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Tuesday Notes: Sabathia, Luxury Tax, Severino, London Series

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(Getty)

The 2018 Winter Meetings are over and, historically, this last week before the Christmas and New Years holidays is a busy hot stove week. Teams and players like to get things settled before the calendar flips to next year. There should be some signings this week. Will the Yankees make any? We’ll see. Anyway, here are some miscellaneous notes to check out.

Yankees paid Sabathia innings bonus

Remember when CC Sabathia forfeited that $500,000 bonus because he threw at Jesus Sucre in his last regular season start? Of course you do. That was the “that’s for you, bitch” incident. Turns out Sabathia didn’t forfeit the bonus at all. According to Ronald Blum, the Yankees paid Sabathia the $500,000 bonus anyway even though he fell two innings short of triggering the bonus. Pretty cool.

“We thought it was a very nice gesture by the Yankees. CC was very appreciative and is really excited to come back next year and hopefully win a championship,” said Sabathia’s agent to Blum. Considering the score (Yankees led 11-0) and the way he was pitching (five one-hit innings), it seemed very likely Sabathia would throw those last two innings he needed to trigger the bonus. I have to say, I didn’t think the Yankees would pay the bonus. Paying out a bonus the player didn’t reach doesn’t seem like a precedent they’d want to set. Glad to see they paid Sabathia. Dude’s been worth every penny.

Yankees get $23,877.11 in luxury tax money

According to Blum, the Red Sox and Nationals were the only clubs to exceed the $197 million luxury tax threshold in 2018. Boston owes $11,951,091 in luxury tax and the Nationals owe $2,386,097. Because the Red Sox exceeded the threshold by more than $40M, they were hit with the maximum possible penalties, meaning two surtaxes plus having their first round pick moved back ten spots. I doubt they mind it after winning the World Series. The $14,337,188 owed by the Red Sox and Nationals is the smallest luxury tax bill since teams owed $11,798,357 in 2003.

The Yankees finished the season with a $192.98M luxury tax payroll. Add in the Sabathia bonus and my calculations had them at $192.99M. I am pretty darn proud to be that close. Go me. Anyway, the Yankees had paid luxury tax every year since the system was put in place in 2003 before getting under this year. Their total luxury tax bill from 2003-17 was north of $340M. According to the Collective Bargaining Agreement, the first $13M of that $14,337,188 is used to pay for player benefits. Half the remainder goes to retirement accounts and the other half is distributed to the non-luxury tax paying teams. So congrats to the Yankees for getting $23,877.11 in luxury tax money this year. Hang a banner.

White Sox wanted Severino for Sale

Here’s a fun retroactive rumor. Brian Cashman recently told Ken Davidoff the White Sox wanted Luis Severino and another unnamed young core Yankee in exchange for Chris Sale during the 2016-17 offseason. I imagine that other player was either Gary Sanchez or Aaron Judge. “Thank God I didn’t do that, actually, because you’d be missing some serious components of our Major League club right now that are under control. We wouldn’t have gotten anywhere if I did anything like that with the White Sox back then,” said Cashman.

In the two years since trade talks, Sale has Severino beat in bWAR (+12.9 to +10.1) and fWAR (+14.2 to +11.5) but not by an enormous amount, and besides, who knows how each would’ve performed had the trade gone down. Their entire career paths would’ve changed in different organizations. Add in the second piece and gosh, I am a-okay with passing on Sale at that price. He’s a great pitcher. No doubt. The Yankees needed more than an ace pitcher at the time though. They needed as much young talent as possible and now they have a ton of it.

Start times for London Games announced

Olympic Stadium. (Getty)

A few days ago MLB announced the start times for the London Series games next June. The Yankees and Red Sox are playing a quick two-game set at London Stadium next year as MLB looks to grow the game globally and make money (not necessarily in that order). The Yankees will be the road team for those two games. Here are the start times:

  • Saturday, June 29th: 1:10pm ET (6pm in London) on FOX
  • Sunday, June 30th: 10:10am ET (3pm in London) on ESPN

Morning baseball on a Sunday? Pretty cool. The Yankees have back-to-back off-days prior to the London Series — it’s my understanding MLB has some promotional events scheduled for Friday, so I’m sure Yankees and Red Sox players will be involved — and one off-day following the London Series. They have a ten-game homestand, then they go to London for two games, then they come right back to New York for a road series against the Mets.

