The Robinson Cano Contract -- Is He as Valuable as the Highest-Paid CEOs?

Robinson Cano thinks he's the most valuable player in baseball. He and his agent are reportedly asking the Yankees for $305 million over 10 years. The details are unclear, but an average salary of $30.5 million would make him not only the highest-paid baseball players, but one of the highest-paid employees anywhere.

The list of CEOs paid over $30 million in total compensation last year doesn't even reach 10. Does Cano really offer the same value to the Yankees as a top 10 CEO?

Cano's value
Cano is a very good hitter. Not a great hitter, but very good. His value comes from position scarcity. Second basemen aren't typically power hitters, and will occasionally hit for average. Cano provides a bit of both, which has led to a 7.6 WAR, or wins above replacement.

WAR measures how much value a player has over a replacement level player at his position. In other words, if Robinson Cano were injured, like some other high-profile Yankees this year, the team would have likely lost 7 or 8 more games.

Cano's 7.6 WAR is good for fifth overall this season, and his cumulative WAR over the last five years is fourth highest among major leaguers. The only players that have been more valuable in the last five years are Miguel Cabrera, Evan Longoria, and Joey Votto. These players all play first or third base, power positions, whereas Cano plays the typically weak and harder to fill second.

But Cano has never been the most valuable player, not by sabermetrics or writers' vote. In the last five years, however, he's been second in WAR twice (2010 and 2012). But for $305 million the Yankees ought to be getting the best player in baseball for years to come, right?

We can look to the past all we want, but it won't tell us how much value Cano will provide the Yankees in the future.

If we look at the recent history of signing top talent for top dollar after a player turns 30, it hasn't worked out well for the ball clubs doling out the cash. The Yankees ran into trouble offering Alex Rodriguez $275 million. The Angels didn't exactly get what they were hoping for when they signed Albert Pujols for $240 million. The team is also on the line with an underperforming Josh Hamilton for $26.6 million per year until he turns 37.

The fact is, Cano likely only has a few more seasons of top-tier baseball left in his bat. If the Yanks sign him for 10 years, the team will likely be overpaying on the backend. That's not to say he's not worth $30 million for the next few seasons.

Although Cano isn't the absolute best player in baseball, he offers unmatched offensive abilities at second base. He's quick to turn a double play too. But more importantly, Cano offers the Yankees a face for the franchise. He's a homegrown talent and has been one of the few consistent bats in the Yankees lineup over the last few years.

With an aging Derek Jeter nearing retirement and Mariano Rivera saying his farewell this year, the Yankees need a new franchise face. Management has prepared the team's roster to offer Cano a megasalary, letting Nick Swisher and Russell Martin go after last year. $30 million per year doesn't seem out of reach for by far the best free agent on the market.

But how does the potential return on investment stack up against some of the top CEOs?

How the top-paid CEOs performed
If you thought $30 million per year was a lot, how about $96 million? That was the take-home pay for Larry Ellison, founder and CEO of Oracle (NYSE: ORCL  ) in 2012. If anyone's worth that much, it's Ellison.

Not only did he create Oracle, he's the longest sitting CEO of any major tech company. He navigated the company through near-bankruptcy in 1990 when it overstated earnings and had to settle a class action lawsuit. (Of course, it was kind of his mess to clean up.) He overcame competition from Informix and Sybase in the '90s. And in the last five years, he's grown operating income 76%.

Meanwhile, Oracle's stock has bounced back nicely since the market fell in 2008. Over the last five years, the stock has outperformed the S&P 500 64% to 39% for a RASP, return above the S&P 500 (and a statistic I just made up), of 25. The $328 million the company invested in him over the last five years increased Oracle's market value $48.5 billion.

Les Moonves, the second highest paid CEO ($60 million), has done even better. Since taking over as the top executive at CBS (NYSE: CBS  ) in 2003, he's taken the flagship television from worst to first in the ratings. In the last five years, his company's stock has rocketed up 578%. Its market cap stands at $33.57 billion.

Three other media company CEOs made it into the $30 million-plus club last year: David Zaslav of Discovery Communications (NASDAQ: DISCA  ) ($50 million), Bob Iger of Disney ($37 million), and Phillipe Dauman of Viacom ($33 million). All three have been instrumental to the success of their companies, and the results show in their stocks' appreciation.

Zaslav took Discovery Communications public after he assumed the role of CEO in 2007, and transformed the company into a highly efficient non-fiction television powerhouse. The company's revenue improved from $3.3 billion in 2008 to $4.5 billion in 2012. In his time as CEO, the company has increased its market cap fivefold to $30.4 billion. In the last five years, he's racked up a RASP of 384.

Meanwhile, Iger and Dauman come in with RASPs of 60 and 192, respectively. Iger added $55 billion to Disney's market cap in the last five years; Dauman added $24.5 billion.

HCA (NYSE: HCA  ) CEO Richard Bracken was the fourth highest paid CEO in 2012, receiving $38.6 million last year. He took over the role in 2009 and took the company public again in 2011. Since the stock came back on the market its share price has barely matched the S&P 500's return. The company doesn't pay out a regular dividend, but will pay out special dividends to return profits to shareholders. Factoring in the companies total return, Bracken's RASP grows from 5 (over the last 2.5 years) to 39.

It certainly seems these CEOs have earned their pay, providing a significant return on investment for the companies they run. Each of these companies are solidly run, and ought to continue providing good returns in the long-run.

Cano can't return that kind of value
The Yankees are estimated to be worth $2.3 billion, $305 million is a lot more significant to the team than it is to these companies worth tens of billions of dollars. Cano can't improve operating income like Ellison. He can't grow revenue at the rate Zaslav has. He can't single-handedly take the Yankees from a non-playoff team to world champs a la Moonves. And he certainly won't be able to increase the market value of Yankees by nearly as much as these CEOs have grown their companies'.

All he can do is go out on the field and play ball as best he can. The Yankees might sell more tickets and replica jerseys because of it, but it's not going to significantly increase the teams value. But in the world of bloated baseball salaries, $305 million is oddly a fair asking price.

A healthy retirement
If you can't get yourself a $305 million contract of your own, the next-best approach to ensuring your retirement is investing in great companies and sticking with them for the long term. The Motley Fool's free report "
3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2659854, ~/Articles/ArticleHandler.aspx, 8/31/2014 6:23:39 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement