Loaiza is getting 7 million a year on the A's, and to most, that's crazy. On the Yanks that's a bargain.

Basically, you could say that about any player in baseball.

So, the real question, is he worth as a baseball player 13 million a year? And the obvious answer is no.

by ohad on Jan 24, 2006 5:00 PM EST 0 recs

well...

i dont like the idea of 1 man earning that much more than me but an economics degree will tell you that if a baseball player can command a $13 million salary on the free market (which baseball technically isn't for way too complicated reasons to explain but its close enough/all we've got) well then yes, technically his worth is $13 million because thats what the consumer (aka you, me & everybody else in the stadium) is willing to pay the mlb/the yankees/johnny damon for his services

by robcast23 on Jan 24, 2006 7:05 PM EST up 0 recs

Issues

i'm not certain you can take % of team's salary as a measure of whether or not a player is overpaid. "Overpaying" is giving more money than his value dictates he is worth

now if you want to make the argument that certain teams are more willing and able to overpay and deal with it in stride, I'll buy it. But overpaying is not relative to a team, it's relative to an industry and a market.

by Jgaztambide on Jan 24, 2006 5:06 PM EST 0 recs

simple problem here...

...by your method, the higher the Yankee payroll is, the better deal every player on the team becomes. That clearly doesn't make any sense.

You're making it sound like the Yanks have to spend $200M on salary. Just because they can support that kind of payroll, doesn't mean they should, or even want to. If you could guarantee Steinbrenner that you could deliver him a $150M payroll that would be just as good as a $200M, then naturally he's taking you up on that because that's $50M more for him. He's not looking to spend $200M; he just feels it's necessary.

So I think you're being simplistic there, but, I do agree with the general point that this contract is not gonna materially hurt the Yankees. Would they have been better off with, let's say, Dave Roberts ($2.25M) PLUS A.J. Burnett ($11M) than they are with just Damon for their $13M? Obviously, yes, they would have been better off that way. But they're very risk-averse and don't want to take any chance at all of missing the playoffs, and no cheap CF is a sure thing to have a decent year. So, this is what they did, and they end up with a star player who fits both their team needs and the city of NY very well, and in all likelihood, another playoff team.

and boom goes the dynamite.

by Mean Dean on Jan 24, 2006 5:34 PM EST 0 recs

still overpaid

Is the major league minimum salary based on a percentage of a teams payroll? Would a FA chose a team because it was offering a higher percentage of its payroll than another team? If Damon is traded to the Marlins, does he suddenly make 6.5% of their payroll?

Damon is still overpaid. It's just that the Yankees care less than any other team.

by jlistf on Jan 24, 2006 7:04 PM EST 0 recs

Few issues

In case you missed it - the Yankees lost money in 2005 so the Yankees don't necessarily have the advantage in revenue that justifies what they are spending.

Secondly - you cannot compare a pitcher salary to what a positional player is paid and in many cases you cannot compare players at different positions.

For OF's - in 2005 - Andruw Jones made $13,000,000 - do you mean to tell me that Damon is as valuable as Jones? Abreu made 13.1, Sheffield made 13, Vlad made 12.5 and Damon does not even belong in the same area code as these players either offensively or defensively.

Given what pitchers were getting paid - the Loazi deal was a little over done but not nearly by the overpayment that was made for Damon. %'s aside - this was ridiculous.

by slickwdb on Jan 24, 2006 9:10 PM EST 0 recs

Re: The Yankees lost money

Most, if not all, teams "lose" money every season. That's not so much poor money management as it is good accounting, more than likely.

by JeffersJV on Jan 24, 2006 10:01 PM EST up 0 recs

nope

This is, for the most part, a myth that goes around. not all teams lose money, in fact, most don't. And there's only so much accounting can hide. Besides, the report was based on Forbes Magazines' reporting and calculations, not on anything the Yankees said or implied. Plus, common sense will tell you that when a team spends 200 million on payroll, 45 million on luxury tax, and more on revenue sharing (without taking into account normal operational expenses) that they're gonna be losing some cash.

The media likes to portray the Yankees as having endless money, when the truth is that simply is not true. They have finite money, and now a lot of what they make is going directly to other teams

by Jgaztambide on Jan 24, 2006 11:01 PM EST up 0 recs

Forbes

Who cares what Forbes says? The Yankees lost money? I have one answer to that - hahahhaha

Don't you know that Steinbrenner owns the TV rights in another company?

So the Yankees could sell the TV rights for $1.00

Suprisingly this is not good for revenue. But of course their TV company makes millions.

Also there are more tricks. Did you know that the capital gains from selling a baseball franchise within the first 7 years are exempt? That is why you saw high turnover of Fox and other owners.

by pedrophile on Jan 25, 2006 1:52 AM EST up 0 recs

In case you haven't turned a TV on in a while

Adelphia, Enron, etc have made the accounting games much more difficult to play. While there are still loopholes to how income and losses are reported - there are much more strict guidelines and watchdogs in place. How we budget things today is far different than how I built my budget 4 years ago based on how I have to account for certain expenses.

In football - there is no team that loses money so I don't prescribe to this thing about tricks. If there were so many tricks to play - NFL owners would be figuring out a way to play the same ones to show a loss on their books as well.

Steinbrenner has other sources of income which may make his total "empire" a profitable one but it doesn't change the fact that the Yankess are spending more than they are generating in revenue and that equals a loss regardless of whether they are off-setting that by gains somewhere else.