ESPN Sunday Night Baseball Games moved up

It is a baseball miracle. Last week at the Winter Meetings it was announced ESPN Sunday Night Baseball games will be moved up one hour from 8pm ET to 7pm ET next season. Thank goodness for that. Now all those Sunday night Yankees-Red Sox games might actually end before midnight on the East Coast. The Yankees play a ton of Sunday night games each year and this means we’ll all get to bed at a more reasonable hour those nights.

The change was made because players hate those 8pm ET start times too. At least one team has to travel after the late Sunday game and get into their next city super early the next morning. Now they’ll have that extra hour. ESPN has released a partial 2019 Sunday Night Baseball schedule and already there are three Yankees-Red Sox games on the schedule (June 2nd, July 28th, August 4th). I’m sure the Yankees will play several other Sunday night games as well. They are unavoidable.

Yankee Stadium food safety rates poorly

According to an ESPN investigation, Yankee Stadium ranked dead last among the 30 MLB stadiums in food safety violations from 2016-17. That is a bad thing. Forty-three Yankee Stadium food service outlets were inspected and 34 contained high-level violations, including food that was “adulterated, contaminated, cross-contaminated, or not discarded” properly. Pretty gross! The Yankees and Dan Smith, president of Yankee Stadium food service provider Legends Hospitality, fired back at the report in a statement:

“We treat food safety with the utmost care. We disagree with the ESPN report, whose methodology is unexplainable. We work closely on regular inspections with the New York City Department of Health, whose rigorous participation is welcomed. We also complete our own independent assessments with various consultants and auditors, including food safety companies. If any violation is pointed out, it is addressed and corrected immediately. As a result, in 2018, all of our food stands received an A-level grade, which is the highest level in New York City.”

I suppose I should note the violation level at Yankee Stadium (0.67 high-level violations per inspection) is far lower than the violation level in the surrounding South Bronx area (1.47) so … yay? If at all possible, don’t eat at Yankee Stadium, and I would’ve said that even before seeing this report. The food is expensive and compared to other ballparks around the league, the concessions are seriously lacking. Seriously, how do the Yankees with their new ballpark have such crummy concessions? Folks, eat before or after the game if you can.

Laying out the Yankees’ payroll situation for 2019

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(Mike Stobe/Getty)

No later than one week from yesterday, the 2018 World Series will end and the 2018-19 offseason will begin. The Yankees have more heavy lifting to do this winter than I think they would like. Blame injuries (Didi Gregorius, Jordan Montgomery) and poor performance (Sonny Gray). The rotation will be a “focus point.” Don’t sleep on the infield and even the bullpen too.

We don’t know how much the Yankees will spend this winter and we don’t know their payroll limit for next season. The Yankees reset their luxury tax rate this season and Brian Cashman indicated he has to seek approval from Hal Steinbrenner to exceed the luxury tax threshold next year. We know the Yankees can support a $240M payroll. They did it just last year. The franchise could almost certainly support a payroll much higher than that. They choose not to. C’est la vie.

Since the Yankees are counting pennies these days, I figured I’d be good to lay out the payroll situation for this offseason and next season. The Yankees operate in the world of the luxury tax. They’re more concerned with luxury tax hits than actual salary, so this is an estimate of the luxury tax payroll. Here’s what the Yankees have on the books for next season:

  • Masahiro Tanaka: $22.14M
  • Giancarlo Stanton: $22M
  • Jacoby Ellsbury: $21.86M
  • Aroldis Chapman: $17.2M
  • Arbitration-Eligibles: $45.1M (projected)
  • Pre-Arbitration-Eligibles: $13M (estimated)
  • Miscellaneous: $15M (estimated)

That all adds up $156.3M and that, in theory, covers the entire 40-man roster. In reality, it doesn’t even cover the 25-man roster because the Yankees aren’t going to plug three kids making the minimum behind Tanaka and Luis Severino in the rotation. I mean, they could, but I’d bet against it. The luxury tax threshold jumps to $206M next year, so, based on this, the Yankees have $49.7M to spend this winter. That’s a lot! Let’s talk out the payroll.

