The $189M Payroll: Part 1 of 2

Prospect Profile: Dante Bichette Jr.
The $189M Payroll: Part 2 of 2

This post was written by Moshe Mandel and Stephen Rhoads

Yesterday Joe walked through the different stages of grief Yankee fans have been going through since learning that a $189M payroll was a realistic option in the near future. Part of my frustration when reading this (still in stage 2, I suppose) was that I didn’t have a firm handle on how much money the Yankees would actually be saving. If the amount they could potentially save ranges into the nine figures territory, then it’s hard to quibble with the team tightening the belt. If it was significantly less, then a whole host of options come into play, including the possibility that the team is not serious about getting below $189M in 2014 and was using Sherman to broadcast their bluff in advance of the Yu Darvish bid.

Accordingly, Moshe and I have run the numbers for six different payroll scenarios. We used the basic parameters set forth by Sherman in this quote to try and estimate the proper figures for each scenario:

For if they are at $189 million or less for the three seasons from 2014-16, they not only avoid paying one cent in luxury tax, which would rise to 50 percent for them as repeat offenders, but they also would get roughly $40 million in savings via the to-be-implemented market disqualification revenue sharing program. However, only teams under the luxury-tax threshold get reimbursed in this program, which is designed to prevent big markets such as Toronto and Washington from receiving revenue sharing dollars, which in turn will lower how much teams such as the Yanks pay (as long as they are under the threshold).

And even if they just went under $189 million for 2014 before going over again in 2015, the Yankees would receive serious benefits. They would get about $10 million in the revenue sharing disqualification program. Also, by simply going under the threshold once, the Yankees would go back to having a 17.5 percent tax rather than the 50 percent that begins in 2014 for them if they never go under. Keep in mind that since the luxury tax went to 40 percent for them in 2005, the Yankees have averaged paying $25.75 million in tax annually.

In the first three scenarios, we use a $210M payroll in 2013, and then assume that they go back to $210M in later years. In the second three scenarios, we use a $220M payroll. In each scenario, we provide savings figures per year. At the bottom of each scenario we provide a total amount saved, and also provide what we’re calling “CBA Savings”. This figure emanates directly from the new CBA, and would include revenue sharing refunds, and luxury tax savings resulting from a new, lowered rate. It would not include the $21M they’d save from going from a $210M payroll to a $189M payroll, for instance. We get down to business after the jump.

Scenario 1: Payroll dips from $210M to $189M in 2014, then goes back to $210M in 2015.

2014: Payroll at $189M
Payroll savings: $21M
Revenue sharing refund: $10M
Luxury tax savings ($21M*50%): $10.5M
Total saved: $41.5M

2015: Payroll back at $210M
No payroll savings
No refund
Luxury tax savings ($21M*50%) – ($21M* 17.5%): $6.825M
Total saved: 6.825M

2016: Payroll stays at $210M
No payroll savings
No refund
Luxury tax savings: ($21M*50%) – ($21M*30%): $4.2M
Total saved: $4.2M

2017: Payroll stays at $210M
No payroll savings
No refund
Luxury tax savings: (21*50%) – (21*40%): 2.1M
Total saved: $2.1M

TOTAL SAVINGS: $54.625M
CBA Savings: $23.125M

Scenario 2: Payroll dips from $210M to $189M in 2014, stays under $189M for 3 consecutive seasons:

2014: Payroll at $189M
Payroll savings: $21M.
Revenue sharing refund: $10M
Luxury tax savings ($21M*50%): 10.5M
Total saved:$41.5M

2015: Payroll at $189M
Payroll savings: $21M.
Revenue sharing refund: $15M
Luxury tax savings: ($21M*50%): $10.5M
Total saved: $46.5M

2016: Payroll at $189M
Payroll savings: $21M.
Revenue sharing refund: $15M
Luxury tax savings: ($21M*50%): $10.5M
Total saved: $46.5M

2017: Payroll back at $210M
No payroll savings
No refund
Luxury tax savings ($21M*50%) – ($21M* 17.5%): $6.825M
Total saved: $6.825M

2018: Payroll stays at $210M
No payroll savings
No refund
Luxury tax savings: ($21*50%) – ($21*30%): $4.2M
Total saved: $4.2M

