Mailbag: Universal DH, Gary Sánchez, Jacoby Ellsbury, Yankee Stadium Bonds

Happy Friday, everyone. The offseason is now officially underway, with Atlanta signing high-profile reliever Will Smith. In a surprising move, Jake Odorizzi will accept the qualifying offer to remain in Minnesota and in a less surprising move, Jose Abreu will do the same to stay in Chicago. I sure do hope the Yankees get their title in before 2021, because it sure does feel like a strike is coming.

Anyway, Friday is mailbag day, and we have a host of good questions today. Four, in fact. As always, if you have a question, feel free to send it our way at viewsfrom314 [at] gmail [dot] com. We answer our favorites every week.

Marks Adds: It continues to surprise me that the MLBPA does not insist on the NL adopting the DH.  By not having a DH option, then the market for players like JD [Martinez] is reduced by 50%. Maybe he would have opted out if he felt that 15 additional teams might be interested.

Embed from Getty Images

This was a follow-up email to last week’s mailbag answer about the state of the free agent market. I pointed to J.D. Martinez’s decision to opt-in as an example of how the market is busted for the players. I thought this was a thoughtful reply and wanted 1) to highlight it and 2) to forcefully agree with it. So much of the designated hitter argument is framed as an argument of “strategy” when it should more accurately be framed in a labor context.

Players like Martinez or Jose Abreu, who have productive bats but below-average gloves, get screwed by the lack of DH in the National League. That’s just a fact. It limits their job market, hurting their earning power. All of this is exacerbated by the fact that only a handful of teams league-wide are trying to win, let alone American League teams. I know the easy counterargument here is “be better defensively to get paid more”, which fine, I guess, even though I don’t agree with it. There is, however, another wrinkle: the lack of a DH is ultimately bad for fans.

Consider that, in over 5,100 plate appearances in 2019, pitchers “hit” just .128/.160/.162 (-18 wRC+) with 24 home runs, a 3.3% walk rate, and a 43.5% strikeout rate. That is hideous and non-competitive. It’s an automatic out every nine batters, which feels extremely…19th century. And no, I am not sympathetic to the excitement of the double-switch, either.

Let’s check in on the American League, which employs actual hitters. This season, DHs hit .252/.339/.467 (110 wRC+) with 532 HR, a 10.2% walk rate, and a 25% strikeout rate. Well, would you look at that –competitive at-bats, production, and the level of competition fans expect to see given the cost of getting in the park.

I get that baseball loves tradition, and that’s cool. Tradition is important! But at the end of the day, the lack of the universal DH in baseball is bad for fans and also bad for players. If I were a labor negotiator for the MLBPA, I’d argue for the universal DH in the next Collective Bargaining Agreement. Not only is it a better product for fans, but it’s fairer for players, too.

Charlie Asks: Who are some pitchers the Yankees might be able to land by trading Gary Sanchez this offseason? His value has to be pretty high after the season he just had. At the same time, I’m not as convinced as Cashman that he’s part of the solution. His passed balls and strikeouts grew wearisome this October.

This is a surprisingly common question these days. There seems to be a real appetite, or at least interest, in trading Sánchez. Steven hinted a bit at this in his review of the Kraken’s season, and I touched on it in a previous mailbag. I know it may be a bit repetitive at this point, but Gary is super controversial and one of my favorite players. I think fans really underrate him, even accounting for his struggles. In case you’ve forgotten, here are some key Gary metrics since the start of 2017 among MLB catchers:

  • Home Runs: 85 (1st)
  • Slugging Percentage: .495 (1st)
  • wRC+: 115 (tied for 2nd)
  • Runs: 192 (3rd)
  • fWAR: 8.3 (4th)
  • wOBA: .343 (5th)
  • Walk Rate: 9.4% (7th)
  • OBP: .320 (10th)

This does not include his torrid 2016 August and September, either, which would only boost these figures. In any case, MLB catchers are horrible offensively and only manage an 85 wRC+ overall over the period. Gary’s is 115. He’s a real talent, and the drop off between him and Romine or Higashioka is steep. It really is.