1. Wait, only four guaranteed contracts? Really? Really. I was shocked. The Yankees shed Brett Gardner ($13M), David Robertson ($11.5M), CC Sabathia ($10M), J.A Happ ($4.32M) Neil Walker ($4M), Lance Lynn ($2.03M), and Andrew McCutchen ($1.26M) this offseason. They’re all free agents. Tanaka, Stanton, Ellsbury, and Chapman are the only remaining guaranteed contracts on the books. Pretty wild. That’ll of course change once the Yankees start signing free agents and making trades. Those guys becoming free agents have to be replaced.

2. What about Gardner’s option? Yeah, don’t forget about this. Gardner’s contract includes a $12.5M club option with a $2M buyout for next season. It’s a $10.5M decision. I really have no idea what the Yankees will do. Declining it seems like an easy decision given his second half — even if the Yankees want to bring Gardner back, they’d be able to do so at a lower salary than the option, right? — but the Yankees love love love Gardner. Wouldn’t surprise me to see them pick it up, honestly.

Anyway, as far as the luxury tax goes, the Yankees have already been taxed on the $2M buyout. It is guaranteed money and it was lumped into the average average value of Gardner’s contract these last few years. Declining the option has no luxury tax impact next year. The $2M has be paid to Gardner, but it doesn’t get charged to next season (or this season). It’s already been taxed. Here’s what the Collective Bargaining Agreement says about the option being exercised:

Article XXIII(E)(5)(b)(ii): Potential Adjustment to Payroll
Notwithstanding subparagraph (b)(i) above, if the Player ultimately does not receive the Option Buyout, then for the Contract Year covered by that option, no portion of the Buyout shall be included in any Club’s final Actual Club Payroll. In addition, any Club whose final Actual Club Payroll in a previous Contract Year had included that Buyout (or a portion thereof) will receive a deduction (in the full amount of the Buyout included in previous Contract Years) in its final Actual Club Payroll in the Contract Year covered by that option.

In English, that means Gardner’s luxury tax hit for next season would be $10.5M should the Yankees pick up the option. They get to subtract out the $2M buyout from the $12.5M salary because they’ve already been taxed on it. Got it? Good. I’m leaving Gardner out of the 2019 payroll estimate right now because he’s technically not under contract for next season.

3. What about Sonny Gray? He’s a goner. Brian Cashman couldn’t have made it any more clear at his end-of-season press conference. Gray will get traded this winter, he’ll go somewhere else and pitch well, and the Yankees won’t care one bit. The organization’s frustration with Sonny was almost palpable this year. Cashman, Aaron Boone, Larry Rothschild … they’re all over Gray. They’ll trade him this winter and won’t look back.

MLBTR projects a $9.1M salary for Gray next season and that is included into the estimate above because, well, he’s on the roster. He hasn’t been traded yet. Once the Yankees trade Sonny, we’ll circle back and adjust our 2019 payroll estimate. There’s a pretty good chance the Yankees will take back salary in a Gray trade (it might even be a payroll neutral trade) so shedding that $9.1M might not be as cut-and-dried as it may seem.

4. Where’d you get $13M for pre-arb players? I based it on this year’s payroll. According to our math, the Yankees spent $8,889,531.81 on pre-arbitration players and $3,904,834.64 on miscellaneous players (Shane Robinson, David Hale, etc.) this year. I added those two numbers together and rounded up. See how easy that is?

In all seriousness, I’m comfortable assuming next season’s pre-arbitration players will cost a similar amount as this year’s. The league minimum doesn’t increase much ($545,000 to $555,000) and the Yankees had a ton of injury call-ups throughout the year. That last part is important. This estimate includes minor league salaries and injury call-ups and September call-ups and all that. We don’t have to set aside anything for that. To use my favorite Boone-ism, it’s all baked into the cake.

5. What are those miscellaneous costs? The Yankees paid $6M to players no longer on the Yankees this past season. They paid $5.5M of Brian McCann’s salary and they paid half the $1M bonus Chase Headley received when he was traded. That $6M is off the books now. At the moment, the Yankees do not owe any money to players on other teams.

That $15M estimate for miscellaneous expenses is tied up in two things: Stanton’s award bonuses and benefits. Every club chips in toward player benefits and this year that amount was $14,0444,600. That counts against the luxury tax and the number increases a little each season. Stanton has $325,000 in potential bonuses in his contract and those also count against the luxury tax payroll. Add the bonuses with the increased benefits expenditure and you get $15M or so.