2019: Payroll stays at $210M
No payroll savings
No refund
Luxury tax savings: ($21M*50%) – ($21M*40%): $2.1M
Total saved: $2.1M

TOTAL SAVINGS: $147.625M
CBA Savings: $53.125M

Scenario 3: Payroll dips from $210M to $189M in 2014, stays under $189M for 2 of the 3 seasons between 2014-2016 (Note: the CBA summary seems to suggest that as long as the team does not exceed the luxury tax threshold in consecutive seasons, they continue to be eligible for the revenue sharing refund. The summary is unclear on this point, but I’ve provided the relevant data should the Yankees be able to take advantage of that provision):

2014: Payroll at $189M
Payroll savings: $21M.
Revenue sharing refund: $10M
Luxury tax savings ($21M*50%): 10.5M
Total saved: $41.5M

2015: Payroll back at $210M
No payroll savings
Revenue sharing refund: $15M
Luxury tax savings ($21M*50%) – ($21M* 17.5%): $6.825M
Total saved: $21.825M

2016: Payroll back at $189M
Payroll savings of $21M.
Revenue Sharing Refund: $15M
Luxury tax savings ($21M*50%): $10.5M
Total saved: $46.5M

2017: Payroll back at $210M
No payroll savings
No refund
Luxury tax savings: ($21M*50%) – ($21M*30%): $4.2M
Total saved: $4.2M

2018: Payroll stays at $210M
No payroll savings
No refund
Luxury tax savings: ($21M*50%) – ($21M*40%): $2.1M
Total saved: $2.1M

TOTAL SAVINGS: $116.125M
“CBA” Savings: $54.125M

Scenario 4: Payroll dips from $220M to $189M in 2014, then reverts back to $220M in 2015.

2014: Payroll at $189M
Payroll savings: $31M
Revenue sharing refund: $10M
Luxury tax savings ($31M*50%): $15.5M
Total saved: $55.5M

2015: Payroll reverts back to $220M
No payroll savings
No revenue sharing refund
Luxury tax savings ($31M*50%) – ($31M*17.5%): $10.075M
Total saved: $10.075M

2016: Payroll stays at $220M
No payroll savings
No revenue sharing refund
Luxury tax savings: ($31M*50%) – ($31M*30%): $6.2M
Total saved: $6.2M

2017: Payroll stays at $220M
No payroll savings
No revenue sharing refund
Luxury tax savings: ($31M*50%) – ($31M*40%): $3.1M
Total saved: $3.1M

TOTAL SAVINGS: $75.9M
“CBA” Savings: $29.4M

Scenario 5: Payroll dips from $220M to $189M in 2014, stays under $189M for 3 consecutive seasons:

2014: Payroll at $189M
Payroll savings: $31M
Revenue sharing refund: $10M
Luxury tax savings ($31M*50%): $15.5M
Total saved: $56.5M

2015: Payroll at $189M
Payroll savings: $31M
Revenue sharing refund: $15M
Luxury tax savings ($31M*50%): $15.5M
Total saved: $61.5M

2016: Payroll at $189M
Payroll savings: $31M
Revenue sharing refund: $15M
Luxury tax savings (31M*50%): $15.5M
Total saved: $61.5M

2017: Payroll back at $220M
No payroll savings
No refund
Luxury tax savings ($31M*50%) – ($31M*17.5%): $10.075M
Total saved: $10.075M

2018: Payroll stays at $220M
No payroll savings
No refund
Luxury tax savings: ($31M*50%) – ($31M*30%): $6.2M
Total saved: $6.2M

2019: Payroll back at $220M
No payroll savings
No refund
Luxury tax savings: ($31M*50%) – ($31M*40%): $3.1M
Total saved: $3.1M

TOTAL SAVINGS: $198.875M
“CBA” Savings: $59.375M

Scenario 6: Payroll dips from $220M to $189M in 2014, stays under $189M for 2 of the 3 seasons between 2014-2016:

2014: Payroll at $189M
Payroll savings: $31M
Revenue sharing refund: $10M
Luxury tax savings ($31M*50%): $15.5M
Total saved: $56.5M

