The Budget
When John Hickey wrote about the Tyler Walker signing, he used the column to make a larger point about the M’s payroll, including dropping this tidbit that hadn’t been published before:
But there likely won’t be much more free-agency action because the team has a goal of trimming last year’s $117 million payroll by about 20 percent.
To support this claim, he includes the following quote from Zduriencik:
“I don’t think we are going to be enormously active in free agency,” Zduriencik said. “If the fit is right there, maybe, but we’re not in position to break the bank.”
If the M’s really do want to cut 20% off of their payroll from last year, that would put the 2009 budget at around $93.6 million. If you add up the salaries for the projected 25 man roster as it stands right now, you get $93.2 million. He’s not kidding when he says they’re not in a position to break the bank.
Now, there’s some wiggle room there. Ichiro is going to earn $17 million this season, but $5 million of his salary is deferred at 5.5% interest until after he retires, so they’re only going to physically pay him $12 million. However, they need to account for the deferred payments as a liability against this year, but thanks to the time value of money, the cost of those payments won’t total $5 million – instead, it’s more like $3.5 to $4 million. So, the expense of having Ichiro on the roster for 2009 is more like $15.5 to $16 million.
Also, we can’t really do anything but guess at the salaries for Bedard, Hernandez, and Heilman, since they’re arbitration eligible. I put in $8 million, $3 million, and $2 million respectively, and would imagine all the deals will end up in that vicinity, but variation from those numbers would push the remaining room left in the budget up or down a bit.
No matter how you look at it, though, if the M’s target payroll is around $95 million, then they are pretty close to being out of money. That would push them towards the trade market, where they could match salaries in deals to move pieces around. It makes things tougher, but not impossible.
Looking ahead to 2010, the team has about $55 million committed to 17 roster spots (again, guessing at arb salaries for Hernandez, Heilman, and Morrow, who will be arb eligible after 2009). The expiration of contracts for Beltre, Washburn, Batista, Bedard, Chavez, Branyan, and Walker would give the team something like $40-$45 million in budget room next winter, but would also create some pretty substantial holes in the roster. Beltre, especially, isn’t going to be cheap to re-sign or replace, so a good chunk of that money would go to keeping him in Seattle or trying to recoup the wins lost by watching him go elsewhere.
I know signings like Russ Branyan and Tyler Walker aren’t the kind of moves that are going to get people excited, but given the roster that he was left with by his predecessor, if a 20% budget decrease was really ordered, then Zduriencik should get a few gold stars for how well he’s been able to re-make this team without having much capital to spend.
I’m sorry, but this makes my blood boil. The mariners want to cut payroll by 20%, and they have a new GM coming in, and they have an opportunity to get rid of Washburn’s 10.5 million contract. But they kill it because they weren’t getting enough value back? 10.5 million dollars is a lot of value, last time I checked, and would have given the new GM a lot more space to make the roster his own. If cutting payroll was an end unto itself for the team, they lost a golden opportunity and hamstrung the incoming GM.
Regarding the gaps in the 2010 roster, do you think it would be worthwhile extending Beltre’s contract? If one disregards feasibility (let’s say he want to play for a contender but really likes the direction the team is going in), how much money and what number of years do you think might be acceptable to the player yet still a good value for the team? I realize it’s very speculative and may depend on the offensive numbers he puts up next year.
It’s interesting cross-applying this to Baker’s latest blog post, where he notes that half the M’s blogosphere have turned into Zduriencik fanboys while the other half think he’s “selling a bunch of smoke and mirrors, taking the cheap route on players and unwilling to try to win anything.” I’m not surprised, of course, that there are M’s fans who judge the success of our GM’s efforts by how much money he’s spent; I’m not sure what to make, though, of the apparent fact that those folks are holding Zduriencik solely responsible for “taking the cheap route,” without considering the role of ownership in setting the payroll. I would think that Lincoln et al. should perhaps be a little more proactive with the fanbase on this point — not that they’re hiding the fact that they’ve instructed Zduriencik to trim the payroll (since Hickey reported it), but they don’t seem to be putting a lot of effort into getting the word out on this, either.
