Nov
11

The bet that can balance winning and Plan 189

By

For nearly two years now we’ve heard about the Yankees’ plans keep payroll below the luxury tax threshold in 2014. The story first cropped up in December, 2011, and a little over a year later Hal Steinbrenner acknowledged it as the organizational goal. Yet he always notes that getting under the threshold is a goal, one he believes is attainable, rather than a mandate. Fielding a championship-caliber team, he reminds us, remains the top priority.

Until the chips start to fall, fans can believe what they want. Some believe that the Steinbrenners are more concerned with lining their own pockets than winning, and won’t be convinced otherwise until the Yankees start doling out contracts. This is not an outrageous stance; given how much money the Yankees stand not only gain, but to take out of other teams’ pockets, getting under $189 million makes sense. At the same time, we saw the crowds at Yankee Stadium last year when the Yankees fielded a mediocre product. Surely the Steinbrenners understand that they could stand to lose plenty if the 2014 Yankees resemble the 1991 Yankees.

For those worried about how the payroll breaks down, we’ve seen some positive stories in the past few days about the Yankees showing interest in a number of quality free agents. On Friday Jon Heyman published one containing an encouraging quote from one of his sources: “Hal is very involved, and he wants to win.” Another interesting tidbit comes a few paragraphs later (emphasis mine).

Word is the Yankees still believe they can keep get their payroll below the luxury-tax threshold of $189 million, thanks to $100 million or so in contracts coming off the books, depending to a fair degree on the status of Alex Rodriguez‘s PED arbitration case vs. MLB.

If A-Rod somehow walks away without any suspension, he will count $33.5 million against the luxury tax next season ($27.5 million AAV, plus $6 million after he hits six more homers). If suspended for 50 games that number comes down to around $25 million, and if he gets suspended for 100 games it’s around $16.5 million ($10.5 million if he can’t hit six homers in 62 games, but he did hit seven in 44 games last year). And, of course, if he gets 162 or more games, the Yankees will have a nice heap of cash at their disposal.

The pace of the proceedings between MLB and Rodriguez throw a wrench into the Yankees’ off-season plans. Free agency is already in full swing with the GM meetings this week followed by the Winter Meetings in about a month. A good number of players will sign between now and when the Winter Meetings end on December 12. How can the Yankees make a move if they don’t know exactly what their 2014 books will look like?

The answer is that it shouldn’t matter. If Steinbrenner is truly serious about prioritizing a winning team over the luxury tax savings, he should forget that Alex Rodriguez exists. When arbitrator Fredric Horowitz renders his decision, it should have no effect on the Yankees’ plans. They should work with the assumption that Rodriguez will be suspended for all of 2014.

If the bet works out, the Yankees are in superb position. They can, with relative ease, field a competitive team and stay under the luxury tax threshold with another $33.5 million, in addition to the $40 million or so they have currently (as Mike calculated). That $70-plus million can pay for Robinson Cano, Masahiro Tanaka, plus two or three other starting-caliber players, depending on whether they’re acquired via free agency or the trade market. Chances are Rodriguez will push them over the threshold again in 2015, but at least they’ll have gotten below for one season, resetting the tax and keeping some of their revenue sharing monies.

If Rodriguez does play in 2014, Plan 189 does go out the window, though the luxury tax bill won’t be close last year’s record $29.1 million luxury tax bill. If Rodriguez avoids suspension and the Yankees are butting up against the tax threshold, they will pay $16.75 million in tax. At 50 games the bill would be $12.5 million, and at 100 games it would be $8.25 million.

Therein lies the entire bet. If the Yankees win, they get a championship team and pay zero dollars in luxury tax while keeping money previously sent to other teams. If they lose they still have to pay out those revenue sharing monies, plus luxury tax — though even in the worst case scenario the tax itself will amount to less than they’ve paid in the past four seasons.

As always, the it’s-not-my-money caveat applies. The Steinbrenners have the dollars, so they control who gets paid. But if they are serious about their statements, that winning takes precedence over the budget, they should spend as though Rodriguez doesn’t exist. To win that bet is a coup. To lose means writing another check, though not nearly to the level of last year and a bit below what they’ve paid in the recent past. We can only hope this makes sense to the people writing the checks.

Categories : Hot Stove League
  • Crink

    One question I haven’t really seen asked, is why is 2014 the year they have to do it? The tax threshold seems to go up each year, if they can’t do it in 2014 at 189, why not try 2015 at 196 or whatever random number generator MLB uses to pick these things spits out? Or better yet, wait til Tex/Sabathia/ARod are off the books and try it then…

    • http://www.riveraveblues.com Joe Pawlikowski

      It will remain at 189 million for the duration of the current CBA. In 2015 it will still be 189 million.

