One of the most famous baseball players on the most famous team, Derek Jeter’s image is directly tied not just to be baseball, but as the icon of the New York Yankees. He has been their star player and the face of the franchise for nearly two decades now. This legacy that Jeter has built up, however, is going to pose some unique problems for the Yankees this coming winter. As his current contract expires, how will the Yankees handle contract negotiations? 2010 has been Jeter’s worst season statistically by far, but all signs point towards Jeter receiving a new contract far above what would be perceived as the equilibrium for a player of his caliber and age.
The author of the article, Dan Le Batard, estimates that a comparable player of Jeter’s age and skill would likely receive no more than $10,000,000 for a single year. He then goes on to guess that the Yankees are going to have to pay Jeter five times his market value. Both of these statements from a baseball economic perspective would be agreeable to nearly everyone. From these figures, we can then gain a better insight into the Yankees’ mentality.
The Yankees are overpaying dramatically, at the very extremes of the demand curve for Jeter and certainly far beyond the equilibrium. Why on Earth would an organization pay so much money to someone whose market value is clearly not even in the same realm? The author’s guess: public relations; sentimentality. This variable cannot be considered in the basic supply and demand curve, as the consumer category which would likely be applicable – tastes and preferences – is held constant. When that factor is taken into account, however, we see that the preference that the Yankees have of bringing Jeter back on board as opposed to some other shortstop is worth roughly $50,000,000. Sure, the Yankees have the bottomless wallets that allow them the luxury of overpaying for their aging star’s last hurrah. It is interesting to consider, though, from a microeconomic perspective, how much Jeter’s likely contract stands in defiance of the perceived equilibrium from our model.