The defensive argument is more compelling, though I still ultimately find. it lacking. As Steven noted in his review and in a great series earlier this season, Gary’s defensive season was complicated. He got better at blocking balls but worse at framing, which is more important. Very odd. The Yankees surely hope that Tanner Swanson, their new catching coach, will help make him more consistent defensively.

Now, the playoffs were rough, to be sure, but I wouldn’t read too much into that. It’s just recent memory. As Marc Carig has repeatedly noted at The Athletic (subs req’d), the Yankees really value Sánchez’s preparation, game planning, and pitch calling. There are some visible warts, sure, but make no mistake about it: Gary is a part of the solution. He is not the problem.

But for the sake of the argument, I played around on Baseball Trade Values website to get a sense for Gary’s “value.” (More on that here.) Here are the closest nine pitchers to Gary, i.e. the pitchers he’d get in a straight one-for-one trade:

  • Lance McCullers
  • Frankie Montas
  • Kyle Hendricks
  • Luke Weaver
  • Joey Lucchesi
  • Mitch Keller
  • Sonny Gray
  • Jon Gray
  • Matt Boyd

Underwhelming! I can’t imagine many Yankee fans are eager to trade Sánchez for Sonny Gray, and I don’t think it’s really accurate to argue that Sánchez for Jon Gray is a fair value. But it’s a fun exercise regardless. In the real world, I think Gary would be worth more in a trade than this, given position scarcity. But what do I know?

Anyway, Yankees have a valuable player in Gary and can simply keep him and sign one of the best pitchers in baseball anyway without having to give up their offensive monster of a catcher. That’s what I’d do if I were in charge.

Josh Asks: With all this talk about Luxury Cap and saving money, I was wondering if you know how Insurance Money works.  Over the past two seasons, how much money do you think the Yankees made back from Elsbury’s injury?  I am sure they will make on Hicks now as well?  Do you think this insurance money is used to calculate 2020 payroll?

It’s important to start this one by noting that Major League Baseball does not have a uniform insurance policy for its contracts. That makes it an anomaly among professional sports leagues; the NBA and NHL, for example, have standard policies. Baseball does not operate this way, meaning that teams determine whether to insure a contract on an individual basis.

As former Boston GM Dave Dombrowski told The Boston Globe back in 2016, “there are all types of opinions on whether you do or you don’t [insure a deal]. You have to really make a decision based on the contract at the time and whether a policy is in the best interests of the team.” It’s a really interesting–and underreported–element of baseball operations, in my opinion.

This is all relevant because the Yankees did, in fact, insure Jacoby Ellsbury’s contract. (I don’t know if the Yankees insured other contracts, so let’s just stick to Ellsbury.) Wallace Matthews wrote an interesting piece for Forbes back in 2018 that went into some detail on this. He cited an anonymous Yankee source who told him the team’s insurance policy on the contract was similar to the Mets’ with David Wright. Rotowire has essentially confirmed this as well. In Wright’s situation, insurers paid back 75% of the salary if Wright missed 60 or more days.

So, if we use the 60-days IL and 75% reimbursement as a rough framework for Ellsbury, the Yankees have been paid back about $16 million annually in 2018 and 2019 on the deal. The Yankees’ center fielder has not played in a game since Game 4 of the 2017 ALCS, allowing the Yankees to collect the full 75% of his nearly $22 million salary in 2018 and 2019. That’s significant! It’s $32 million dollars, after all.

Now, with that said, Ellsbury’s salary still counts against the CBT. So it is still “inhibiting” the Yankees in that sense, if that’s what you mean, but you’re right that these are dollars for which the Yankees aren’t on the hook. Unfortunately, I’m pretty sure the CBT is all that matters for teams as they calculate their payroll. That they actually don’t spend the money is just an added benefit.