      • Skinny MikeAxisa

        Joe , do have a link to Mike’s calculation of the $40 million to spend ? (before the $33.5 million of A-Rod money).. I’ve read where the Yankees could have $80-100 million to spend..Bill Madden of NYDaily News wrote this:

        “The Yankees have about $102 million coming off their payroll in expired contracts and will have about $80 million to spend this winter and still stay under the $189M. However, that does not include Alex Rodriguez. If his suspension is upheld, or at least most of it, they could have another $20 million in spending money.”

        Read more: http://www.nydailynews.com/spo.....z2kNL3y2wJ

        • Need Pitching & Hitting

          With full season of ARod:
          They have about $97.71M currently under contract (7 players).
          Add ARod’s likely $6M bonus and they’re at $103.7M
          Their share of benefits will likely be about $12M, bringing the total to $115.7M
          Their arbitration eligible players are projected at $17.2M, bringing the current total to $132.9M for 14 players(possibly less if any of Nix or Stewart are non-tendered).
          Add in a few pre-arb players making at/near league minimum, routine transactions (such as injury and September callups), and minor-league 40-man roster salaries at maybe $6M-ish, brings the current total to about $139M.
          That would leave about $50M of space for free agents or trade acquisitions, but they’d likely spend less to leave room for potential performance bonuses or midseason acquisitions.

          Basically, with ARod all year, they could probably add less than $50M.
          If ARod is suspended all year, they could add closer to $80M.

    • Ed

      The $189m threshold won’t change until the next CBA. They stopped the annual increases.

      The other factor is they changed the revenue sharing rules to so that a few teams won’t be eligible to receive payouts anymore. The payouts get phased out over the next few years as we gradually transition to the new payout rules. The money they would’ve received instead gets refunded to the teams that paid the most into the pool – but they can only receive it if they’re under the luxury tax threshold.

      So in addition to the tax benefits, getting under the threshold means less of their money gets redistributed to other teams. The sooner they get under, the more significant the savings.

    • MannyGeee

      Your second point is incredibly valid, IMO. You’ve doled out these asinine contracts for years, you can’t expect to completely ignore them and get under the cap of celery because “you said so…” in an arbitrary date.

      If you’re gonna do it, let some of the albatrosses fly and THEN try to make it happen. Sure, its costing you money, but it won’t cost you as much as you’d make in return from selling tickets to late October games.

  • Mike Myers

    The decision 2013?

    Is this an open letter wish?

    We all know its not happening. The top talent will be paid by other teams while we pay Robbie and wait on arod. Then overpay for crappy sub mid tier players. See: Ruiz

    The marketing team will display a ‘healthy’ 2014 yankees team with Tex and Jeter etc. It will be 3 years before the Yanks can compete.

    • Havok9120

      If your third section/paragraph is really how you feel about the team, I’m stunned you can count baseball as entertainment. That aside, did last season teach you nothing? Despite all the injuries and ineffectiveness, the team still competed and made moves to try and remain so.

      There’s no reason at all to bury the entire organization for the next three years on November 11 (!!) of 2013.

      • Robinson Tilapia

        Yessir, but we both know that “competed” means drastically different things to different people. The team did not get to take a picture with just the WS trophy and everyone’s penis this season like the Sox did.

  • Robinson Tilapia

    Mike needs to promote at least above Ben in the “founding editors” section for this.

    Basically, one million percent all of this, and then some.

  • mitch

    Well said. The way they act prior to the Arod decision will put a test to the goal/mandate chatter

    • Havok9120

      Unfortunately, “the way they act,” to us fans, generally means “who they sign.” We don’t know anything (and have almost no information on) what the front office is up to until a signing is announced.

  • CONservative governMENt

    Would love to land Tanaka, keep Cano and otherwise ride out the storm with injury bouncebacks and short-term options.

    Avoid type A free agents and save prospects/cash for the shortstop of the future (whoever that ends up being). Get in on the high-end international free agents and give the farm system a season to show what’s there.

    Maybe the Angels or Dodgers miss out on Price and want Sabathia.

    The Yankee brand is strong enough to weather a down year and knowledgeable fans will understand the need to reset the team’s direction.

