In this Sunday’s NY Times, Jeffrey Gordon pens a Keeping Score column on the bargaining game played by the NY Yankees and Alex Rodriguez. Gordon argues that the Yankees stated refusal to sign Alex Rodriguez upon opting out of his contract is not credible.
Conventional wisdom is that Rodriguez willfully ignored the Yankees’ repeated public assertions that they could not rationally pursue him in free agency because they would lose $30 million from the Texas Rangers when they took over his contract. But the Yankees’ assertion is simply a bargaining gambit.
Assume some other team, call them the Dodgers, were to offer Rodriguez $32 million a year for eight years. Remember that the Dodgers are receiving no part of the Rangers’ booty. Is it really the Yankees’ position that Rodriguez is worth more to the Dodgers than to the Yankees? If the Dodgers can afford to pay the $32 million a year, can the Yankees — the richest franchise in sports — plead poverty?
The Yankees’ earlier protestation about the Rangers’ money was to make it appear their hands were tied, so that they could land Rodriguez at a lower cost. But that bluff has been called. The lost Rangers money merely puts them on the same ground as other teams. How far will the Yankees go with cries of wounded pride?
He’s right on this point. If Rodriguez is worth more to the Yankees than any other team, then the rational choice would be for the Yankees to sign him, even though the Rangers are no longer helping out the Yankees. However, there is more than pride involved. This isn’t a one-shot game, and there is more at stake than one free agent.
The Yankees were in a nice position, their signing of A-Rod would have been partially subsidized by the Texas Rangers. All parties knew that if Rodriguez opted out, the Yankees would lose that money. Both the Yankees and A-Rod’s agent (Scott Boras) have decent estimates of what his services are worth. In ten days they easily could have reached a deal approximating the free agent market outcome, which would have allowed A-Rod to get his money and keep the Rangers on the hook for the rest of the salary. This is why the Yankee’s drew a line in the sand, and Rodriguez knew not to step over if he wanted to stay in New York.
A-Rod won’t wear the pinstripes again. I am certain that the Yankee’s are out of the bidding, even though the Yankees might still value his services more than any team in baseball. What is at stake here is not a single player’s contract, but the organization’s long-run credibility at keeping its word. If the Yankees cave, the repercussions will echo into the future. Why would any player ever not opt out of his deal in the future if he knows the Yankees will give in? Not following up on your threats is bad for your reputation as a tough guy.
This is a game that I play with my daughter all the time—except the stakes are a little different—“if you wake your sister up from her nap, then you won’t get to go to the birthday party.” My life will certainly be more difficult if I had to stay home with two crying girls than if I took one to the party (especially if they serve beer) and left the baby at home with my wife. So, my daughter thinks I won’t keep my word, and she pulls out her tambourine to lead the princess doll parade. What would happen to my reputation if I took her to the party anyway? Any future threats lose their credibility as my daughter realizes their emptiness and her behavior worsens. Preventing a long-run pattern of disobedience is worth well more than any short-term benefits I gain from giving in.
This is the problem the Yankees face. The long run consequences of reneging in this business are high. Between league rules, tax laws, and big egos a lot of deals get done in this business without ink and paper. This can breed friendships as well as keep potential enemies in check. In this case, the Yankees must stand firm.