All of this fuels a lot of conspiracy theories within the fandom, since so many of Ellsbury’s injuries are nebulous and vague. All I’ll say on that is that I look forward to reading the curtain-raiser story on the Yankees/Ellsbury relationship one day, though it’s also worth noting that faking injury to collect insurance money is literal insurance fraud. Just something to bear in mind with the conspiracies.

Jack Asks: With all of the offseason attention now being paid to what the Yankees are (or more likely and infuriatingly aren’t) going to spend on payroll, I feel like one important detail is missing. When is the team done paying off the bonds on the stadium? I remember Hal or Levine or someone like that talking about what a hefty bill that is every year, so I feel like we now need to look ahead to that being paid off much like we do Ellsbury’s contract. 

Embed from Getty Images

This is another insightful question about the Yankees’ finances, much like the above question. Just a warning: this is a wonky response, but I think it’s an important window into the Yankees’ operations. Financing the development Yankee Stadium involved a complicated and confusing deal between the Yankees and New York City. That’s normal, really. Here’s a relatively simple breakdown, as well as a few links to do further digging.

To begin with, New York City, not the Yankees themselves, actually own the property on which Yankee Stadium rests. The City, via the New York City Economic Development Corporation (EDC) and its investment arm, the New York City Industrial Development Agency (IDA), own the land and manage the lease to the Yankees. The IDA also financed the construction of the Stadium. As is common with the construction of such venues, the City (via IDA) helped the Yankees pay for Yankee Stadium with bonds.

Digging deeper, the Yankees received two rounds of controversial, tax-exempt private activity bonds (PABs) from the IDA. The first, in 2006, totaled $942.5 million; the second, in 2009, totaled $370.9 million. That’s about $1.3 billion in total debt. This was controversial because the use of PABs to finance the construction of stadiums was technically illegal. However, NYC found a loophole that made it legal by “structuring the deal in a way that had the stadium pay off the debt service through payments in lieu of real estate taxes (or PILOT payments) as opposed to rent” according to The Real Deal. So that’s what you’re asking about.

Complicated! A much simpler explanation is that the Yankees got a good deal here. These bonds come with lower interest rates than typical bonds. They are also exempt from federal, state, and local taxes. This was a clever move from both parties.

Anyway, the Yankees are now servicing that debt. According to Crain’s New York Business, the team “spends around $92 million” doing so each year. (The article also notes that the team “pay[s] down the bonds with ticket and suite revenue, which the City passes along to investors.”) That’s a lot of money!

There’s still a substantial amount of money owed, too. Back in 2016, Reuters reported that the team wanted to refinance “$1.2 billion” of “old outstanding debt”, which implies they still owe quite a bit. A Moody’s report confirmed the same. By refinancing, the team was hoping to take advantage of very low interest rates, which would lower their annual payment by a few million dollars. As the Crain’s story noted, though, things didn’t go quite as planned. In other words, I think we can assume their annual payments are still about $92 million.

This means that the bond service payments are not going anywhere anytime soon. They’re part of the team’s financial reality. That’s true even if it sounds like a convenient excuse from team executives. That 2016 Moody’s report rated the Yankees as “stable”, though. It reads: “The stable outlook reflects our expectation that assigned regular season ticket sale and luxury seat license revenues will provide above average coverage of annual debt service costs on a sustained basis enabling the issuer to distribute excess cash flow to support team operations.” The team, by objective standards, is not struggling. That’s another thing to keep in mind!

What this means for payroll is all a bit unclear, but this is a real payment that the Yankees have to make each year. It’s real. But they should still sign Gerrit Cole.

(For more information, the Comptroller’s Office released a detailed update on all of this in 2018, which you can view here.)

Previous

Takeaways from Baseball America’s Top 10 Yankees prospects

Next

So You’ve Decided to Trade for Mookie Betts

8 Comments

  1. Héctor Bravo

    Really???
    Gary Sánchez is one of your favorite players!
    Sánchez SUCKS!!!
    He’s terrible as a catcher, his defense is pathetic.
    He’s one of the players which are in injury list two to three times each season.
    A .186 avg in 2018 and a .232 in 19 is not a big improvement.
    He got power, that’s all.
    Trade him!

