A Primer on the Yankees’ Payroll Situation

It is now time for my least favorite part of every season: meticulously tracking the Yankees’ payroll situation. I will say, though, that this one will be a particularly interesting offseason in that regard for a few different reasons.

First, as Derek detailed the other day, the days of pre-arbitration Aaron Judge and Gary Sánchez are now over. They will both see a huge (and deserved) raise this year and in the years to come. Second, on top of any other upgrades to the roster, the team is expected to pursue Astros’ ace Gerrit Cole, and convincing him to play in the Bronx will not come cheap. Therefore, the Yankees current payroll situation will have huge implications on that pursuit. Finally, we all know that the Yankees have been outwardly committed to limiting their payroll in recent years. I don’t like it any more than you do, but it is the reality.

Anyway, with all of this in mind, let’s just go through a quick primer on where things stand both for the league generally and for the Yankees more specifically.

Competitive Balance Tax Thresholds and Qualifying Offer

For the sake of reminder, competitive balance tax (CBT) thresholds change each year, though the penalties remain the same. Teams who exceed the limit for the first time pay 20% rate on every dollar spent over the amount, teams who exceed the limit two years in a row pay a 30% tax (this would be the Yankees in 2020), and teams who do so three or more years pay a 50% tax.

Teams over the second tier are subject to an additional 12% tax and teams who exceed the third tier are subject to an additional 42% surcharge for the first year over and 45% each year thereafter. Cross the final threshold also see their highest pick in the Rule 4 draft move 10 spaces back. Here are those thresholds for the 2020 season:

  • First Tier: $208 million
  • Second Tier: $228 million
  • Third Tier: $248 million

It’s also worth remembering that the CBT is calculated not by the raw salary of each individual player every year but on the average annual value of the contract over its entire course. That means a team can’t backload a contract to avoid harsh penalties now or to try to stack a roster. There’s no getting around it and no real room for manipulation.

I’ll be honest: I hate even typing out these penalties. They are egregious and really, really incentivize teams to keep salaries below a certain level. You want to know why free agency has all but come to a standstill in recent years? Look no further than the above paragraphs. The league essentially imposed a salary cap right under everyone’s collective noses, and it is going to be difficult for players to change this situation. Oh well, I guess. What can I do about it? I can be mad online, for sure, but that doesn’t change much.

Finally, it’ll be worth keeping in mind the fact that the qualifying offer, per The Athletic’s Jayson Stark, is $17.8 million for the 2020 season. That is actually a decline year-over-year, which is the first time that’s ever happened. The qualifying offer is the mean of MLB’s top 125 salaries, so if it goes down, it means salaries as a whole are going down.

Of course, that is related to the above CBT thresholds. All of this is intertwined. Management is incentivized by the league financial structure to limit salaries or be subject to increasing penalties that nobody wants to pay. That’s resulting in lower salaries overall, longer free agent negotiations, and most teams offering salaries within a very tight range of one another. This is not just something happening to the Yankees. It is everywhere, and it is bad! Mini-rant aside, this is important context to keep in mind before the offseason begins.

Where The Yankees Stand

The Yankees have been adamant about minimizing their CBT penalties for years now. I wish it weren’t so, but it is. It’s best to assume that this practice is not going to change any time soon, so all offseason predictions/expectations should be managed accordingly. It shouldn’t be the case, and it is extremely frustrating, but it is. At least for now. My hope is that Yankees see a rare opportunity to aggressively upgrade a championship caliber team and will act accordingly. We will see what happens.

In any event, here is where the Yankees stand in terms of committed payroll for the 2020 season, per both Cot’s Contracts and Spotrac:

  • Guaranteed Contracts: $154,628,471
  • Arbitration Eligible Players: $37,600,000 (estimate per MLBTR)
  • 40-man Roster: $17,000,000 (estimate per Cot’s Contracts)

Add all that up and you have a starting salary, assuming no opt-out from Chapman (a big assumption), of $209.2 million. That is not counting pre-arbitration salaries, mostly because I’m not comfortable making an assumption myself. For what it’s worth, Mike Axisa estimated (subs req’d, but just subscribe already!) just over $4 million there, and I’m comfortable trusting his judgement–meaning the Yankees are at about $213 million in salary, which is over the first threshold, before they make a single move in the offseason.

