Will $400-500M YES Network Payout Lead to Yankees Buying out Alex Rodriguez?
Many years ago, one could only imagine what the New York Yankees would be capable of if they found a way to get Alex Rodriguez on their hands.
Here we are many years later, and now one can only imagine what the Yankees would be capable of if they somehow found a way to get Alex Rodriguez off their hands.
To be fair to A-Rod, his career with the Yankees has been largely successful. He's won two MVPs and hit 302 of his 647 career home runs in pinstripes, and he played a major role in the Yankees' run to their 27th World Series title in 2009.
But everyone knows that the 10-year, $275 million contract Rodriguez signed in 2007 has become the albatross contract in all of sports. His offensive value and his health are steadily declining, and his age is steadily advancing closer and closer to the big 4-0. Things are bad and they could only get worse.
You won't get the Yankees to admit it publicly, but they'd no doubt love to have A-Rod's contract go Poof! and disappear.
Now, they might just have a way to make it disappear—as much as baseball contracts can disappear, anyway.
This week, a deal was struck between News Corporation and Yankees Global Enterprises that calls for News Corp. to acquire a 49 percent equity stake in the YES Network. For the Yankees, the financial ramifications of the deal are very favorable.
ESPN's Darren Rovell broke down what the Yankees stand to gain from the agreement in a Tuesday column, noting that the rights fee that the Yankees receive from the YES Network will continue to rise for the next three decades. The rights are currently at $85 million per year, and that number is going to keep going up.
Furthermore, it's possible that the Yankees could be paid anywhere between $400 and $500 million by News Corp. just for allowing the deal to happen and agreeing to extend the rights, according to both Rovell and Nathan Vardi of Forbes. That would come in the form of a cash payment in two tranches.
Full disclosure: I'm not a finance expert. I can't tell you how all this money is going to specifically impact the Yankees books, nor can I tell you where the red tape may be. And for now, questions like these don't really have answers, as Rovell noted in his report that final details of the deal are still being worked out.
Nevertheless, the big picture narrative of this deal is pretty clear: The Yankees are about to get a ton of money coming their way, and they will be free to use this money however they please.
Fellow B/R MLB Lead Writer Ian Casselberry wondered aloud on Tuesday whether the Yankees might use their newfound riches as an excuse to alter (see "disregard) Hal Steinbrenner's current plans to get the team's payroll under the $189 million luxury-tax threshold by 2014. They'll have to pay some serious taxes if they do go over and stay over the threshold, but they'll have the extra cash to deal with those taxes.
That's one possibility. Another possibility is that they'll use all the extra cash to get rid of A-Rod's contract. Might they use their $400-500 million payment from News Corp. to buy out the five years and $114 million remaining on Rodriguez's mega-deal?
Maybe. Maybe not. It's obviously a pretty complicated idea that can't be answered with a simple yes or no statement.
Buying out A-Rod's deal sounds like a great idea in theory, but there's a reason that buyouts are so rare in baseball. Contracts in baseball are all guaranteed, after all, so "buying out" a contract has a decidedly different meaning than it does in other sports. Any team that buys out a contract still has to pay the player what he's owed.
Such was the case when the New York Mets parted ways with Jason Bay. They were releasing him into the wild again after signing him as a free agent prior to the 2010 season, but they still owed him the $21 million that was left on his original four-year, $66 million contract.
Still, the Mets were able to arrange things so that buying out Bay's contract actually made sense for them from a financial standpoint. According to The New York Times, the Mets agreed to pay Bay the $21 million he was owed via a lump sum and then through deferred payments spread out over several years. The deferred payments will allow the Mets to enjoy some immediate payroll flexibility, which they could conceivably use to hammer out extensions for David Wright and/or R.A. Dickey.
It's conceivable that the Yankees could do the same thing with the $114 million remaining on A-Rod's contract, and you might even say they have the perfect excuse to do so now that they have anywhere between $400 to $500 million coming their way.
