There’s been a lot of hubbub about the Yankees shrinking their payroll to around $189,000,000 by 2014. There’s a lot that comes with this decision, such as the future contracts of Derek Jeter, Nick Swisher, Robinson Cano, Curtis Granderson, and more. Look, if the front office is serious about this move, and it really seems like they are, there’s going to be a new look to the Yankee ballclub in two years’ time. But what if ownership just doesn’t care about the luxury tax and is making it seem like they do? What if they have ulterior motives?
The luxury tax under the previous Collective Bargaining Agreement (CBA), which was in force from 2006-2011, worked as follows: all teams were charged 40% of the difference between the team’s total earnings of salary plus benefits which exceeded the CBA cap and the cap itself. So, for example, using the 2011 limit set by the CBA at $178,000,000, if a team’s salary plus benefits amounted to $215,000,000, then simple math tells us that the tax would be $215 million minus $178 million times 40 percent. ($215,000,000-$178,000,000 = $37,000,000 x .4 = $14,800,000).
Under the new CBA which passed this offseason, if a team exceeds the limit that’s set at $178 million in 2013, the tax incurred jumps to 42%. If a team exceeds the limit in 2014, then the tax jumps to 50% where the cap is set at $189 million. Now let’s just use our current payroll which is at $197,962,289. As it sits, the payroll is above the threshold. However, depending on what happens with Nick Swisher in the offseason, $189 million is a feasible number. There lies a problem with trying to cut payroll though. Isn’t Nick Swisher a better option than what’s out there, just for money’s sake? Nick Swisher is guaranteed $10.25 million this year and, in my opinion, he’s better than any other free agent that is on the market and in our system. So, we’re willing to let the best option walk to save payroll. Makes sense right?
Now, I don’t work in the Yankee Finance or Ticket Sales departments, but most teams don’t budget for the postseason and instead, the money earned is strictly profit. The only costs at that point are operating the stadium which, who are we kidding, aren’t costs at all. The Yankees made $25.7 million in operating Yankee Stadium last year. So, if the Yankees make the playoffs, wouldn’t the money gained there cover a luxury tax hit of keeping Nick Swisher? Is it really worth letting Swisher walk because ownership didn’t want to take a rough estimate of $8 or $9 million moving forward? Maybe, but I just think they’re up to something.
If the Yankees are really trying to cut payroll for no other reason than avoiding such a tax, it’s obvious that it’s about the money. And if it’s about the money, as it always is, ownership can afford to splurge on some free agents in the coming years. According to Forbes, the Yankees made $427 million in revenues last year. The Marlins brought in $140 million. So you can’t tell me that we are solely cutting payroll to avoid taking this hit. It’s clearly about increasing profits. The Yankees are a global brand and valued at over $1.7 billion. Sure, a hit of $16 million is astronomical, I do understand that, but it seems that in an economic sense, there must be some point at which taking that hit in luxury tax is worth signing or acquiring big names. Maybe this is what they’ve been waiting for once they lost out on Cliff Lee. Who was last year’s big name? Hiroki Kuroda. And we got him. I’m not advocating signing old free agents; I’m advocating signing Cole Hamels (29) and Clayton Kershaw (who will be 25 by the time he reaches free agency).
After the huge deal Matt Cain got, we can expect any hot pitching commodity to get paid. If we want to look at the top two National League left-handed pitchers, Kershaw and Hamels, they will demand at the very least a 5yr/$125 million deal. So be it. Why not go after them? By the time Kershaw’s contact is up (2013), I’m assuming we’ll be clear on how Derek Jeter, Robinson Cano, and Curtis Granderson’s contracts will look. By 2017 when Tex’s contact is up, unless he’s somehow found the ability to consistently hit by then, he won’t be a Yankee after that. He’ll be 36/37 at that point. So why not add some more big name young arms and lock them up for quite some time?
I started this as a suggestion, but now I’m starting to buy in. The Yankee front office is planning something, and I want to know what. I just can’t buy into the notion that the Yankees won’t do something big, especially after the past two years of silence. I started this piece thinking there was about a .001 percent chance that the Yankees would pull a big move this offseason and the next, but now I’m up to about .1 percent. It’s the little things guys.