Yankees’ luxury tax payroll situation for 2018

Updated: 10/1/18

Estimated 2018 Yankees’ luxury tax payroll: $192.5M
2018 luxury tax threshold: $197 million

The 2018 regular season is complete. The Yankees were, as expected, one of the best teams in MLB. They finished 100-62 with a +182 run differential despite a barrage of injuries that sent Aaron Judge, Gary Sanchez, Clint Frazier, and Jordan Montgomery to the disabled list for long stretches of time. Others like Didi Gregorius and Aroldis Chapman have missed time as well. Overall though, the Baby Bombers are pretty rad.

One number has been hanging over the Yankees all year: $197M. That is the luxury tax threshold for the 2018 season. Ownership and the front office are adamant the Yankees will get under the threshold this year — they’ve paid luxury tax every year since the system was put in place in 2003 — which would reset their luxury tax rate. Right now the Yankees are taxed at the maximum 50%.

As the season progressed the team’s payroll situation evolved due to call-ups and midseason additions. Every change to the roster changed the luxury tax payroll. Because getting under the $197M threshold this year is an important stated goal, we did our best to keep track of the payroll situation with this intermittently updated post. Here’s where the Yankees stand as of October 1st.

On September 10th, the last time I updated the payroll situation, I had the Yankees with a $197.1M projected luxury tax payroll for the season, which was over the $197M threshold. Now I have that at $192.5M after the season. Let me explain.

1. Most bonuses were not accrued. Most notably, CC Sabathia fell two innings short of a $500,000 bonus because he was ejected for throwing at Jesus Sucre last week. That was the whole “that’s for you, bitch” episode. Here’s a recap of bonuses we know definitively the Yankees will not have to pay out:

• Lance Lynn: $1M each for 170 and 180 innings pitched (finished with 156.2 IP total)
• Andrew McCutchen: $25,000 for All-Star Game (Giants would’ve paid this anyway)
• David Robertson: $15,000 for All-Star Game; $25,000 for All-Star Game starter
• CC Sabathia: $500,000 each for 155, 165, 175, and 185 innings pitched (finished with 153 IP)
• Giancarlo Stanton: $50,000 for All-Star Game
• Neil Walker: $125,000 each for 425, 450, 475, and 500 plate appearances (finished with 398 PA)

That is $4,615,000 worth of possible bonuses right there, with most of it being tied up in Lynn’s and Sabathia’s innings. That’s a lot of money! When you’re counting every penny to stay under a hard payroll cap, these bonuses have to be considered. They can sneak up on you.

I included many of these bonuses in the last payroll update because they are real dollars that have to be considered, but now that the regular season is over, we know they won’t be paid out. That’s why our luxury tax payroll estimate dropped from $197.1M to $192.5M since our last update.

2. There are still several bonuses possible. Playing time and All-Star Game bonuses were not reached this season. We know that now. There are still several awards bonuses lingering, however, and these will count against the luxury tax payroll. Here’s a breakdown of the bonuses that are still possible:

• Andrew McCutchen: $25,000 each Gold Glove and World Series MVP; $125,000 for MVP; $75,000 for MVP second place; $50,000 for MVP third place
• David Robertson: $25,000 for Gold Glove; $50,000 for Sporting News All-Star; $75,000 for ALCS MVP; $100,000 each for MVP and Cy Young; $90,000 each for MVP and Cy Young second place; $80,000 each for MVP and Cy Young third place; $70,000 each for MVP and Cy Young fourth place; $60,000 each for MVP and Cy Young fifth place
• Giancarlo Stanton: $50,000 each for Gold Glove and Silver Slugger; $100,000 for MVP; $25,000 for ALCS MVP; $50,000 for World Series MVP

That is $800,000 worth of outstanding bonuses. Some of these we can say will not be triggered with reasonable certainty. McCutchen is not winning an AL Gold Glove or the AL MVP award. Robertson’s not winning the AL MVP and/or AL Cy Young, or even finishing in fifth place. The chances of Robertson and Stanton being named ALCS co-MVPs, and McCutchen and Stanton being named World Series co-MVPs, are small. So on so forth.

These bonuses are still out there though and can be accrued, so we might as well include them in our estimate. At this point, that $800,000 in possible bonuses is insignificant anyway. The Yankees have plenty of room under the $197M luxury tax threshold. Enough that they could even pay Sabathia that $500,000 bonus he missed because of the ejection as a thank you without putting the luxury tax plan in danger. That’s not going to happen, of course. I’m just saying.