Why would they do that, though? They’ve spent years trying to convince fans that they’re one of the top-spending franchises in baseball through misdirection, careful press management, and lying. There’s no way they’re going to actively go out there now and say “we’re cutting the thing we used as a benchmark for how committed we were”.
I’d be surprised if they didn’t start pushing their fanciful “we’re still one of the top-5 payroll franchises” line soon.
Must be the idiot half…on Baker’s blog. Don’t they realize how handcuffed ANY successor would be, given the mistakes of his predecessor?
The 20% budget cut comes as a relief to me because it prohibits stupid contracts and lost draft picks in what should be a rebuilding year.
Except, you know, almost every free agent contracted handed out this winter (non-Yankee division) has been an absolute bargain. The stupid contracts signed so far this winter have gone to Raul Ibanez, Kyle Farnsworth, and K-Rod. Practically everything else has been a steal.
What is the FA market doing to the possibility of extending Beltre and buying out/extending Felix?
I would imagine there’s zero chance of Beltre signing an extension right now. There’s no way Boras is going to think that he can get as good a deal right now as he will next winter.
Felix, that might be something else. He’s only made about $2 million in his whole career so far, and after taxes and agent fees and all that, he’s not exactly loaded. Relative to other MLB players, anyway. Now would be a great time to approach him and see if he’s interested in getting some financial security – a 5/45 offer, or something like that, might work for both parties.
Please please please please please re-sign him.
For all the legitimate love we’ve felt for Z’s moves so far, this is evidence that the powers above him are still idiots and are still a major liability for this team going forward. The fundamentals of the team are sound (so many analogies to the economy and politics here). To cut payroll now, when you still have (a) the best lease deal in baseball, (b) a fanbase that amazingly still buys tickets, (c) Felix, Ichiro, Beltre, Bedard, Morrow, Gutierrez, Clement and Lopie to build around, (d) a winnable division, (e) the best buyer’s free agent market we’ve seen in ages, and (f) a new smart GM in place, who knows what to do with your money… is idiotic. Don’t they understand that a winning team will put butts in the seats?
This really pisses me off.
And furthermore… I usually don’t complain when a team sets a budget. In most cases, it’s a rational budget, and, frankly, it’s not my money, so I don’t feel I have a lot of grounds for argument. There are exceptions to this, though. A decision to drastically lower the payroll would be a slap in the face to fans who have been following this train wreck the past 7 years, because in this case it WAS our money that the team has been flushing down the toilet.
The payroll isn’t the real problem. Nor is ownership which apparently gave Bavasi free rein resulting in disaster and appears to be doing the same with Z. Somehow Z has to dump the mediocre salary eating veterans who are blocking youngsters before he can really rebuild this team. Either that or sit multi millionaire failures on the bench and insist on playing the best, not the highest paid.
I don’t want to go off in a tangent, but this seems significant in terms of the budget both short term and long term.
Beltre’s contract is a good one, expires at the end of next year and takes up a considerable percentage of the budget. This makes him a great trade piece and after last year’s defensive/offensive performance his value should be as high as ever during his tenure in Seattle.
Do you (Dave, DMZ, or Conor) believe that the team would be better served by trading him and taking a risk on Joe Crede’s back? He seems to be exactly the type of player Jack Zed is using to shore up the roster for the short term – great defense, real upside, some questionable aspects to his game (health in this case).
Because of his history and the nature of the current market, I have to think he’d come cheap, particularly if it’s a two year deal (or a one year with a vesting option). If Beltre can bring back a high quality corner infield prospect, the team would have a replacement for Crede’s DL stints and a long term solution for a position that has been hard for teams to fill in the recent past (just look at the Dodgers).
Who are you going to trade Beltre to in this market?
Seriously, the whole reason Joe Crede would be cheap is because it’s a terrible time to be trying to sell anything right now. That includes Adrian Beltre.
Just keep him, let him be his usual +3 to +4 win self in 2009, and try to re-sign him next winter. If he walks, you get at least one draft pick, maybe two.
I’d be surprised if they didn’t start pushing their fanciful “we’re still one of the top-5 payroll franchises†line soon
Can they still do that? Unless everyone else is cutting by 20%, that takes them down to about 11th or so. I guess “we’re still in the top third of baseball” would be true enough, though.
a fanbase that amazingly still buys tickets
Mariner attendance last year was lower than any year since 1996, and is now in the bottom third of MLB. Attendance is a LAGGING indicator of team quality, by the way (which means you should expect to see season ticket sales down considerably for 2009, and the Mariners get smoked by Tampa).