But actually think about that for a second. If the Yankees do get a $500 million payment from News Corp. and put it towards buying out A-Rod's contract, more than a fifth of that payment will vanish into thin air. If they only get a $400 million payment, more than a quarter of that will vanish. It would be kinda like hitting the jackpot at the casino and then handing a bulk of the winnings over to a moocher just so he/she will stop bothering you.
It would make more sense for the Yankees to take their News Corp. payday and use it to augment the roster around A-Rod instead, as Mr. Casselberry suggested they could. Instead of getting rid of one expensive player, why not use the money to bring in more expensive players? The Yankees payroll would surely grow to be enormous, but the team would be more competitive on the field, and the club would have the money to deal with any bothersome taxes.
If the Yankees do eventually decide to buy out A-Rod's contract, it likely will be a year or two down the road when the amount of money owed to him is considerably less than $114 million. If they were to buy him out after 2013, he'd be owed only $86 million. If they were to buy him out after 2014, he'd be owed only $61 million. And so on.
And yes, the Yankees do have a pretty good reason to wait and see for the time being with A-Rod. Yankees GM Brian Cashman said recently, via Richard Justice of MLB.com, that A-Rod should have some productive baseball left in him so long as he stays healthy, and he wasn't necessarily just blowing smoke in saying so.
A-Rod's 2012 season will be remembered for him only managing three hits in 25 at-bats in the postseason, and he was a liability at the plate in September as well. However, it really wasn't all bad. A-Rod had a solid .806 OPS when Felix Hernandez broke his hand with a fastball in July, and he was on pace to finish with around 25 homers and 80 RBI.
That's not the kind of production that you pay to get rid of, especially in light of the Bay situation. He averaged less than 100 games played and only nine homers in his three seasons with the Mets. There was no point in the Mets hoping for anything better, so they cut him loose.
If I'm the Yankees, I'm not paying A-Rod to go away so long as I have a reason to expect 25 homers and an OPS around .800 from him. Numbers such as these aren't worth his salary, to be sure, but they're still pretty good for an everyday third baseman.
I'm also not buying out A-Rod's contract until after all other options have been exhausted. Case in point, one idea to help keep him healthy and productive would be to make him an everyday DH somewhere down the line. It's an idea that has to be taken seriously after what he did as a DH in 2012. He was a .258/.348/.416 hitter as a third baseman but a .307/.371/.467 hitter as a DH.
At the absolute very least, you have to think that the Yankees will continue to live with A-Rod for one more year in 2013. He could give them decent production if he manages to stay healthy—especially if they do him a favor by DH'ing him more often—and his $28 million salary won't kill them because they're worried about their payroll coming down in 2014, not 2013.
Is now the time to buy out A-Rod's contract?
If A-Rod's 2013 season goes just as poorly or even worse than his 2012 season did, that's when the Yankees will have to think long and hard about doing away with his contract. They could take the $86 million they'll owe A-Rod and copy what the Mets did with the $21 million they owed Bay: one big payment right out front, and then a series of smaller payments spread out over several years.
The Yankees would still be paying a ton of money for nothing at all, but ideally the tradeoff would be greater immediate payroll flexibility. That's something they'll want if they decide to remain committed to their payroll plans for 2014 and beyond, and the sheer girth of the money owed to A-Rod would be a little easier to swallow due to the money the Yankees will be getting from News Corp.
As such, I doubt that the YES Network deal changes anything in regards to the club's short-term plans for A-Rod. The Yankees have already indicated pretty strongly that Rodriguez is going to be back in the mix in 2013, and they can be expected to stay the course given the lack of trade interest in him and how huge his buyout would be now.
If the YES Network deal is going to impact the situation, it's going to happen a year or two down the road. If it's even more apparent than it already is that A-Rod is totally washed up and of no use to anyone, that's when the Yankees could use their News Corp. payment(s) to finally wash their hands of him.
If it comes to that, A-Rod will become just another over-the-hill veteran looking for work. He may even have to draw up a sign to get the attention of prospective employers:
"Have shot at all-time home run record. Can work for cheap."
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