New York Yankees Editorial: Alex Rodriguez Has Been Worth the Money

Alex Rodriguez is having an excellent 2015 season as the primary DH of the New York Yankees. This is somewhat unexpected given that he is a soon-to-be 40-year old coming off serious injury and lots of missed baseball. It typically doesn’t work this way. His resurrection warrants another inspection of his aggregate cost to the Yankees: both the contract they took on from the Rangers when they acquired him prior to the 2004 season and the 10 year/$275M (+incentives) contract that he signed prior to the 2008 season. The Yankees expected to underpay on the front-end and overpay on the back-end. That’s usually how these long-term free agent deals work. Simply looking at a portion of the deal and deeming it a success or failure would be incorrect. The entire contract needs to be viewed as a whole. While there are still two and a half years left on the contract, Owen Watson of FanGraphs ran the math and provided a status report through the middle of year 8.

Watson uses the $/WAR construct that is common when evaluating these contracts. First, he looks at how much money teams around the league were paying for production (based on WAR). Then Watson compiles the amount of money the Yankees have paid ARod versus the on-field value he has provided. Finally, he combines steps 1 and 2 to determine if the Yankees spent efficiently for ARod. For example, in 2007, ARod was paid $23M and was worth 9.6 wins above replacement. The $/WAR comes out to $2.4/WAR. The league average $/WAR for 2007 was $5.6/WAR according to this work by Matt Schwartz. At this rate, the Yankees would expect about 4.1 WAR when spending $23M that season. However, they actually received 9.6 WAR and this gap, 5.5 WAR, is the “surplus wins above replacement” according to Watson. The Yankees were paying less money to ARod for each win he produced compared to the league rate. They received more bang for their buck. Watson does this for each season ARod has been in New York, and finds that he has been worth 3.5 surplus wins above replacement.

Teams want to spend money efficiently. Every team has a limit (yes, even the Yankees and Dodgers) on how much they are willing to spend to field a baseball team in a given season. Money spent on one player cannot be spent on another player. There are opportunity costs. Overspending on a below average starting pitcher, for instance, might preclude a team from filling a hole at third base. According to Watson, ARod’s on-field production through 8.5 years has been more than worth the cost. This doesn’t even include the massive attendance and television viewing boost he generates. His marginal revenue product is much higher than just his on-field value. Lengthy contracts for baseball players don’t usually turn out well. ARod produced a ton of positive surplus value on the front end followed by several seasons of negative surplus value. Now, his 2015 season is positive again. The Yankees hope that ARod can remain productive for the remaining 2.5 years so that they can stay in the black for this investment.

New York Yankees Editorial: Alex Rodriguez Has Been Worth the Money

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