* * *

Based on all that above, the Yankees have about $50M to spend this winter before hitting the $206M luxury tax threshold next season. It could be more depending on the Gray trade and it could be less depending on Gardner’s option. Hal could always approve a higher payroll as well and I hope he does because there are some premium free agents out there. The Yankees have money and the window ain’t getting any more open. If they’re not going to exceed the luxury tax threshold now to sign some top free agents, when will they?

Yankees’ luxury tax payroll situation for 2018

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(Jim McIsaac/Getty)
(Jim McIsaac/Getty)

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.

Saturday Links: Donaldson Trade, A-Rod, Luxury Tax Payroll

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Donaldson. (Presswire)

The final homestand of the 2018 regular season continues later today with the middle game of the three-game series against the Blue Jays. That’s a 4:05pm ET start. Here are some links and notes to check out in the meantime.

Yankees among teams upset about Donaldson trade

According to Ken Rosenthal (subs. req’d), the Yankees are among the teams to reach out to MLB to voice displeasure with the Josh Donaldson trade. Specifically, they are unhappy Donaldson was deemed healthy enough to be placed on trade waivers, only to have the Indians place him right back on the disabled list right after the trade. Rosenthal says the Red Sox and Astros also weren’t happy with the deal. The teams that might face Cleveland in the postseason, basically.

Players have to be on the active roster or on a minor league rehab assignment to be placed on trade waivers. Donaldson had been out since May with a calf injury, then conveniently started a rehab assignment a few days before the August 31st postseason-eligibility deadline. He cleared waivers, was activated, then was traded and put right back on the disabled so he could play more rehab games. Fishy. That said, the Yankees (and Red Sox and Astros) would’ve done the same thing in a heartbeat. Don’t like it? Then you should’ve claimed Donaldson on trade waivers to block a deal. (Donaldson went unclaimed, so he was free to be traded anywhere.)

A-Rod hoping for Hall of Fame call

We are three years away from Alex Rodriguez’s name appearing on the Hall of Fame ballot, and, when the time comes, he hopes to get into Cooperstown. Can’t say I’m surprised. A-Rod spoke about about his Hall of Fame hopes during a recent feature with, uh, Cigar Aficionado? Cigar Aficionado. Here’s a partial transcript of the video:

“There’s rules, and you have to follow the rules. I made those mistakes, and at the end of the day I have to live by those mistakes. Whether I get in or not — and let’s be clear, I want to get in, I hope I get in, I pray I get in — if I don’t, I think I have a bigger opportunity yet again. And the platform of my mistakes, the good the bad and the ugly, has allowed me to have a loud voice to the next generation, to say when in doubt, just look at my career … The other message is, maybe I’m not a Hall of Fame player, but I get a chance to be a Hall of Fame dad, a Hall of Fame friend.”

Barry Bonds and Roger Clemens have made some gains on the Hall of Fame ballot in recent years, though they’re still well short of induction, and neither guy served a year-long performance-enhancing drug suspension like A-Rod. Rodriguez hits the ballot in 2021 and he can remain on the ballot ten years. That’s a long time — he can potentially remain on the ballot until 2031 — and lots of minds can change. Right now, I don’t think he’ll get in. Come 2031? Who knows.

Should A-Rod ever make the Hall of Fame, he’d have to go in as a Yankee, right? He played more games with the Yankees (1,509) than the Mariners and Rangers combined (1,275). Same deal with homers (351 vs. 345), though not WAR (+54.2 vs. +63.6). Also, Rodriguez won two of his three MVPs in New York and also his only World Series ring. Yeah, he’d had to go in as a Yankee. No question.

Yankees on track to stay under luxury tax threshold

According to Ronald Blum, the Yankees are indeed on track to stay under the $197M luxury tax threshold this season. I’ve been doing my best to keep tabs on the team’s luxury tax payroll situation all season, and I’m glad to have some confirmation. I had the payroll at $191.8M (without bonuses) in my last estimate. Blum’s source in the commissioner’s office has the payroll at $192.1M. I’m quite proud my estimate is within half-a-million bucks.

The Yankees will have to pay out some playing time bonuses (CC Sabathia’s innings, Neil Walker’s plate appearances, etc.), plus Chance Adams was called up two days ago, and that adds to the luxury tax payroll. Even with all that, they have plenty of room to get under the threshold. Blum says the Red Sox ($238.4M payroll) and Nationals ($203.9M) are the only teams over the luxury tax threshold this year. The Dodgers, like the Yankees, trimmed payroll this year to get under the threshold.

