Under the terms of the Major League Baseball (MLB) 2011 collective bargaining agreement, the New York Yankees, known for their deep pockets, faced incentives to break with tradition and keep their 2014 payroll under the league’s luxury tax threshold of $189 million.
Thanks to its habitual sky-high spending, the team faced a 50% league tax on the amount it spent above the threshold in 2014. If it spent below the limit for just one year, however, it could “reset” its tax for exceeding the threshold in 2015 to a much lower 17.5% and get more players for its bucks that year, Ken Davidoff explains in the New York Post. Consequently, a new plan was born for 2014: Work more on bringing young players up through the ranks and less on winning over the hot prospect of the moment.
A new game plan
Then came the 2013 season. With many of the Yankees’ best players on the disabled list and others underperforming, attendance and television ratings plummeted. For only the second time in 19 years, the team failed to reach the playoffs.
In panic mode, the team began aggressively signing free agents, scooping up Brian McCann in an $85 million, five-year deal and Jacoby Ellsbury for $153 million over seven years. Alex Rodriguez’s doping suspension for the 2014 season gave the Yankees an influx of $25 million. But salary, benefits, and other player costs reached $186 million, just shy of the $189 million threshold.
Revising the rule book
Going for broke, the Yankees entered the race for Masahiro Tanaka, a Japanese pitcher with an impressive 24-0 record in 2013 for his team in Japan.
Until recently, MLB teams pursuing a player in Japan had to engage in a sealed-bid auction with one another for the right to negotiate exclusively with the player.
At a November 2013 meeting of MLB team owners, Pittsburgh Pirates president Frank Coonelly successfully proposed revising this procedure to give small-market teams more leverage, the Post reports. Now any MLB team that promises $20 million to a player’s Japanese team for his release can negotiate with the player.
In the first test of the rule change, seven MLB teams stepped up to promise $20 million to Tanaka’s team in exchange for negotiating rights.
As Yankees general manager Brian Cashman made his pitch, Tanaka complained that other U.S. teams had told him that they would ease him into their rotations slowly. Cashman assured him that if he joined the Yankees, he would be a starting pitcher right off the bat.
After Tanaka had met all seven teams, his agent, Casey Close, informed them that they would have to offer at least a $120 million, six-year contract. The Yankees, the Los Angeles Dodgers, and the Chicago Cubs submitted bids.
Tanaka accepted the Yankees’ $155 million, seven-year contract, the largest deal ever secured by a player from Japan. The deal puts the Yankees well over the luxury tax threshold yet again—and facing the 50% tax rate they had planned to avoid.
Dealing in the big leagues
Abandon plans with care. The Yankees’ fear of a second weak season in a row caused management to jettison a carefully considered fiscal plan. Negotiators often face the challenge of sticking to their plans in the face of immediate temptations. Unbiased third parties may be able to help you decide if your logic is sound.
Change the game. The MLB’s new rules for talks with players from Japan gave more power to small-market teams and to the players themselves. When you find yourself in a weak position during a negotiation, you might propose modifying the rules or traditions as a means of leveling the playing field.
Identify core concerns. Unlike other teams, the Yankees picked up on Tanaka’s desire to hit the ground running in the United States. Their promise to feature him in the starting lineup may ultimately have been as persuasive as their generous salary offer.