Again, it’s worth noting that this is the raw salary data and because salary averages are what actually matter for CBT purposes, this may be subject to change. But it won’t be much, and the underlying takeaway is the same: there isn’t a whole lot of flexibility here in terms of avoiding at least one CBT penalty, if that’s the priority.

What Does It Mean?

It all depends on how rigid the team wants to be with staying under the respective tiers. Remember, the Yankees exceeded only the first CBT threshold in 2019 with a salary of about $218 million and change. If repeating this “accomplishment” is a hard mandate from ownership, it is going to be very, very difficult for the team to make any meaningful splashes on the free agent market. If it was a “hey, let’s stay under the second tier because we’re going to make a huge splash next year” type thing, then great. But again, I’ll need to see that (or hear it, Cashman is currently speaking on YES Network right now) to believe it.

The Yankees are good, but there are a number of good players coming off the roster this year that will need to be either retained or replaced. If Chapman opts out, they’ll have more “flexibility” but their vaunted five-man bullpen will lose their most effective pitcher. And this is all before any major SP additions like Gerrit Cole or Stephen Strasburg.

All in all, this gets a big shrug of the shoulders from me. Any clear-eyed analysis of these numbers demonstrates two things: 1) the CBT tax is clearly serving as a deterrent to management across the league and 2) the Yankees are already pushing up against that threshold before doing anything for 2020. That’s just the reality of the situation.

The team has a few options in front of it. The front office might try to get creative to create more space to play with, like it did with Chase Headley after 2017. JA Happ and his $17 million salary is an option here, though he’s coming off a rough season. Management may decide that it no longer cares about the CBT at all given the title window and go after either Cole or Stephen Strasburg. Or it could be content to give it another go in 2020 with mostly the same roster and hope for better health. Some combination of all three is also a possibility.

I don’t have a crystal ball, so I can’t really offer a guess. None of us can. That’s boring, maybe, but it’s true. Recent history is a good indicator of future activity but all of this can change at a moment’s notice. Gerrit Cole in particular seems like such an obvious candidate for the Yankees that it’s hard to say. Last year, you could make a case against Harper or Machado. I personally found it a stretch, but it could be done. That is not so with Cole. His profile as a high-spin, high-velocity, high-strikeout machine even aligns him with the analytical side of the Yankees’ operation. He seems a match made in heaven.

Whatever happens, that’s where things stand as the Yankees prepare for what will be a critical few months for the future of the franchise.

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2 Comments

  1. Wire Fan

    Can’t see Cole happening. The Yankees will make an offer that sounds like they were trying but low enough where it won’t work – like Corbin last year.

    With the news that Hicks is getting TJS and out at least the first part of the year Gardner coming back is a virtual lock and another 6-8M on the LT #. I assume Romine will also be back which is probably a couple million more. Cole would put them in super tax territory barring Chapman opting out and walking. And if both he and Betances are gone, the Yankees will probably spend a little money on the pen.

  2. RetroRob

    MLB has a salary cap. That’s been my (and others) contention for years, particularly since the last CBA when the penalties escalated. All analysis has to be framed under that, including fan expectations. Football fans don’t expect their team to bust the salary cap, because they can’t, so baseball fans need to have a similar view. The fact that the salary cap has several layers and is called something else doesn’t really matter. It’s there, all the owners have agreed to honor it, and the MLBPA signed off on the cap,err, luxury tax, uhh, competitive balance tax. End of story.

    That said, the Yankees should bust through the second layer of the cap. They’re in a win-now mode, and the multiple layers are there so a win-now team has additional flexibility. I’d even argue they should go through the third tier knowing that Ellsbury and Tanaka are coming off the payroll after 2020. The additional money is hardly crippling, and having a draft pick pushed back ten slots should not be a deal buster for a team in the Yankees position.

    Sign Cole. Or sign Strasburg. BTW Cashman totally got defensive during this press conference on the Yankees “passing” on certain front-line pitching.

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