Morosi: Yanks want to set aside $10M for midseason additions

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(Jim McIsaac/Getty)

According to Jon Morosi, the Yankees want to set aside $10M for midseason call-ups and additions. The team is $22M under the $197M luxury tax threshold right now, but they have to earmark some of that $22M for in-season additions. Now we know how much they’re setting aside. Before it was a mystery.

Luxury tax hits are pro-rated when you add a player during the season, so while saving $10M might not seem like much, it is pretty significant. Acquire a player with a $15M luxury tax hit at the halfway mark of the season and you’re only absorbing a $7.5M luxury tax hit, for example. It doesn’t work quite that neatly in real life, but you catch my drift.

The Yankees have a deep farm system with lots of young players on the cusp of the big leagues. That’ll help keep the costs of their in-season additions down. Being able to call-up a league minimum player to fill-in for a few weeks is better than getting a cast-off from outside the organization who might be making real money. That $10M could go pretty far.

Making a case for the Yankees to exceed the $197M luxury tax threshold in 2018

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(Michael Heiman/Getty)

For almost five years now we’ve heard about the luxury tax plan. The Yankees were planning to get under the $189M luxury tax threshold back in 2014, but when they missed the postseason in 2013, that went by the wayside. Nowadays we’re talking about the Yankees getting under the $197M luxury tax plan in 2018, and they’re in position to do it. The roster looks formidable and there is still $22M in payroll space available.

By this point of the 2013-14 offseason, the Yankees had already decided to scrap the luxury tax plan and spend big. The signed Brian McCann in November, Jacoby Ellsbury and Carlos Beltran in December, and were working to sign Masahiro Tanaka in January. The decision to spend was made early, and the Yankees acted decisively. Everything is moving slower this offseason. So many top free agents have yet to sign. The next few weeks might feel like December in a “normal” offseason.

The longer the top free agents remain unsigned, the greater the chance the Yankees jump in and make a surprise move. Would I call it likely? Goodness no. I think they’re dead set on getting under the luxury tax threshold. But the longer those free agents are out there, the more temptation there will be. Players could get desperate and the deals could be too good to pass up. Is there a point where the Yankees would blow up the luxury tax plan? Let’s talk it out.

Let’s Do Some Math

The luxury tax threshold for this coming season is $197M. It jumps to $206M in 2019, $209M in 2020, and $210M in 2021. First-time offenders are taxed 20% for every dollar over the threshold. Second-time offenders are taxed 30%. Third-time and beyond offenders are taxed 50%. That’s where the Yankees are at right now. They’re taxed at 50%.

Furthermore, the newest Collective Bargaining Agreement introduced surtax tiers, so the more you exceed the luxury tax threshold, the higher your tax rate. Here are the new surtaxes, straight from the CBA itself:

Every dollar over the $197M threshold would be taxed at 95% — 95%! — if the Yankees ran a payroll north of $237M this season. Heck, a $218M payroll would result in a 62% tax rate. See why the luxury tax now effectively acts as a salary cap? No owner is paying those tax rates.

Anyway, let’s do some quick math. This is what the luxury tax situation looks like if the Yankees get under the threshold this season, reset their tax rate, then exceed the threshold in the future by no more than $20M. I’m considering that first surtax a hard cap.

2018 2019 2020 2021
Threshold $197M $206M $209M $210M
Payroll (first surtax threshold from 2019-21)
 $197M $226M $229M $230M
Tax Rate 0% 20% 30% 50%
Total Tax
 $0 $4M $6M $10M

In this scenario (reset the tax rate in 2018, spend up to the first surtax threshold in future years), the Yankees would pay $20M total in luxury tax from 2018-21. They’re paying $15.7M in luxury tax for 2017 alone. Heck, they paid $27.4M in luxury tax for 2016.

Now let’s look at another scenario. In this scenario the Yankees change their mind and exceed the luxury tax threshold this year. We’re going to consider that first surtax threshold a hard cap again.

