With the new MLB CBA being agreed upon, details of the agreement are trickling in to the baseball news outlets. One of the major agreements is a new luxury-tax threshold for the upcoming 2017 season and beyond. The threshold will increase to $195 million for the 2017 season, an increase of $6 million. It will continue to increase over the four following seasons as well. This is good news for the Yankees.
For years, the Yankees have been over the luxury-tax line since its incorporation in the 2003 season. With incremental increases in taxes from being above the line, the Yankees have paid in excess of $276 million over the past 14 seasons, far more than any other team. Because of the funds that the Steinbrenners have had to issue out as an extra tax, Hal Steinbrenner has stated that he wants to go under the tax and reset the penalties against them.
As it stands, the Yankees have a payroll of approximately $136.2 million, albeit with only seven major leaguers signed to contracts. Their payroll includes the $21 million paid to Alex Rodriguez and $5.5 million of Brian McCann’s salary that they share with the Astros. With that said, they have seven players that they are likely to retain through arbitration, which adds approximately $22.1 million to their payroll according to MLBTradeRumors.com. After that, their payroll stands at about $158 million. To complete their 25-man roster, 11 MLB minimum contracts need to be added. At the new amount of $535,000, the total then stands at $164 million.
As their roster stands, the Yankees will be well under the tax threshold if they don’t sign a single MLB free agent. After a year of doing that already though, that is very, very unlikely. The team is already highly involved in negotiations with most of the top remaining free agents. Three of the players they are involved with include Aroldis Chapman, Edwin Encarnacion, and Rich Hill. Most of all, the Yankees are involved with Chapman and have long been thought to be the ultimate landing spot for him by several sources.
According to FanGraphs’ own Dave Cameron, Chapman projects to receive in the realm of $18.5 million as an annual average. He follows with an annual average of $21 million for Encarnacion. For the sake of this article and the point of the Yankees spending less (and my own belief of salary projection), I will use MLBTradeRumors’ Tim Dierkes’ salary projection for Rich Hill. He puts it at $16.7 million on average compared to Cameron’s $24-million average. The difference comes down to the third year, yet at a cheaper rate.
With these salaries, as with many large MLB contracts, there is an expectation of back-loading the deal, or having higher averages at the end of the contract. Because of this, a projection of first-year salaries close to $16 million for Chapman, $17 million for Encarnacion, and $13 million for Rich Hill are obtainable. For those values, the deals would have to be fairly back-loaded, which would sting a bit in the long-term. However, it is good to keep in mind that back-loaded deals wouldn’t hurt too much since two major salaries in C.C. Sabathia and Rodriguez will no longer have to be paid.
For the first-year salaries above, the Yankees could conceivable sign one of Chapman or Encarnacion and Rich Hill while staying below the luxury-tax threshold. They wouldn’t be far off if they decided to sign both Chapman and Encarnacion (a net $32 million added after factoring in league-minimum deals for two players sent to AAA).
All of this doesn’t even factor in the possibility of the Yankees trading Brett Gardner and/or Chase Headley. Trading both would give them the ability to add two of the above plus potentially Justin Turner while giving young players like Aaron Judge and Tyler Austin the opportunity to play.
Considering these possibilities, the Yankees would be able to creep just under the luxury-tax threshold heading into the season. This would reset their penalties with a year to spare before an expected spending spree during the 2018-2019 offseason thanks to the likes of Bryce Harper, Manny Machado, and many others that may be available that winter. All of this is very speculative, but it shows that one of the premier teams in terms of spending has the potential to become much better than last year while spending much less. The Yankees having more money to spend is dangerous for the rest of the league and gives them the ability to cut bait and buy players if their top prospects don’t work out.