  • RON

    One question that seems to missing from this article.. Doesnt the resetting of the tax rate drive the push for 189?..My understanding which may be wrong is that if the Yankees get under the 189 threshold this year they prevent a repeat offender stipulation that makes the tax rate 50%. So I believe Joe’s computations related to Arod being here or not are quite understated… If I am wrong, please enlighten me

    • http://www.riveraveblues.com Joe Pawlikowski

      The A-Rod rates cited above are computed on a 50% basis. Yes, getting under the threshold would reset the tax, making it cheaper to exceed $189 million in 2015. By the same token, if they can get under the threshold in 2015, they’ll pay zero taxes and also reset the tax.

      • Havok9120

        Aren’t two consecutive years under required to fully reset the tax? I remember that you need the two years for the full revenue-sharing benefits, but what about the luxury tax?

        • Need Pitching & Hitting

          No.
          One year under resets the tax to 17.5% for the next time over.

          • Havok9120

            Thankee.

  • JW

    I think the problem with Joe’s logic is that he’s making one giant conclusion: “If the Yankees win, they get a championship team and pay zero dollars in luxury tax while keeping money previously sent to other teams.”

    That’s far from a foregone conclusion. Now if he wants to say they could get what should probably be a playoff contender that’s one thing. But it’s a giant leap to say anything more. And it’s far from guaranteed that they would even necessarily be even a certain contender for the divisional title, as opposed to one for the wild card.

    • Havok9120

      I think it’s safe to say he meant “championship caliber” team.

      A playoff race is a playoff race. If we spend the season competing for a Wildcard spot, how is that not success with the current team and the outlook of the fans here? The plan Joe put forward gives them the best shot at a competitive/contending team while still keeping an eye on the business goal of 189. That’s all he seemed to be trying to present. A ring is not the only meaningful success.

    • Farewell Mo

      Agree

      The Yankees could jack the payroll up to $250 million and there’s still no guarantee they make the playoffs in 2014. Even if they sign Tanaka, Garza, McCann, Beltran and Cano, they still need a lot of things to go right to make the playoffs

      Obviously, signing those guys greatly improves their chances but in is last paragraph, he should substitute playoff caliber team for championship team.

  • Darren

    I disagree with this approach. It’s too much of putting your head in the sand and letting $189mm fall by the wayside.

    They should plan on him being on the roster for all but 50 games, under the assumption he’s not getting off scott free. You can still Cano and one other top free agent, just not two or three. Go hard for Tanaka because you can outbid competitors with the posting fee. What’s the downside? If January rolls around and there’s an extra $20mm or whatever bc Arod is suspended for the 100 games or more, then great, you can still sign multiple FAs that haven’t yet signed, AND more importantly have the flexibility to address problems during the season by taking on salary.

    • Havok9120

      It depends on what the balance of goal vs. mandate really is. After all, I don’t think anyone would disagree that the current roster is not the one with which to suddenly try for 189. If they are taking that fact into account, I think this way makes perfect sense. There are too many question marks on the roster to put together a team you’d bet on as a regular season contender for 189 without a 162 game suspension for ARod.

      What’s more, having a set plan to start the offseason gives them a better chance to get under the luxury tax in 2015. After all, ARod’s salary will still be around for the long term. By moving quickly, they can get the right balance of 1 year deals and longer contracts to both use ARod’s salary this season while not hamstringing the team’s chances at 189 in 2015. In January, the pickings will be far too slim to count on such a plan being feasible.

    • Robinson Tilapia

      Disagree.

      I’m not advocating spending like drunken sailors. I just feel nothing should hold them back from taking a leap with someone if the situation presents itself before we know what either of those situations hold.

      • Darren

        I’m fine with spending a ton on free agents and, like you, I don’t give a crap about the $189mm. I’d rather watch a team with better players.

        BUT…is you’re looking at it from Hal’s perspective, if you actually want to get under $189mm, it would be a bad bet to assume that ARod’s salary is gonna be off the books. It’s much more likely that he’ll be suspended for 50 games or 100, not 162.

        • Havok9120

          I agree with that, by and large. But I do also think that he’s still somewhat sensitive to the fans and success on the field.

          We’ll just have to see.

    • OldYanksFan

      Very sane, and I agree 100%. If the Yanks want to gamble a bit, they might assume 65 games for ARod. My guess is 85-150 games, so I think 65 is a safe bet.

      Last year, the Steinbrenners ‘lined their pockets’ by having the highest payroll in history. After 18 years of no-holds-barred spending, I don’t think the $189m plan is that unreasonable. It’s actually better for the future of the team (and thus us fans) in the long run.

      If they hit $189m in 2014, it saves almost $9m in 2015 on ARod alone. I expect they will spend big time in 2015, and will also hopefully have some help from the farm.