2018 2019 2020 2021
Threshold $197M $206M $209M $210M
Payroll (first surtax threshold from 2018-21)
 $217M $226M $229M $230M
Tax Rate 50% 50% 50% 50%
Total Tax $10M $10M $10M $10M

Nice and easy. The Yankees are at the maximum 50% tax rate and they wouldn’t exceed the threshold by more than $20M in any year. That’s $10M in luxury tax per season and $40M total from 2018-21. So, in our two hypotheticals, the difference between resetting the tax rate this season and not resetting the tax rate this season is $20M in luxury tax from 2018-21, or $5M per season. Roughly the cost of a middle reliever.

What’s The Rationale For Going Over?

To get better, obviously. Exceed the threshold to add whatever — a pitcher, an infielder, whatever — and the Yankees would have a stronger roster and a better chance to win in 2018. And that’s important. The more you win the more money the team makes. Vince Gennaro wrote about this back in the day in his book Diamond Dollars: The Economics of Winning in Baseball. Here’s a graph from Gennaro’s book:

The more you win the more you make. Winning boosts attendance and merchandise sales, it brings those lucrative as hell home postseason games, it brings more sponsors. You have to spend money to make money. Whatever the Yankees pay in luxury tax could be recouped (and then some) in other ways. (In his book, Gennaro also explains that because the Yankees brand is built on winning, the value of a win and a postseason appearance is much greater to them than other teams. Also, there’s a long-term effect. Consecutive winning seasons means exponentially more revenue in the future.)

The Yankees, as things stand, sure look like a 2018 postseason team. They’re not guaranteed to play in October — pitchers could get hurt, hitters can underperform, all sorts of stuff — but right now, they have as good a chance as anyone to get to the postseason. That said, consider the projected AL standings, via FanGraphs:

  1. Astros: 98-64 (+170 run differential)
  2. Indians: 93-69 (+121 run differential)
  3. Red Sox: 91-71 (+103 run differential)
  4. Yankees: 91-71 (+102 run differential)
  5. Angels: 88-74 (+67 run differential)

No other AL team is projected to win more than 83 games, so that’s your super early projected AL postseason field. The Astros are the class of the AL West and the Indians are the favorite in the AL Central. Not unexpected. The AL East? This completely objective computer system sees the Yankees and Red Sox as neck-and-neck right now. And that right there is potential motivation for exceeding the luxury tax threshold.

Given where they sit on the win curve, each win the Yankees (or Red Sox) add right now is enormous. Going from, say, 81 to 82 wins is nothing. That doesn’t help you much. But going from 91 to 92 wins? That could be the difference between a division title and a wild card spot. The Red Sox seem likely to add a bat some point, and if the projections are accurate (yeah, yeah, I know), that could be the difference in the division.

So, long story short, the rationale for going over the luxury tax threshold this year would be improving the roster, improving the team’s chances of winning the AL East, and improving their chances of making more money as a result of winning. Imagine not going over the threshold and losing out on a division title by a game or two? Oy vey.

Okay, So Who Do They Go Over The Threshold For?

Darvish. (Christian Petersen/Getty)

Let’s say Hal Steinbrenner looks at the projections and decides to scrap the luxury tax plan in an effort to win the division and the World Series. I don’t expect it to happen, but humor me for a second. Who would the Yankees add in that case? Yu Darvish is the obvious answer. The Yankees want a high-end starter and they’ve been connected to Darvish for weeks, and he’s just sitting out there in free agency waiting for an acceptable contract offer.

Given the current free agent climate, would Darvish take a four-year deal worth $100M, with an opt-out after the second year? That guarantees him a healthy payday and gives him a chance to try again in a few years if the market shifts and teams start spending again. That $25M average annual value would put the Yankees roughly $3M over the luxury tax threshold and bring a $1.5M luxury tax bill, though that doesn’t include the inevitable midseason additions. The actual tax bill be larger.

At this point though, if the Yankees are going to go over the threshold to sign Darvish, why not get an infielder too? Not necessarily an expensive one. Trade a prospect for Josh Harrison and his $6.5M luxury tax number. Or keep the prospect and throw $10M at Todd Frazier. Something like that. Let’s say the Yankees trade for Harrison. Here are the numbers:

  • Current luxury tax payroll: $178M
  • Luxury tax payroll with Darvish at 4/100: $203M
  • Luxury tax payroll with Darvish and Harrison: $209.5M
  • Luxury tax bill with Darvish and Harrison: $6.25M

Add in the midseason call-ups and whatnot and the final luxury tax bill would be … $10M? Maybe? I’m not sure. That would put the Yankees right at the $217M payroll threshold for the first surtax, so that sounds good to me. I don’t see the Yankees (or any other team) going higher than that.

