The Method to the Yankees’ Madness

Last week Miles Wray examined an emerging spending pattern of the New York Yankees, suggesting that the club’s approach to free agent spending varies, depending possibly on how many dollars had recently come off their books: They appear to spend each offseason either signing seemingly every premium free agent available (2008-9, 2013-4) or they limit themselves to the bargain bin, focusing on late-offseason signings, reclamation projects, and trades.

While this description is certainly accurate, at least since 2008-9 when this pattern began to emerge, there’s little discussion of why a team would choose to invest in free agency this way.  Presumably, teams like the Yankees, the Dodgers, or the Red Sox, which are capable of fielding significantly higher payrolls than any other team in the league, would prefer to do the opposite: Selecting from a much more limited subset of free agents would limit the advantage gained over other teams.  It’s also not inconceivable that a team with as much money as the Yankees might have concerns that they’d be driving up the entire market, increasing their own cost of acquiring talent.  This approach also has very real impacts on team age and roster flexibility as an entire free agent crop begins to enter their decline years together.

Moreover, the Yankees may very well not be the only team taking this approach.  An argument can be made that the Boston Red Sox are following a similar strategy, albeit at a pace accelerated by their shorter duration contracts they signed in the 2012-3 offseason and their salary-dump trade with the Dodgers four months earlier.  The team signed both Hanley Ramirez and Pablo Sandoval, arguably the two top hitters available in free agency, only a year after they signed precisely one free agent, Mike Napoli, who was their own.

So what does a team gain by going on spending sprees followed by (relative) austerity?  I submit they pursue this approach to gain one thing: draft picks.

Consider for the moment what happens in the case where the Yankees are not following this feast/famine strategy in free agency, and instead they sign a premium free agent each year.  In 2009-10 they might’ve signed Matt Holliday or Jason Bay.  2010-1, Carl Crawford or Jason Werth.  In 2011-2, Fielder/Pujols/Reyes.  In 2012-3 Upton/Hamilton/Bourne/Grienke.  All were free agents tied to compensation, meaning in addition to the dollar-cost of signing that player, the signing team also forfeited a draft pick.  (It’s probably also worth noting how godawful most of those signings look today, but that’s the nature of free agency – The last couple of years are almost always ugly.)  The mechanics of where those picks go have changed since the 2012-3 offseason but the cost to the signing team remains the same: A first round draft pick, or a later round pick if the first round pick is already spoken for.

Instead of signing those players, over that span the New York Yankees signed only a single draft-pick-compensation free agent, Rafael Soriano, 2010-11, and it was over the objections of Brian Cashman.  They kept their first-round draft picks in 2010, 2012, and 2013, and picked up a few compensation picks from departing free agents like Nick Swisher, Javier Vázquez and Soriano.

As Miles points out, however, the Yankees simply can’t stockpile picks and rebuild like a normal team.  This restraint is made possible by lavish spending in the 2008-9 offseason, where the Yankees signed pretty much everybody and then went out and won the World Series.  Signing Teixeira, Sabathia, and Burnett means the Yankees not only forfeited their first round draft pick, but their second and third round draft picks as well.

When viewed in the whole, however, this doesn’t appear to be that bad of a deal for the Yankees.  By moving their spending forward into the 2008-9 offseason instead of spreading it out over four years, they essentially traded their second and third round draft picks in 2009 for first-round draft picks in 2010, 2012, and 2013.  They repeated this approach 2013-4, signing Brian McCann, Jacoby Ellsbury, and Carlos Beltran, and while the early returns from those transactions are not promising, it should be noted that the McCann and Ellsbury deals, at least, were considered sound at the time they were signed.  Beltran?  Not so much.  With the last free agent with draft pick compensation attached off the board, they’re keeping their 2015 first round pick as well.

At a time when the aging curve for older players have suddenly become unforgiving, the value of young players is certainly up, and the Yankees appear to be maximizing their chances of acquiring young talent in the draft by minimizing the draft pick cost of signing free agents.  This approach is remarkably similar to their strategy in the international market, where they’ve determined the best way to acquire talent is not to stick to a limited bonus pool each year, but to sign ten or eleven of the top thirty international free agents, (and possibly one more.)  This approach costs them a great deal of money in luxury tax and international bonus pool “overage” tax, but may make sense given how much surplus value an above-average, cost-controlled young player generates.  Now, if only they could do something with all those draft picks…