If a team like the Yankees, who have been above the luxury tax threshold for three consecutive seasons, blows past next season’s $197 million threshold, the tax could be as high as 95 cents for every dollar over the limit that a team spends. The worst offenders will also be docked more valuable draft picks if they sign free agents, will be slotted down 10 spots for their first pick in the draft and could lose as much as $1 million in international pool money.
Dipping below the luxury tax threshold will allow them to shed their status as repeat offenders and drastically reduce their tax bill — and their cost in draft picks — if they exceed the threshold again next year, when two young, prized free agents will hit the market: Washington Nationals outfielder Bryce Harper and Baltimore Orioles third baseman Manny Machado.
With a raft of expensive, lengthy and burdensome contracts expiring over the last two seasons, the Yankees showed a rare discipline in constructing their roster. They mostly resisted splurging on splashy and pricey free agents, instead focusing on developing and acquiring inexpensive young talent.
But when the Yankees failed to even get an audience with the affordable Japanese star Shohei Ohtani, they pivoted in a familiar way — they landed slugger Giancarlo Stanton, the newly minted National League most valuable player.
Acquiring Stanton, who is three years into a record-setting 13-year, $325 million contract from the Miami Marlins that is heavily backloaded may not jeopardize the Yankees’ ability to duck below the luxury tax threshold. But it will test their newfound fiscal discipline.
Stanton’s charge against the payroll will be $22 million — the average per-year cost of his contract ($25 million) minus the $3 million per year offset from the $30 million the Marlins have agreed to pay the Yankees if Stanton does not opt out of his contract after the 2020 season. But the Yankees also saved $8.5 million by sending second baseman Starlin Castro to the Marlins.
According to Cot’s Contracts, which tracks major league payroll tax estimates, the Yankees are about $14 million below the luxury tax threshold, sitting at just under $183 million for next season once the Marlins’ offset is included. This includes seven players under contract next year for $123.7 million, an estimated $34.125 million in raises for eight arbitration-eligible players; the $5.5 million they are paying Houston for Brian McCann’s contract; $13.5 million in health and pension benefits, which are counted in calculating payrolls; and other salaries on the 40-man roster.
That leaves the Yankees with a modest amount to pour into the one area of the roster they would like to upgrade, starting pitching. That might not be enough to retain C. C. Sabathia or land another free agent, like Alex Cobb, and it would also rob them of any wiggle room to add salary during the season.
Thus, it seems increasingly likely that the Yankees will look to trim salary elsewhere — the likeliest player being Jacoby Ellsbury. At the moment, Ellsbury is the Yankees’ fifth outfielder (beyond Stanton, Aaron Judge, Brett Gardner and Aaron Hicks) and is owed $68.5 million over the next three seasons, a sizable chunk of which the Yankees would have to eat if they are able to persuade him to waive his no-trade clause.
The Yankees could also save $13 million from their balance sheet if they are able to trade Gardner or third baseman Chase Headley, who are entering the final year of their contracts. But Ellsbury, whom they signed in December 2013, is a reminder for the Yankees. The seven-year, $153 million contract they awarded Ellsbury, who was brilliant at times but rarely healthy or consistent with Boston Red Sox, is the type of deal the Yankees have largely avoided in the last three seasons.
It also put them in a position that they could not sign Masahiro Tanaka a month later without going well past the luxury tax, something that Steinbrenner had signaled for months during the 2013 season that he was intent on trying to do.
Now, the Yankees could find themselves in a similar position with Stanton, whose contract will carry him to age 38. That helps explain why Steinbrenner, while he repeated his belief that $200 million payrolls are no longer a necessity to win a World Series, would make no promises last month.
The tension for the Yankees between the old way of doing business and a new one remains.
“I can only tell you it’s definitely my goal,” Steinbrenner said of staying below the luxury tax threshold. “I believe it’s very attainable and I still believe we’re going to be fielding a very, very good team.”