2015: Payroll back at $220M
No payroll savings
Revenue sharing refund: $15M
Luxury tax savings ($31M*50%) – ($31M*17.5%): $10.075M
Total saved: $25.075M

2016: Payroll back at $189M
Payroll savings: $31M
Revenue sharing refund: $15M
Luxury tax savings ($31M*50%): $15.5M
Total saved: $61.5M

2017: Payroll back at $220M
No payroll savings
No refund
Luxury tax savings: ($31M*50%) – ($31M*30%): $6.2M
Total saved: $6.2M

2018: Payroll stays at $220M
No payroll savings
No refund
Luxury tax savings: ($31M*50%) – ($31M*40%): $3.1M
Total saved: $3.1M

TOTAL SAVINGS: $152.375M
“CBA” Savings: $59.375M

It’s a lot of different scenarios, and a lot of math. In two hours we will be back to break down what it all might mean.

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Prospect Profile: Dante Bichette Jr.
The $189M Payroll: Part 2 of 2
  • MattG

    Being confused for the Tampa Bay Rays: priceless

  • Adam B

    I’m actually kinda looking forward to this, especially if it means trying to develop homegrown players more. I also think Brian Cashman can win multiple titles with 189 mill.

    • MattG

      I agree with you. I just wish they had done a little to grandfather in deals made during the previous CBA. The Rodriguez contract is going to horribly handicap Cashman in 2014. In the interest of fairness, they might have allowed each team to exempt one (or a portion of one) contract that ran from the date of ratification through 2014.

      • Gonzo

        If the MLB adopted the NBA amnesty contract rule, what year would the Yankees exercise it for A-Rod, or would they?

        • LiterallyFigurative

          The year he misses more than half the season and has a terrible triple slash.

        • Adam B

          probably when they either really needed the money, or when they found another 3rd baseman

  • Gonzo

    Mind bottling.

  • neo

    how does the revenue sharing side of things work? Don’t the Yankees kick in revenue dollars that go to the “small market” teams? I assume that is independent of Yankee payroll?

  • Ted Nelson

    Perhaps they are dead-set on it, but I imagine this is more of a goal than a rule. I don’t think that they’re going to purposefully lose (many) games to go under. Cut out some of the luxuries like two $10+ mill per relievers, try out the prospect depth the see what they have… there’s a lot of excess in a $200+ million payroll (of course some of it can’t be cut…). If things don’t work out and they need to spend, I imagine they will.

    • Cris Pengiucci

      I think the financial incentives are there for them to give this a good shot and see if they can put a winning team on the field while staying under the luxury tax threshold. However, I agree that if they can’t, and it starts to affect revenue, they can and will excced $189 million.

      • CP

        I don’t think the financial incentives (from a CBA point of view) are very strong at all. There are obviously big savings from keeping the payroll lower, but those would have applied just as much in the past as they will in the future (i.e. Brett Gardner is more valuable than Carl Crawford because he was paid roughly 1/28th the salary in 2011).

        The changes in the CBA would only provide an additional savings of $12M per season over those 5 years. That may sound like a lot, but a drop in attendance of only 1000-1500 fans per game would cost the team that much in revenue. That’s about the difference in attendance between 2010 and 2011. It doesn’t take much losing for attendance to drop by that small amount.

        • Ted Nelson

          Spending less =/= winning less. Which is why I (and I believe Cris agrees) guess they’ll balance the payroll with the added value of players. Maybe go over for a Cole Hamels, but not for a RP or solid back-end starter.

          Attendance isn’t only dependent on winning (huge factor, but not the only one), and lower attendance doesn’t even necessarily mean lower revenue (at higher ticket prices not necessarily the case).

    • Paul from Boston

      Part of having manageable payroll is not giving up 12 years of team control for half a season of veteraness.

      http://www.baseball-reference......la01.shtml

      • Jimmy

        Crap, that link is reporting the Sox just traded for Melancon.

        • MattG

          Shipping Lowrie and a should-be serviceable starter (Weiland) for a reliever? Odd opening salvo for Cherington, I think.

          Also, this helps pave the way for the Jose Iglesias era!

          • Paul from Boston

            Don’t you remember when Melancon was Mo’s heir? Apparently Cherington does.

          • FIPster Doofus

            Weiland is terrible and Lowrie has done next nothing. It’s a good move for Boston.