And the bottom line to my original post is that Damon is overpaid regardless of how you try to justify it.

by slickwdb on Jan 25, 2006 8:02 AM EST up 0 recs

baseball is unique

NFL and baseball are very different creatures from an accounting standpoint, not the least of which is baseball's anti-trust exemption.

The NFL generates the vast majority of its revenue from 4 centralized TV contracts that are spread evenly among the teams. There is no revenue sharing in the sense that baseball has -- there is no real incentive to hide revenues.

The revenue sharing of baseball, on the other hand, gives lots of reason to hide revenue. Revenue that is generated by the club, no matter its source, must be shared. For example, the Cardinals club has never recognized the revenue from parking lot fees. The parking lots revenues go directly to the parent Anheuser-Busch corporation. No sharing required. And the Cardinals appear to be $10M poorer than they really are.

The Yankees deal with YES is another classic hide the cash scheme. So much so that MLB is threatening to consider all YES revenues as part of the Yankees and require them to be shared. I am extremely dubious that the Yankees (in the larger sense) lost money last year. If they did, than having a payroll almost twice that of the next highest team was probably a bad idea.

But you are right, none of this is relevant to the observation that Damon is overpaid. Maybe not badly for 2006. But certainly massively for 2009. And badly for the contract as a whole.

by cdamon on Jan 25, 2006 8:40 AM EST up 0 recs

Forbes

Forbes' projections were not based on "fun accounting" that Baseball constantly practices. They were based on their revenue projections (and cost projections) from all of the operations of the company. They included the Yes Network deals ($$ generated by the Yes Network), so really any of the sketchy accounting done by the Yanks doesn't effect the Forbes figures.

Let me put it this way: Forbes did a projected Cash Flow, which is entirely different than a Balance sheet. You can't really fudge cash flows

by Jgaztambide on Jan 25, 2006 9:38 AM EST up 0 recs

Wrong perspective

You need to look at it from an ownership perspective rather than a team perspective. If the same ownership group owns another asset that brings in more revenue than the Yankees lost, then not only would that cover it, but the group would also get the tax benefit of reporting against the gain. If there was still an overall loss, then the group would get to carry forward NOLs, which could be very useful in offsetting taxes in a profitable season. Believe it or not, it actually makes good business sense to lose money once every few years if you're basically guaranteed a revenue stream for the other years in which you have gains. None of this even mentions the gains in the value of the Yankees which have been made over the past 3 decades. When big George dies, the basis of the team is going to take a huge jump and will save his heirs a good $50 - 100M right there. Spending more $$ = more fans and more loyal fans = the value of the team goes up, but isn't accounted for until it's sold. My guess is that his son (was it Scott?) will sell off that interest in a hurry once his dad dies because it would be almost pure profit. Dad spending more money now means his kids get a lot more money when he dies, which has to count for something, considering his generally not-so-great health.

by Brickhaus on Jan 25, 2006 12:09 PM EST up 0 recs

Also

This won't count for a few more years, but the Yanks will get another huge injection of tax relief once they build that new stadium. The depreciation on that alone will probably keep the team from needing to pay income taxes for years.

by Brickhaus on Jan 25, 2006 12:11 PM EST up 0 recs

All of our GAAP is great

I think that is the acronym - been a while since I took that class.

While discussing all the GAAP procedures and guidelines (which was not my intention to start) is fun - my point was that there is not an endless pit of money in the Yankee organization and to say just because Damon is only 6.5% of the payroll makes him a good sign is short sighted.

Paying $1.2 for Aaron Small - arbitration is a great thing for the Yankees there. Paying anything that they did to Hideo even if it was .000000001% of payroll was a joke. The percentage does not matter. Damon is overrated and not grossly overpaid. Someone did it - may as well be the Yankees because now Damon will be able to take some of the spotlight off the banner moves of Jarret Wright, Carl Pavano and the list of other great moves.

If we want to talk % of payroll - biggest bang for the buck in probably all of major league baseball last year was on the Yankess where Aaron Small, Wang, Cano and 1 or 2 other players accounted for less than 1% of the payroll so does that mean since it was less than 1% (because it was 200,000,000+) that those were the best values in baseball?

I don't like Damon and people will be calling for Bernie to roam centerfield by the end of April once they see Damon miss Jeter and Cano with 2 hops from Centerfield on the cut-off.

by slickwdb on Jan 25, 2006 1:55 PM EST up 0 recs

meant "is grossly overpaid"

by slickwdb on Jan 25, 2006 1:56 PM EST up 0 recs

Luxury Tax

I don't think this argurment makes a lot of sense, considering the Yankees are not only paying him 13 mil per year, but also a 40% tax on top of that. When all is said and done the Yanks are paying 18mil for JD over the next 4 years. Sure they have the money for it, but no matter how you slice it, that's a bad baseball decision.

by jspearlj1 on Jan 25, 2006 2:21 PM EST up 0 recs

Damon

Just because there happen to be other bad contracts besides Damon, doesn't mean his is also not bad. I think the context you need to use when looking at a contact is this, would the majority of major league teams be comfortable paying that player that much, and in this case I think the answer is a huge no, not even Boston was willing to do so.

Rios is the next Juan Gonzales, thats right, I said it.

by KaoticKlown on Jan 24, 2006 10:24 PM EST 0 recs