Comments on: Yankees, A-Rod, and Game Theory

By: Andrew

Andrew — Wed, 07 Nov 2007 16:42:17 +0000

The Yankees refusal to negotiate with Rodriguez after he opts out is a classic example of a trigger strategy common in repeated games. Both sides can cooperate and work together, but if one side defects, it results in both sides reaching a different equilibrium for the rest of the games, in this case the Yankees refusing to negotiate in 2007 and likely they will never participate in bidding for Rodriguez ever again. This, of course, is punishment because if Rodriguez is a free agent, his payoff is greater if the Yankees are involved in the bidding than if they are not. It is beneficial for Rodriguez to opt out only if the payoff for defecting in this first game outweighs the punishment payoff for all future games.

By: MJM

MJM — Tue, 06 Nov 2007 19:37:29 +0000

One thing I’ve not seen anyone address is the fact that the Rangers subsidy was a form of surplus that the two sides should have been negotiating on how to share. One also has to keep clear the distinction between value and cost
Let’s suppose that A-Rod has equal value, V, to both the Yankees and team Z. If team Z pays no luxury tax, then they should be willing to pay up to V per year. The cost to match this offer to the Yankees, with a 30% luxury tax, would be 1.3*V – 7 (assuming that the $21 MM subsidy from the Rangers is spread over three years).
This set of assumptions puts the break-even valuation for A-Rod at $23 MM. The only way that it makes sense for NYY to pay more is if the value to them is higher than it is to the other clubs vying for his services.

By: Stephen C. Rose

Stephen C. Rose — Tue, 06 Nov 2007 15:48:29 +0000

Good points but I still have a feeling things could gravitate toward some face-saving on all sides. It is a measure of the magnitude of A-Rod’s proven potential that this is not a tempest in a teapot but a genuinely big issue. A-Rod will always be a special case because his abilities are so huge. The long term ramification of a Yankee failing to resign him could be compared to the Red Sox dispensing with Ortiz and Ramirez, etc.. Could Joe Girardi and Brian Cashman be in favor of getting A-Rod back? Let’s see how it all shakes down.

By: Ron

Ron — Tue, 06 Nov 2007 14:02:16 +0000

All of this assumes that Yankees management is rational. Given their firing of Joe Torre for only making the playoffs 12 straight years and winning 4 championships and 6 pennants and Hank Steinbrenner running around making absurd statements, that’s a shaky assumption to say the least.

By: Frank

Frank — Mon, 05 Nov 2007 15:51:21 +0000

A key point that the column might (I haven’t read it) have ignored is the luxury tax. ARod may be worth more to the Yankees but he’ll also cost them more b/c of the luxury tax. I don’t recall the tax rate but if it’s 1/3 then paying ARod $30m per year will cost the Yankees $40m per year. This is where the Rangers money becomes important–it would offset some or all of the luxury tax hit for the Yankees.

I’ve never been to a kid’s birthday party where beer was served (for the parents); there were a couple where it would have been helpful.