Essentially, the bloom is off the Safeco/1995-2001 rose at this point. I wouldn’t be shocked to see the team have attendance nosedive ala Cleveland after 2001 (maybe not as far, but 2-2.1 million doesn’t seem far-fetched).
The other thing to consider w/r/t payroll cuts is the macroeconomic environment for MLB. There’s substantial evidence that teams are collectively getting very, very cautious about FA offers. They are also the ones who are seeing the season ticket renewal rates and corporate sponsorships. If I was the business owner or corporate bean counter, you bet I’d be looking at cutting the money spent on baseball over laying people off if I could.
That doesn’t mean we can’t regret the wasted opportunities and so on (Washburn, Joh, and so on), but a lot of teams who’ve spent less than us have done pretty well over the years. Z may be able to do a lot more with less than Bavasi ever could.
The idea would be not to get maximum value back for Beltre so much as to free payroll space in order to cash in on the great market and have a longer term solution. If there was a real possibility of resigning him I would think differently but it seems unlikely.
As it stands the Mariner’s infield – all four positions – are question marks going into 2010. OK, so there are players under contract for the middle, but their ceiling is league average.
As for trade partners, I’m no authority on teams needs, but off the top of my head, Texas, Minnesota, maybe Boston. Again, I don’t think the team should be looking to replace his 3.5 wins with the trade return. Crede would do part of that. But if trading Beltre gave them the room to sign both Crede and, say, Dunn (on a Burrell contract) plus a AA/AAA player that projects as a ML infielder it seems like it would be a net gain.
Dave you are correct about having to accrue the liability for Ichiro’s deferred compensation, but the amount that it will cost the team you are incorrect on. The deferred payment is with interest, so essentially ichiro has his money set aside in a risk free investment i.e. the mariners paying interest on the money every year. It all depends what the stated interest is, but with the markets the way they are right now, there is probably no way they can make more of a return with his money higher than the interest they are paying. So in the end it might end up costing them a million more dollars. The mariners I think should try to extend Beltre for a reasonable market price right now before there is any chance the market increases next year. Beltre might bite and we have a player locked in possibly for less. I think he has been worth his contract, but the public in the most part does not think in statistical analysis and see his true value. All they see is 48 homeruns and not anywhere close to that when he signed with the mariners. With that being mentioned, I think we can possibly get him for 5 million less in total for a 4 year deal.
You’re assuming that the other team wouldn’t just sign Crede and Dunn, then.
there is probably no way they can make more of a return with his money higher than the interest they are paying.
As noted in the post, the interest is 5.5%. And there’s no way the M’s cost of capital is that low. The deferred money to Ichiro is a net gain, not a net loss.
This sucks…there are still good free-agents out there that could be signed for what would be an absolute steal compared to contracts of the last few years…
It figures that the one year that we have a good GM and there is a good market, ownership cuts payroll…
My excitement for this season has been hit by this news…
Z better get some good trades going…
A team looking to contend would not take the risk inherent in signing Crede and the Rangers Twins and Red Sox have no need for Dunn. But if you think it doesn’t make sense or isn’t doable I’ll take your word for it.
I just wish Zduriencik had more money to play with.
Please remember that a league average player is a very useful thing to have. If there are 30 teams, that means only 15 teams have a league average or above player at each position with another 5 players or so being just a touch below league average and probably 10 or so being between replacement level and league average.
If Lopez can be league average on his current contract, he’s a great deal for the team. If Yuni can rebound and be league average on his current contract, he’s a great deal for the team.
/end rant
I remember that, but I also remember that a player’s ceiling isn’t necessarily attainable. But this isn’t what this thread is about and I don’t want to provoke the Penates.
Ok Dave….. I don’t know if you watched the markets lately, but they have had nothing but losses. If the mariners put his 5 million into a deferred fund from last year, they would have to make up most likely over 2.5 million in losses. So they are already in the whole. You can diversify risk, but not complete drops in the market. There is high potential that they can make more than 5.5% on his money, but with this economy, it’s like the mariners making the playoffs next year. Name one bank that is paying 6% interest. I haven’t look at Treasury bond rates or bond rates, but I am skeptical that they are above 5.5%.