3. The Yankees added salary at the trade deadline (duh). Boy, were the Yankees active at the trade deadline or what? They made six trades in the week leading up to July 31st and five had a direct impact on the 25-man (and thus 40-man) roster, which means they had luxury tax implications. They then made two more trades prior to the August 31st postseason eligibility deadline. Here’s a recap of the trade deadline activity:

• Dillon Tate, Josh Rogers, and Cody Carroll for Zach Britton. (RAB post)
• Brandon Drury and Billy McKinney for J.A. Happ. (RAB post)
• Chasen Shreve and Gio Gallegos for Luke Voit and $1M in international bonus money. (RAB post)
• Caleb Frare for $1.5M in international bonus money. (RAB post)
• Adam Warren for $1.25M in international bonus money. (RAB post)
• Tyler Austin and Luis Rijo for Lance Lynn. (RAB post)
• Abi Avelino and Juan De Paula for Andrew McCutchen. (RAB post)
• Cash or a player to be named later for Adeiny Hechavarria. (RAB post)

(Frare was not on the 40-man roster. That trade had zero impact on the luxury tax payroll.)

Prior to all those trades, the projected luxury tax payroll sat at $184.1M. Now it’s up to $192.5M. So yes, the Yankees did take on salary at the deadline, though perhaps not as much as you’d think. Trading away Drury, Shreve, and especially Warren offset some of the salary gains, plus the Twins and Giants paid half Lynn’s and McCutchen’s remaining salary, respectively.

As for Hechavarria, he is making $5.9M this season, but the Associated Press reports the Yankees were only responsible for the pro-rated portion of the $545,000 league minimum, or roughly $88,000. The Rays and Pirates are paying the rest. The Lynn and Warren moves were essentially payroll neutral. The Yankees really only took on salary with Britton, Happ, and McCutchen at the deadline.

4. The call-ups are complicated. Pre-arbitration-eligible players on split contracts — the majority of the players on the roster, basically — get paid one salary at the Major League level and a different salary in the minors, and their luxury tax hits are pro-rated. The MLB season is 186 days long and say, for example, a player spends 100 days in MLB and 86 days in the minors. His luxury tax hit is then 100 days of MLB salary plus 86 days of MiLB salary.

It’s important to note only minor leaguers on the 40-man roster count against the luxury tax payroll. Jace Peterson, Shane Robinson, David Hale, Stephen Tarpley, and Justus Sheffield were never on the 40-man and in the minors, so their minor league salary is irrelevant for luxury tax purposes. Guys like Thairo Estrada and Albert Abreu are on the 40-man though, so their minor league salaries count against the luxury tax payroll. It’s not much, but every dollar counts.

The Yankees called up eight minor leaguers after rosters expanded on September 1st and several of them weren’t called up until mid-September. September call-ups have a relatively small impact on the luxury tax payroll. They count against it, for sure, but each call up equals less than $100,000 added to the bottom line. Those guys were never going to make or break the luxury tax plan.

5. The disabled list provides no relief. Jacoby Ellsbury’s salary didn’t go away for luxury tax purposes just because he’s injured and didn’t play. The Yankees are recouping some of his salary through insurance, though that doesn’t help the luxury tax situation. Players on the disabled list still count against the luxury tax payroll. It’s like they’re on the active roster. Ben Heller underwent Tommy John surgery and missed the entire season — he didn’t throw a single pitch during the regular season — yet his full salary counted against the luxury tax payroll. Such is life.

6. The Yankees accomplished their goal. The regular season is over and, with the exception of that $800,000 in outstanding possible bonuses, the luxury tax payroll is final. The Yankees are at $192.5M according to my estimate, which is well below the $197M threshold. Keep in mind this is only an estimate and not an official number. I was within $500,000 of the last reported number, however, so I’m feeling pretty good about things. The Yankees are under the threshold.

So what does that mean, exactly? It means their luxury tax rate has been reset. They’ve been taxed at the maximum 50% for years and years and years now. They won’t pay any luxury tax this year, and, if they go over the $206M luxury tax threshold next year, they will be taxed only 20% for every dollar over the threshold. There are also surtaxes for excessive spending:

• $20M to $40M over threshold: 12% surtax
• $40M+ over threshold (first time offenders): 42.5% surtax and first round pick moves back ten spots
• $40M+ over threshold (repeat offenders): 45% surtax and first round pick moves back ten spots

Last season the Yankees paid $15.7M in luxury tax based on a $226.4M luxury tax payroll. The total payout was $242.1M. This year it is $192.5M. The Yankees went to Game Seven of the ALCS last year, raked in all that postseason revenue (six home dates), received their hefty portion of the league’s BAMTech sale to Disney this year, and slashed payroll nearly $50M. Seems unnecessary, but ownership’s gonna do what ownership’s gonna do.

If you have any questions about the luxury tax payroll, or if you notice an error, shoot me an email at RABmailbag (at) gmail (dot) com.