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May 11, 2007

Will Clemens Be The Difference?

From CNNMoney.com -

Into this fray steps Vince Gennaro, who retired from Pepsico to turn his hobby of analyzing baseball finances into a business. In the 1970s, Gennaro, who recently published "Diamond Dollars: The Economics of Winning in Baseball," was ahead of his time. As a graduate student at the University of Chicago (a choice owed to his affection for Milton Friedman) he jiggered a model to estimate a player's dollar value to a team. He got some interest - The Sporting News published an article and he got a meeting with Nolan Ryan's agent - but a cool reception from Major League Baseball. It was on to Pepsico.

Now, Gennaro advises the Cleveland Indians. "I just like having a seat at the table" in Major League Baseball, Gennaro said this week over lunch.

With typical Yankees bluster, the team announced [Roger Clemens] signing last Sunday at Yankee Stadium by having the pitcher grab a microphone during the seventh inning stretch. When the numbers trickled out they were astonishing: a pro-rated salary of $28 million, amounting to $18.7 million for his abbreviated season. Break that down and you get $4.5 million a month and about $1 million per game started.

The deal elicited predictable outrage from some. A blogger on Google complained the Yankees are "destroying baseball through irrational spending." The New York Times proclaimed the Yankees were "paying dearly in desperation."

Clemens will cost the Yankees $26.1 million this year - his salary of $18.7 million plus a $7.5 million tax the team will pay MLB for exceeding a certain salary threshold, the so-called luxury tax. Gennaro estimates that Clemens will add six wins to the team. The model is based on the assumption Clemens will perform as he has in the recent past - an admittedly iffy proposition for a soon-to-be 45-year-old pitcher.

Those six wins, by Gennaro's model, would catapult the team from a projected 90 wins to 96, a jump that could very well mean the difference between going home in October and going to the postseason. A 90-win team has just a 31 percent chance of going to the post season in the American League, while a 96-win team has an 81 percent shot.

In other words, the deal elevated the Yankees' chances of reaching the postseason this year by 50 percent. Still think the signing was irrational?

Gennaro's estimate of the revenue impact from signing Clemens is $24.1 million, factoring in things like ticket sales, concessions, television ratings, sponsorships and postseason revenue. This doesn't necessarily mean that an extra $24 million will flow in to the Yankees coffers from Clemens taking the mound, but Gennaro said, "the Yankees do stand to lose this much if they don't make the post season."

So Gennaro's estimated revenue boost is $2 million less than the cost of Clemens. But what this analysis does not consider is the added importance to the Yankees of making the postseason this year and next, as they prepare to open a new ballpark in 2009. How the team does now will impact how much the team can jack up ticket prices in the new stadium, Gennaro says, a factor that could add millions to the payoff for signing Clemens.

Of course, if the Yankees are 10 games out of first place by the time Clemens makes his first start, that would change a lot of what's being assumed here.

Posted by Steve Lombardi at May 11, 2007 10:08 AM

Comments

Posted by: Raf at May 11, 2007 10:45 AM