You’re assuming that the deferred money is going into a bank account or a stock investment.
I don’t want to turn this into an accounting nerd fest, but let’s just say that having spent five years in finance at a Fortune 500 company, I’m confidant in saying that the M’s current cost of capital is still significantly greater than 5.5%.
I wish Hickey had actually attributed his claim about the payroll reduction. His comment about their goal is mighty vague.
Account nerd fest! Account nerd fest! Account nerd fest! Let’s do this!!!
DMZ asked for it…
From Wikipedia:
The weighted average cost of capital is defined by:
WACC = wd (1-T) rd + we * re
wd = debt portion of value of corporation
T = tax rate
rd = cost of debt (rate)
we = equity portion of value of corporation
re = cost of internal equity (rate)
I’m behind this!
And I’m with Mere Tantalisers….
Not dumping Washburn for nothing more than watching his salary go away last summer looks worse and worse as time goes on. The team would have saved around $3M of his 2008 salary and all of his 2009 salary….
I wish we could see what Z would do with an extra $10.5M in this buyer’s market, but unfortunately it looks like we might not get to find out.
Haven’t you heard? Austerity is the new excess. It’s chic to be cheap. If they wanted to spin this it would be all “blah blah economic conditions blah blah discretionary leisure dollars blah blah greatest fans in baseball blah blah put the best product on the field blah blah committed to remaining a ‘high payroll’ team blah blah blah”
In that regard this account of baseball during the Depression is pretty sobering:
Of course that was then, this is now. The teams didn’t have the guaranteed television contracts, sponsorship deals or luxury boxes, and MLB didn’t have worldwide merchandising like it has now. On the other hand, baseball had a lot less competition for consumers’ leisure dollars back then: baseball was the only significant pro team sport (the other big sports at the time were horse racing and boxing) and most games weren’t even on the radio so if you wanted your fix you had to go the game. Sitting at home and playing “MLB 1K33” on your wood cabinet XBox or vacuum-tube PS1933 wasn’t an option, let alone all the other free or cheaper ways you could be occupying yourself these days (like, say, posting on a baseball blog).
It’s still kind of astonishing to read that teams went without coaches and some carried only 23 man rosters to save money, or that “On opening day in 1933, half the 40,000 fans at Yankee Stadium sat in the bleachers, where tickets were 50 cents.”
(BTW, if you don’t have a password to read NYT articles, just copy the title into google and search — you’ll be able to read the first result)
Wasn’t that MLB 1K933?
Gah, I miscalculated. I actually figured they had about $10 Million left (but it was a rough guess as I didn’t go through all the smaller contracts which would add up. My arbitration guess was entirely too conservative as well).
I find it funny that some folks are annoyed with the reduced payroll. The only news here is how much it was supposedly cut. Heck, we knew about the cut itself since last summer which lead to the assumption that Beltre is likely going to be traded and the talk of a possible fire-sale this off-season.
Also, everyone and their mothers knew that who ever takes this job isn’t walking into a clean slate. They’re walking into a disaster. I think lost in all the awesomeness of the past few weeks is that this team is still a mess. Not that it can’t compete but that some parts are just unmovable now.
Oh yea, and the Washburn thing. Yea, that’s $10 Million the team could’ve used but I’m still not going to hold it against them for keeping Washburn, Raul, or anybody else that could’ve been dumped at the trade deadline. Makes sense to put a freeze on the roster until the new GM got their hands on it.
And as we’ve seen already, we’re in really good hands. Even with a limited amount of wiggleroom, Zduriencik is doing a fine job cobbling together a competent baseball team.
The time value of money is an interesting concept.
Especially in a potentially deflationary environment, it’s hard to argue for the normal 10% annual discount for deferring payment.
