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The Yankee Salary Premium

The Yankees $200 million payroll exceeds the next highest team by $85 million and the bulk of teams by well over $100. Often, pay reflects productivity, especially when averaged over a sizable group of workers. Sometimes, pay also reflects "rent" flowing to an input -- a premium paid above their market value. Does the gap between Yankee salaries and the rest of the league represent primarily a productivity difference or is there also a sizable premium above market being paid to Yankee players?

To explore this question, I performed a rough experiment to determine the payroll at which I could put together a team matching the productivity of Yankee players. I matched Yankee players with other MLB players by position. I tried to avoid "cherry picking" high performing players with unusually low salaries or by using a player with an especially good year right now versus a Yankee having a down year. Instead, I matched by OPS (on base + slugging) and pitchers by ERA where the statistics of the non-Yankee players have been roughly equivalent or better than their Yankee match for at least a couple of years. I excluded A-Rod because his whopping $25 million salary is still primarily paid by the Rangers. Here are comparisons for the top six salaried position players (in millions; alaries from Fox Sports) and top four starting pitchers plus, "closer," Mariano Rivera:

Position Players
Jeter - Mike Young ($19.4 - $2.5), Giambi- Phil Nevin ($13.4 - $9.4), Williams - Tory Hunter ($12.3 - $8.0), Sheffield-Tim Salmon ($11.4-$10.1), Posada - Jason Varitek ($11.0 - $8.0), Matsui - Frank Catalanatto ($8.0 - $2.7).

Pitchers
Mussina-Halladay ($19.0-$10.5), Brown-Oswalt ($15.7-$6.0), Johnson-Mulder ($15.4-$6.5), Pavano-Hudson ($9.0-$6.7), Rivera-Hoffman ($10.5 - $5.0).

In total, the Yankee salaries add up to $145.1 million while the non-Yankees add to $75.4 million. These figures do not even take account of the $20 million or so spent on the next four, second-tier Yankee pitchers such as Wright and Gordon. Players filling similar roles with better numbers on other teams make anywhere from the league minimum up to around $2 million per season. In total, the Yankees are paying around $165 million for players whose mirror images on other teams are making under $80 million.

One could certainly argue with any of my particular matches. Nevertheless, the main point is that I could easily put together a team of players whose productivity, more or less, equaled the Yankees' with half of the payroll. In other words, the $200 million payroll reflects as much a Yankee premium as productivity.

Jeter and Rivera probably illustrate the "premium" point best. Jeter is a very good player whose defensive skills are probably best suited to second or third base. At these positions, his offensive numbers are solid but not Hall of Fame caliber, yet he makes a Ruthian $19.6 million. Change his name, take the Yankee label off, pluck him down in Texas or St. Louis and he makes less than $10 million -- probably way less. Rivera is a great "closer" -- maybe the best ever. However, he pitched 78 innings last year but makes a salary equal to or above almost any non-Yankee starter pitching 200+ innings. Very, very good closers around the league are available for less than Hoffman's $5 million.

Why might a premium exist? I would suggest three possible explanations

#1: Players find playing in New York to be more difficult than other locations and must be paid a "compensating differential" for this "hazardous" duty.

#2: George Steinbrenner wants to win so badly that he does not care that he spends double the amount necessary to attract a player.

#3: Players negotiating with the Yankees are aware of the higher media revenues that the team generates. Rather than permit Steinbrenner to pocket all of the difference between their value to other teams and their value in NY, these players negotiate deals that capture some or most of these additional revenues.

My guess is that the last explanation covers most situations. It amounts to effective "rent-seeking" on the part of players. Their salaries may reflect the value of their productivity in the Yankee market, but it vastly overstates the productivity difference between them and the rest of the league.