New York Three-Way

The New York Daily News reports that the Yankees, Mets, and Rockies are putting together a three-way trade. In the trade the Rockies would rid themselves of Denny Neagle and some of his remaining three remaining seasons at $37 M ($9 M in 2003 and 2004, $10 M in 2005, plus a $9M buyout of $12.5 M in 2006). The money would be distributed among the three teams ($10 M from each of the New York teams spread over three years and $8M plus the $9 M buyout from the Rockies). Colorado would get either Jeromy Burnitz or Rey Ordonez from the Mets and Rondell White and Raul Mondesi from the Yankees, all of whom are in their last year of their present contract. The Rockies would assume the $5 M for White's contract, the $7 M Yankee portion for Mondesi's (he receives $13 M in total with the remainder having been assumed by Toronto as part of its trade with the Yankees), $6.25 M for Ordonez, and/or $11.5 for Burnitz. The Mets would get Neagle (who will again be paid by the Yankees without actually playing for them), and the Yankees would get a whole lot of nothing.

One baseball source is quoted as saying:

"It's a pretty creative idea."

So was charging interest. It doesn't mean we have to like it.

The reason each team is doing it is a testament to the virulent nature of the concessions the players made in the last labor agreement. The teams are all trading their own mistakes to gain certain advantages under the vitiated CBA.

The Yankees, in trading two former starters and taking on $10 M in payments to a player who will never wear a Yankee uniform while he is paid, free up almost $9 M in payroll for 2003. They acquired too many overpriced outfielders in 2003 and needed to reduce their payroll to take less of a hit from revenue sharing and the luxury tax.

The Rockies are retooling their staff with young, low-priced starters (why not?). Taking on large salaries for 2003 is preferable to paying Neagle larger sums over three years while actually having to pitch him. The will have rid themselves of both Mike Hampton's and Neagle's contracts, a major coup. They will, however, have added three starting outfielders. They already have the nearly-traded Larry Walker, mid-season pickup Jay Payton, and Preston Wilson, who they acquired in the Hampton deal. That's pretty crowded, but then again their off-season moves may not yet be done.

The Mets would rid themselves of some high-priced dead weight and add a potentially useful arm.

If this goes through after the Hampton trade, I wouldn't be surprised to see teams start trading parts of contracts while actually retaining the players. It's gotten to the point where the contracts involved are more important than the players. It'sgoing to take us a few years to evaluate the new CBA, but I get the feeling that after the current contracts run out, things will be very different. And I'm not talking about the high-end contracts, the death knell of which the media are currently ringing. I mean the mid-tier $5-$10 M-per-year contracts.

It's exactly what Andrew Zimbalist predicted at the beginning of last year in the article entitled Competitive Balance in Majo League Baseball:

The real impact would come indirectly, through the incentive effect of this local revenue tax. Assuming the tax was set at 50 percent, each increment to a team's net local revenue would be reduced by 48.3 percent. This is because half would be taken away by the tax and 1.67 percent would be returned by the equal distribution from the pool to each club. .Now, suppose Steinbrenner were contemplating signing Johnny Damon and estimated that, with Damon in the Yankee outfield, the team would generate an additional $16 million in annual local revenue. Without the local revenue tax, Steinbrenner should be willing to offer Damon any salary up to $16 million. With the tax, he should be willing to offer only $8.27 million [$16 million X (1 0.483)].

Thus, the redistributive impact of revenue sharing is likely to be considerably weaker than its negative impact on salaries. Perhaps this explains why the panelists did not recommend a salary cap and it would certainly explain why the Players Association would trash this method of revenue sharing.

Actually, the new CBA sets revenue sharing at 34%, but there is also a 17% luxury tax for payrolls over $117 M, which the Yankees most probably will exceed. The Yankees own one 29th of the Expos so one would anticipate them receiving one 29th not one 30th of the revenue sharing distributions. However, the first phase of the Central Revenue Fund begins in 2003. It is set initially to around $43.5 M (but gradually increases to $72.2 by 2005) and is paid by the net payers (including the Yankees). Therefore, the amount that the Yankees' can spend on new payroll would be reduced by potentially more than the 48.3% that Zimbalist suggests.

Looking at it this way, I think that the plan that went through is potentially worse for the sport than a salary cap. A cap would at least be far to all parties. This is a rather blunted tool to deal with competitive balance. It clearly is an extremely precise one when it comes to dealing with players' salaries however.