I’m thinking that 5.5% interest escalator is a pretty good guestimate of the true time value of this deferral for the M’s right now, leaving $5 million as the right number to book in liability
Looking at the numbers, we’d be at the desired $91-93 million if we didn’t sign Silva and Washburn/Batista in the first place. ‘sigh’
But everyone and their mom knew that dumping Washburn was a good idea. If you had polled 100 journalists, bloggers, etc. and asked them if dumping Washburn and his contract for nothing make sense, 90 would have said yes. If you asked about trading Raul for less than what you’d get in from his arbitration picks, most people would tell you that was a bad idea for a number of reasons.
Not making bad trades is good in general. Dumping contracts where the returns are much below the market rate of 1 win per $5M should always be done.
Maybe that’s something for the team to look at this Waiver Wire deadline. Put everyone with a contract that is returning less than $5M per win through waivers and drop them if anyone claims them (assuming no comp picks for Type A or Type B free agents).
DETROIT (AP) — Citing accounting principles spelled out on the Internet blog USSMariner, the chairman of General Motors announced today the company actually is making money and doesn’t need a government bailout after all.
Maybe it’s cause I work in financial analysis, but this seems interesting to me, as do these comments.
First, as a fan, I don’t find this too egregious. The team has spent money in the past and they will again in the future, but I have to imagine you can’t conceivably go to Yamauchi after 2008 and say “We need to spend what we did last year.” I would guess they’ve told Z he’s limited in 2009 but with spending potentially upping as the team improves. So, if he has some success this year I’d guess he’d get a bump in 2010.
Also, Derek regarding
I don’t understand. Are you saying the team doesn’t spend money? This post from August would seem counter to that. And regardless of how wisely or unwisely they may have spent that money I’ve never seen an unwillingness to spend as a problem. Maybe I’m misinterpreting what you’re saying here.
Thanks.
I walk on over to my go to Ms blog to see if the fact that Ben Sheets hasn’t been signed yet would mean he was in the same realm of a “nice player to sign to short term deal” as some of the other players that have been signed recently…and this is what i see. Disappointing.
You’re misinterpreting what I’m saying.
Look at the bright side. This way we can’t spend $100m and lose 100 games again.
Let’s look at this long term though. The team cuts back to $91-93 million during a season when, remember, we aren’t really supposed to be contenders. (If we catch lightning in a bottle and contend, great. If not, we haven’t disappointed.) Then the next season, $30 million in bad contracts either expire or get traded. Now Z-man has $40-50 million (assuming a return to the 2008 salary level, if not, then less but still gobs and gobs) to spend on 2010 and beyond.
Derek,
Okay, would you be willing to elaborate then? I read your comment as saying the team lies, etc. about the fact that they are a top-spending team. What did you mean?
Also, @ wabbles,
I agree completely. I would also figure that if the team gets close to contention it’s much easier to hit up Yamauchi for more dollars down the line. Look what happened in 2008 after 2007.
Washburn, Silva, and Johjima are the three to beat ourselves up about, I’d say.
Of the three, Washburn was the only one where there was a shred of hope that someone somewhere would take over the contract in return for nothing at all. In today’s market, even that shred is completely gone.
I think we should move on. I feel depressed enough about it anyway.
I’m sure they would go a couple million over budget for Griffey. Not saying that would be the best move for them to do but I could see him being an exception.
Isn’t Derek saying that for the last 5 years the way management justified having a losing season (and explaining why we should be spending money on tickets) was by saying that they were spending so much money and therefore “trying to win”. On top of that, most would argue that the amount they are using to judge their spending is being artificially inflated to help support this purpose.
By continually using this argument they have basically have created a preception within the fanbase that:
Spending Money = Trying to Win
Well if they suddenly stop spending money…doesn’t that mean that the fanbase will now starting thinking:
Not Spending Money = Not Trying to Win
I (and Derek) doubt they want the fan base who has continually been fed the idea that spending money equals “trying” to think they’ve stopped trying.
Therefore, we will probably start seeing pieces by the media that will show that the Ms still spend TONs of money. Since the actual number is no longer possible to fall back on…we will start seeing that their spending is high based on a percentage of something else…like “We spend X% of our yearly revenues, which is higher than Y% of the teams”.
no, because a great portion of the fanbase still somehow firmly believes that they are Not Spending Money & Not Trying to Win
Why would they do that, Derek? Because it’s less than honorable to allow people to blame Zduriencik for abiding by limitations which they have put in place.
Is that sarcasm?