            • FIPster Doofus

              *next to nothing

            • Ted Nelson

              I think it’s also a good move for Houston.

              • FIPster Doofus

                I like it for both teams. Boston gets a cheap, effective and much-needed reliever. On the other hand, the Astros didn’t need Melancon, so it was smart to get the best value they could for him. Maybe they’ll get lucky with either (or both) of the lotto tickets they acquired today.

            • Steve (different one)

              Meh, if I am Boston, and have an injury prone 33 year old 3Bman and a 36 year old SS, I’d much rather have Lowrie around than another good but not great reliever.

              It seems to me like middle relievers are supposedly fungible, right up until one of the “smart” teams overpays for one. The Sox could easily have approximated Melancons production without giving up Lowrie’s potential.

              • Paul from Boston

                Except Melancon was supposed to be great. And when given a legit chance he has been.

                • Ted Nelson

                  He can by a “great” relief pitcher (he hasn’t been great to date, good). Lowrie has a chance to be a “good” SS. My hope is that when Iglesias turns into Ramiro Pena #2, Red Sox fans will wish they had a good SS more than a solid closer.

                  If Weiland doesn’t work out as a starter, he could be a decent reliever himself.

                • Steve (different one)

                  No he hasn’t. He was roughly as good as Boone Logan last year.

      • Ted Nelson

        Part of being human is making mistakes and having occasional bad luck.

        And the calculation was not 1/2 a season, but what the increased revenue from back-to-back WS titles would have been.

        Paredes is about as replaceable as they come…

  • LiterallyFigurative

    “Waaaahh! Daddy didn’t buy me a Ferrari this Christmas! Who does he think he is? Forcing me to drive this Porsche to the mall!!!”

    This is the mentality of those who fret over the payroll being slashed from 210 mil to $189 mil (in 2 offseasons, mind you).

    You can simply avoid signing lefty specialists and 8th inning-closers for market-setting contracts. Avoid paying 4th outfielders 5Mil. Trim the fat, you still have a steak in front of you.

    • MattG

      Unfortunately, this is inaccurate. Read the detailed posts that preceded this one, and you will see how the current obligations for 2014 make it more complicated that you’d have me believe.

      The Yankees can get there, but to do so by 2014 without impacting the quality of the team will be difficult. In fact, it might take the expiration of Rodriguez’s contract for it to really be practical.

  • Steve (different one)

    That’s a lot of quiche…

  • jayd808

    Three hours to go: NY Post reports Cashman has recently uploaded “I Keep Workin’ My Way Back To Yu Babe” (With a Burnin’ Love Inside)on his IPOD. Have you prepared your YU song quote yet?

  • Andrew Brotherton

    I think they could start pushing toward that goal and going after Cespedes, Soler, and Darvish this offseason. I think the way they could get the payroll under that amount would be for Cespedes, and Soler, and one of Mason Williams or Slade Heathcott to progress enough to push for a spot, one of their corner infielders either Austin, Bichette, Laird to become a serious contributor at the big league level, and two of Noesi, Betances, Warren, Banuelos, Mitchell to turn into big league starters.

  • Jose M. Vazquez..

    With the manner in which Stephen has attacked this subject, I now have no doubt that the Yankees are going for it. Who would not want that type of saving. The way I see it the Yankees would still be among the top teams in baseball and still save. I am no longer panicking. In just a couple of hours the deadline to post for Darvish will end. Did we bid enough? Did we bid at all?

    D

    • Jose M. Vazquez..

      Sorry for omitting co-author Moshe Mandel.

  • Chip

    The reason they can do this? Forcusing on the farm. Just watch how screwed the Red Sox will be in a few seasons after their super cheap deals with Pedroia, Youk and Lester are up or even just start getting more expensive. They have absolutely nobody in the pipeline other than Iglesias who is a huge question mark with the bat

    • CS Yankee

      You under estimate Iglesias…his glove is also a question mark.

      /realityoverredsoxmediahype’d

    • Paul from Boston

      Middlebrooks is pretty good and could replace Youkilis as soon as this year. Ranaudo has a big year ahead of him.