  2. RetroRob

    Sanchez sucks! Let’s trade him for a great pitcher. Sigh.

  3. dan

    I feel like a breakdown of the Stadium finances would be worth of a more in-depth post. I like what you did here and I think a lot of people have *no clue* about this stuff and would find it interesting

    • Bobby

      Appreciate the kind words. I’ll consider doing a longer-form post on this; wasn’t sure how it would be received, honestly.

      • RetroRob

        MLB incented teams to build new ballparks by providing tax breaks. I believe the Yankees, for example, can deduct any bond payments reducing what they owe to revenue sharing. They structured the Stadium deal to be the most cost efficient for the Yankees. Randy Levine was hired specifically for his knowledge of NYC politics, finances and tax breaks.

  4. DJ Lemeddardhieu

    Marks Adds: It continues to surprise me that the MLBPA does not insist on the NL adopting the DH. By not having a DH option, then the market for players like JD [Martinez] is reduced by 50%. Maybe he would have opted out if he felt that 15 additional teams might be interested.

    You and me both, Marks. The pitcher hitting is antiquated and the only argument for it is that it’s “tradition.” Wildcards weren’t tradition. Reply wasn’t tradition. Analytics weren’t tradition. Black and Hispanic players in the league weren’t tradition. Things change for the better and MLB needs to make this change. Nobody wants to see the pitchers hit. They do want to see Nelson Cruz, Stanton, JD, Edwin hit. If they really want to increase offense stop doctoring the baseball and adopt the universal DH and robot umpires.

    Charlie Asks: Who are some pitchers the Yankees might be able to land by trading Gary Sanchez this offseason? His value has to be pretty high after the season he just had. At the same time, I’m not as convinced as Cashman that he’s part of the solution. His passed balls and strikeouts grew wearisome this October.

    Charlie Morton, Max Scherzer, Patrick Corbin, Corey Kluber just to name a few, Charlie. He would bring back an ace and that’s why I would make that trade every day of the week and twice on Sundays. Austin and Higgy did nothing but mash while Gary was hurt and there’s no reason to believe they couldn’t do it again. And they’re both an upgrade defensively over Gary and don’t strike out 5 times a game in the postseason.

    Josh Asks: With all this talk about Luxury Cap and saving money, I was wondering if you know how Insurance Money works. Over the past two seasons, how much money do you think the Yankees made back from Elsbury’s injury? I am sure they will make on Hicks now as well? Do you think this insurance money is used to calculate 2020 payroll?

    They’ve made enough to buy the Orioles and turn them into a farm team, Josh. That was one of the worst contracts ever signed giving all that money over 7 years to a 30 year old centerfielder who wasn’t even close to being one of the best players in the league. The Cubs gave the same dumb deal to Jason Heyward. If you’re going to give out these deals at least make sure it’s a Machado or Trout. And Hal complains about not having enough money. He’s recouped all this insurance money and was given a big cut as part of the tax reform legislation. He’s Scrooge McDuck swimming in his gold.

    Jack Asks: With all of the offseason attention now being paid to what the Yankees are (or more likely and infuriatingly aren’t) going to spend on payroll, I feel like one important detail is missing. When is the team done paying off the bonds on the stadium? I remember Hal or Levine or someone like that talking about what a hefty bill that is every year, so I feel like we now need to look ahead to that being paid off much like we do Ellsbury’s contract.

    No it’s not a hefty bill, Jack. This team makes billions every year through ticket sales, merchandising, tv revenue. The cost of the Stadium is a drop in the bucket. It’s a convenient excuse not to spend money on players and instead line their pockets. The poor billionares just don’t have any money. If only someone would give them a break in life.

    • Eddardo

      Should we all reply to each mailbag question as if it it was our blog?

      • RetroRob

        Eddard now replaying to his own replies. It gets confusing.

Powered by WordPress & Theme by Anders Norén