Major League Baseball’s luxury tax system includes a pretty substantial cliff. Teams pay 20% on each marginal dollar above the luxury tax threshold on their first year, 30% on their second year and 50% on their third year and beyond. As a result, there are strong financial incentives for a team to dip below the threshold, even if they plan on spending well above it in future years. For example, if the Yankees spend one season below the threshold and maintain a $250 million payroll thereafter, they will save $21.6 million in luxury tax payments.
The Steinbrenners want to save the money, and word is they are firmly committed to getting under the threshold this year. We may disagree with their penny-pinching, but given that reality it’s worth thinking about the Yankees strategy options.
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The top two players stand out. Masahiro Tanaka may opt out of his $22 million, which brings the Yankee payroll down but requires them to spend money to fill his spot in the rotation. Jacoby Ellsbury’s $22 million is completely dead weight at this point; the Yankees have better players on the roster. If they traded him, they would have to eat most or all of it.
Let’s assume that Tanaka either stays, is resigned to close his average annual value, or the Yankees replace him at similar cost. Without doing anything, the Yankees have $26 million to spend on replacements for Matt Holliday, Todd Frazier and CC Sabathia. That’s not a lot: Sabathia and Frazier might exceed $26 million on their own.
I think the Yankees will have to clear some additional payroll room. Let’s say they need $10 million. I think these are the likely menu of options:
- Trade Jacoby Ellsbury, eat most of his salary (~$5 million)
- Trade Chase Headley, eat some of his salary (~$5 million)
- Trade Dellin Betances ($4.4 million)
- Trade Adam Warren ($3 million)
- Replace Austin Romine with a minimum salary ($700,000)
- Trade Starlin Castro, start Gleyber Torres ($8.1 million
These options aren’t great. $5 million in savings for Jacoby Ellsbury may be optimistic. Same for Chase Headley. Warren and Betances are probably expendable, and I’d bet on them going.
Even still, the Yankees won’t have a lot of payroll flexibility next offseason or even next trade deadline, assuming they spend some money on DH and starting pitcher. If they choose to go cheap at DH, either by paying Todd Frazier relatively little or through some Otani magic, they can probably get by without clearing much payroll. If that’s the case, it will be a boring offseason. I wouldn’t even expect a lot of contract extensions, despite the obvious candidates on the roster.
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