      • Steve (different one)

        Middlebrooks is nothing special. He has struck out 3.5 x’s as oftwn as he has walked. In the minor leagues! Huge red flag. He’ll maybe turn into Joe Crede if everything breaks right. Whoopee. Yankee fans should jump for joy if he is youkilis’ replacement.

        • Paul from Boston

          He’s also been young for his leagues and has been a pretty good 3B. Hold off on jumping.

  • Januz

    Keeping the payroll under $189m for 2014 is not as difficult as one might expect (Guess why CJ Wilson was not signed?). Keep in mind that Burnett’s $16.5m contract will be off the books, same for Soriano’s $14m, and it is highly likely that Rivera will not be pitching then (And that is another $15m saved). That is $45.5m alone, plus Swisher has a 2012 Contract for $10.25 that is expiring, and Granderson has two years left ($10m 2012, and the $13m option in 2013). In addition, Jeter’s player option drops to $8m (A decrease from the $17m in 2013), You have to anticipate that assuming they stay, Cano, Martin & Robertson will get increases, and they may sign someone like Hamels (So those factors must be accounted for). I also think that the payroll will be under $220m for 2017 & 2018 because the Teixeira, Sabathia and Arod Contracts will finally come off the books.

    • Damian

      Sure there is plenty of money coming off the books, but that leaves open a ton of roster spots to be filled and production to be replaced. Granderson and Swisher might leave, but if and when they do, they will leave big holes in the outfield and in the lineup. They will have to pay someone good money to play those positions, especially without any prospects likely to be ready at that time.

  • Chris

    Do signing bonuses and deferred money count towards the lux tax? I can see the Yankees going right around this by paying a guy like Cole Hammels 13.5M AAV over 5 years but giving the other 4.5M over the next 5 as deferred money to go around the new CBA. Case in point, the Mets are STILL paying Boby Bonillia. I don’t think his money counts towards the tax.

  • m

    If this is ownership’s plan then you have to absolutely hate them for the Alex Rodriguez (x100000), Soriano (x10000) and Feliciano (x1000) deals. Way to hamstring the team with players that won’t play nearly to their contract levels (or play at all, in Feliciano’s case).

    I’m ok with this as a fan if the owners actually allow Cashman to do his job, instead of bleeding money like idiots.

    • MattG

      Or not. They made those deals under different rules.

      Sometimes, the Yankees are making investments into their brand, investments that 29 other teams really don’t need to be concerned with. There were non-baseball justifications for the Rodriguez (certianly) and Soriano (less certain, but still understandable) contracts.

    • Steve (different one)

      Both feliciano and soriano are completely irrelevant. 2014 is the magic year and those guys will be gone.

  • Dave

    How about this. I don’t mind paying more for tickets or more for food at the games or higher prices on hats or shirts or jerseys because I know their going to spend some money to put a winning team on the field every year. I don’t care that Tampa makes the playoffs with a low payroll. How many championships have they won. I wish George was still alive. I see this team going back to the 80’s when we didn’t win anything. You want to raise season ticket prices but refuse to spend money. I know my season tickets will be put up for bid soon. George was one of the smartest busines man of our times he knew you have to spend money to make money.

    Life time Yank fan

    • Steve (different one)

      This post makes no sense. Wasnt George around in the 80’s? Why do you think they didnt win in the 80’s?

    • Slugger27

      not sure i follow… 1) they won more games than any other team in the 80s and 2) george was the owner then

      ???

      • Steve (different one)

        According to the post, the Yankees are going back to the 80’s, when they didn’t win anything. But the reason they are going back to the time when they never won is because George, who was running things in the 80’s, is no longer around. How does this make sense?

  • Dan 2

    Question a bit of your logic. Starting with 2014 you cite a $21M savings. No problem.
    The problem is 2015 where you show a savings and the payroll going back to 210M. From a cash flow basis there is an aditional outlay of $21 million in additional payroll and $3.675 in luxury tax. (21 x 17%). There is no savings in 2015, but rather a decrease of $24.675M

    • http://riveraveblues.com Moshe Mandel

      This is technically true from a cash flow basis, but not from what we were trying to measure. The presumption was that if they ignored these issues, the payroll would be at 210. That’s our constant, so to speak. So going back to 210 is just returning to baseline for the purpsoes of this analysis, rather than a loss.