How the Yankees Can Save Money and Sign Bryce Harper

A half-dozen years ago, the Yankees developed a plan. As a team that had consistently exceeded the luxury-tax threshold, the Yankees were paying an extra 50% on every dollar over Major League Baseball’s competitive-balance tax rate. Their financial commitments also made them ineligible to recoup some of their revenue-sharing money. As a response, the club resolved to reduce spending ahead of the 2014 season, aiming for a payroll figure below the $189-million threshold. That would reset their tax rate to less than 20% in 2015 and reduce their commitments to revenue sharing.

That never happened, though. In 2013, the team failed to make the playoffs and, despite the major gift of having Alex Rodriguez’s salary removed from the books, the plan was scrapped and a massive spending spree undertaken. Four years after the plan was discarded, the Yankees will once again have that same opportunity. This time, they’re in a much better position to execute it.

While the prospect of saving a lot of money in salaries and taxes is enticing even for a team with as much money as the Yankees, the prospect of reaching the playoffs and driving up attendance is also financially beneficial — and probably more enjoyable, too. That’s likely the logic that informed the Yankees’ offseason spree a few years ago. After the club had Alex Rodriguez’s salary removed by suspension, the team went out and signed Carlos Beltran, Jacoby Ellsbury, Brian McCann, and Masahiro Tanaka for Derek Jeter’s final year. The result: a payroll once again over $200 million. The team drew more fans, but fell a bit shy of the playoffs. They secured a Wild Card spot in 2015 but promptly lost to the Astros.

Fast forward to the present, and the Yankees once again have a payroll that will exceed $200 million by season’s end — well above the $195 million competitive-balance tax amount for this season. They also don’t have a great shot at the playoffs according to our projections, which forecast them for 79 wins and a 14% chance of qualifying for the postseason. Just how long of a rebuild the Yankees can stomach remains to be seen, but here are the contracts coming off the books next season.

Yankees Contracts Ending After 2017
Player 2017 Salary (M) Proj. WAR
CC Sabathia $25.0 1.8
Matt Holliday $13.0 1.2
Michael Pineda $7.4 3.3
Tyler Clippard $6.5 0.3
Alex Rodriguez $21.0 0.0
Total $72.5 6.6

Among the players listed here, only Pineda figures to be worth the money he’s owed this season. The departure of Tanaka might hurt, too, even with a $22 million salary attached. In 2018, the Yankees will owe Ellsbury, Tanaka, Starlin Castro, Aroldis Chapman, Brett Gardner, Chase Headley and Brian McCann (a portion of his salary with the Houston Astros) a total of $101.2 million. Raises in arbitration to players like Didi Gregorious, Dellin Betances, Aaron Hicks, Austin Romine and Adam Warren might add another $20 million. If we conservatively figure another $15 million for player benefits, that places the club’s post-2017 commitments at something like $135 million, meaning the Yankees have about $60 million to make improvements while still remaining under the competitive-balance tax.

For $60 million, the Yankees should be able to make up for their losses in the rotation and at designated hitter (following the likely departure of Matt Holliday). Of course, that only gets them back up to their current mediocre projections. Players like Clint Frazier, Aaron Judge, and Luis Severino will have to realize some of their promise in order to push club closer to contention in 2018 with the potential arrival of Gleyber Torres, James Kaprielian, and others. That doesn’t really sound so great for a franchise as rich as the Yankees. So what’s the payoff?

If the Yankees get under the competitive-balance tax in 2018, there are multiple benefits.

First, the penalty for signing a free agent with a qualifying offer will be reduced from second- and fifth-round picks plus a $1 million reduction in international money to a second-round pick and $500,000 in international money. While a fifth-round pick and $500,000 in international money might not seem like a lot, it represents two more potential prospects on whom the club could take a chance.

Second, if the Yankees choose to go over the tax in 2019, when Josh Donaldson, Manny Machado,Bryce Harper, nd Clayton Kershaw are all free agents, they will save a bunch of money. The Yankees will pay a 50% tax if they remain over the competitive balance tax over the next few years. If they stay under in 2018 and reset their tax amount, however, the initial tax will be just 20%, with a 12% extra tax for going between $20 million and $40 million over. Here’s how that works out practically.

Let’s say the Yankees spend some money and go over the tax amount in 2018 and then spend in free agency so that their payroll is $245 million in 2019 and 2020. That would place them above the initial tax amount and into the extra tax amount, but not into the 42% extra tax amount for going $40 million over the cap. Here’s the tax the Yankees would pay in that scenario:

  • $21.8 million in 2019 and then $19.9 million in 2020

Now let’s say the Yankees spend some money but stay under the tax amount in 2018 and then spend in free agency so that their payroll is $245 million in 2019 and 2020. Here’s the Yankees’ tax in that scenario:

  • $10.1 million in 2019 and $10.7 million in 2020

Is it worth it to save a little over $20 million over two years to get under the cap in 2018? That’s debatable. I should note that, even with the 42% surtax (45% for multiple-time offenders) on amounts $40 million or more over the tax limit, the Yankees’ potential savings get bigger the higher the salary figure is in 2019. In addition, the Yankees appear to have been gifted substantial savings in the form of the removal of the market-performance factor. It’s not clear that the Yankees should move forward in this manner, despite the potential savings.

Plans are nice. Plans that save money so that money can be better utilized elsewhere are even better. It’s not clear that the Yankees attempt half-a-dozen years ago was a good plan. It caused short-term failure on the field and potential long-term failure in contracts from which the club would either distance themselves at a cost (in the case of Brian McCann) or contracts from which the team is unlikely to receive a great benefit (Jacoby Ellsbury). They’re in a much better position to execute their abandoned plan from 2013, and they will save money by doing so. It could be that, after this season, the free-agent market ends up aligning with efforts to get under the tax amount. However, if they’re a piece or two away from contending in 2018 and don’t go over the tax limit to do so, that probably doesn’t make much sense for the Yankees. They’re still the Yankees. They can write off salaries. They do it all the time. They shouldn’t write off seasons over $20 million.





Craig Edwards can be found on twitter @craigjedwards.

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