All told, we’re talking about the Yankees going from $197M in payouts (luxury tax plan) to $227M in payouts ($217M payroll plus $10M tax bill). It’s a difference of $30M in year one, which is significant. Then again, adding Darvish and Harrison could put the Yankees over the top and make them the AL East favorites, and more winning equals more money. Also, each team is getting a $50M payment for the sale of a majority stake in BAMTech to Disney.

That’s on top of the $30M payment each team received last year for the sale of a minority stake. We’re talking about potentially spending an additional $30M total to add Darvish and Harrison at a time when the Yankees will soon be handed a $50M check. Plus they made a deep postseason run last year. Six home postseason games last year! That no doubt led to an uptick in revenue. Besides, the Yankees aren’t hurting for money anyway.

Here’s Why This Won’t Happen

I don’t need to try hard to convince fans that exceeding the luxury tax threshold would be a smart move because it’ll improve the Yankees’ chances of winning, and that would result in more revenue. There is an inflection point somewhere. There is a point where exceeding the threshold by some amount equals so much revenue in the future that the luxury tax pays for itself, if that makes sense.

Convincing fans is the easy part. Convincing Hal Steinbrenner is the hard part. If Brian Cashman went to Hal and said he feels the Yankees should exceed the threshold, he’d have two questions to answer.

  1. Aren’t we good enough to win the AL East and the World Series without exceeding the threshold?
  2. What about the larger luxury tax bills we’d face in the future as a result of not resetting the tax rate this year?

The answer is question one is probably. The Yankees are probably good enough to win the World Series this year, assuming they use their final $22M in payroll space wisely. The answer to the second question is, uh, win this year and we’ll make so much money in the future those larger luxury tax bills from 2019-21 will be a relative drop in the bucket? Not the most convincing answer.

I have zero expectation of the Steinbrenners changing their mind and okaying a payroll increase in 2018. Hal has made it clear he wants to get under the threshold to save money — how many times have we heard him say, “I don’t think you need a $200M payroll to win?” — and this coming season is by far their best chance to actually do it. Whether they’ll be willing to go over the threshold in future years is another topic for another time. Right now, the focus is on getting under the $197M luxury tax threshold in 2018.

More than anything, this post is intended to be a thought exercise given the luxury tax plan and the payroll situation. The Yankees figure to be good — very good in fact — though a case can be made they are not the AL East favorites. That inflection point exists somewhere. There is a dollar amount over the threshold where the potential reward exceeds the luxury tax outlay. I have no idea where that point is. The Yankees probably don’t either. There are so many variables. I don’t expect it to happen, but as long as that inflection point exists, the Yankees could change course and put an end to the luxury tax plan.

AP: Yankees owe $15.7M in luxury tax for 2017 season

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(Elsa/Getty)
(Elsa/Getty)

According to Ronald Blum, the Yankees owe $15.7M in luxury tax for the 2017 season. It is their lowest luxury tax bill since 2011, when they owed $13.9M. The $15.7M bill is based on a $226.4M luxury tax payroll. The team’s actual payroll was $208.4M, their lowest since 2006, if you can believe that.

The $15.7M luxury tax bill is down from $27.4M last year and $26M the year before. The Yankees have paid luxury tax every year since the system was put in place in 2003, and their running total is $341M in luxury tax payments. That’s a lot of money for nothing. The cost of doing business, as Scott Boras would say.

As you know, the Yankees plan to get under the $197M threshold next season, which would reset their tax rate from the maximum 50% and save the team millions in the short and long-term. Our estimates put the current payroll at $172.5M. Based on that, it appears there is still some money in the banana stand for an infielder and another starter.

The Dodgers were hit with a $36.7M luxury tax bill this year based on a $253.6M payroll. It is their fourth straight year paying luxury tax. The Giants ($4.1M), Tigers ($3.7M), and Nationals ($1.45M) also owe luxury tax this year. The Tigers and Giants both went 64-98 this season, tied for the worst record in baseball, yet their payrolls were so high they have to pay luxury tax. Eek.

Luxury tax checks are due to the commissioner’s office by January 21st. The first $13M of the $15.7M the Yankees owe will go to player benefits. Half the remaining $2.7M goes into the league retirement fund and the other half is distributed among the 25 teams that did not pay luxury tax this year.