  • Dan

    I couldn’t agree more. They need to act this way so they aren’t paralized while most of the big Free agents sign. With the money they have available, and Alex’s money, they could possibly sign Cano, Kuroda, Tanaka, Pehralta, and McCann. That crew would definitely get them back to the playoffs. If the worst case scenario happens and A-Rod plays, they’ll end up with an even deeper lineup. This is the right move.

    • Skinny MikeAxisa

      I agree completely with Joe’s opinion that the Yankees should try to win first then worry about paying taxes…they should act that A-Rod does not exist, and spend the money accordingly…They should be able to re-sign Cano, sign Tanaka and McCann. I don’t think Kuroda will be back, if so, they should sign Garza as starter #3, since he won’t cost a draft pick..it wouldn’t hurt to offer one-year deals to Josh Johnson, Scott Kazmir and Dan Haren. Again no draft picks lost in these cases..As far as SS is concerned, not sure if they should go for Peralta, or keep Brendan Ryan, a superb glove man.

      • Dan

        As great as Ryan’s glove was, I like Peralta’s bat more, and the Yanks really needed the bat more than the glove this past season. He also has some versatility, and could get 500 above average ABs between SS, 3B, and LF.

  • JLC 776

    Great point regarding ARod and the FO’s direction.

  • LarryM Fl

    Joe, I disagree with your plan for the Yankees going forward. The Yankee goal is 189. They reset the tax to a more reasonable level until surpassed down the road and get rebates from prior years penalties. Hal would be foolish not to take advantage of this option. He can use the rebated money to supply the team with future players.

    Arod should be assumed as winning his arbitration until otherwise decided. This way you can move on players who are a priority. It may also assist with opportunities for younger players to get a shot, impress for lower cost.

    I’m one of those fans who can support the team which is competitive. But may not be championship quality (2013).

    Joe I did enjoy your premise on the Yankees moving toward next year just do not think it will be their response.

    • Need Pitching & Hitting

      He can use the rebated money to supply the team with future players.

      He can. But will he?

      Hal would be foolish not to take advantage of this option.
      So was Hal foolish in 2013? Or 2012? The same option existed then.

      • Havok9120

        1) Even if he doesn’t, a team structured around a 189 million dollar payroll is nothing to sneeze at over the life of the CBA. My main problem is that most seem to be assuming that he won’t.

        2) It would have been more difficult and carried less reward, as you know better than most here due to your knowledge of the CBA.

        • Need Pitching & Hitting

          It would have been more difficult to get under and try to be competitive at the same time
          Technically, the reward likely would have been bigger if they had done it in 2013 instead of 2014. They would have gotten slightly less in market disqualification rebates, but that would likely have been more than offset by the direct savings from the steeper cut in payroll required to get under $178M instead of $189M.
          And the moves that would have been required for them to get under the threshold in 2013 likely would have left them with a better/stronger/deeper farm system going forward.
          I’d have much less of a problem with the plan to avoid the luxury tax if:
          1) They used the opportunity to set themselves up to be more competitive in the future (quasi-rebuild)
          2) They waited until they had a better shot of fielding a championship caliber, likely to make the playoffs team while getting under the threshold.

          It remains to be seen what they’ll do, but from what’s been reported so far, it seems the likely path is they spend close to the cap, field a competitive, yet not quite playoff team, and don’t significantly address any of the long term issues/concerns in the process. Basically a year in which nothing/very little is gained. I hope I’m wrong.

  • trr

    Thanks Joe, for this practical no BS look at this issue.

    • Robinson Tilapia

      Posts like these are what I love about this site. No hyperbole. Just straight and no bullshit.

  • Dale Mohorcic

    The information about A-Rod’s contract made me wonder if there’s a tactical advantage to front-loading a Cano contract in an unprecedented way. Let’s say (for discussion) that the Yankees give Cano $200M for 8 years. His AAV is $25M towards the luxury tax cap regardless of how you pay it (as I understand it). But if you pay the contract more heavily up front (which the Yankees are in a better position to do than other teams), say $35M/year for the first 5 years, then he only has $25M left to be paid in the last 3 years of his deal. At that point Robbie is 36 and probably not worth $25M/year. But at $8.3M/year he would certainly be more palatable in a trade to even a mid-market team (while simultaneously freeing $25M of “cap” space) and he would have less incentive to not just go ahead and retire if he stinks and is just waiting around for his paychecks. Plus Robbie looks at the deal and he sees that he’s getting the largest paycheck ever for the first 5 years as well as the majority of his contract within those 5 years. What’s the downside?

    • Hardy

      A dollar in 2014 is worth more than a dollar in 2021.

      • Need Pitching & Hitting

        That’s definitely true, but the potential benefit might be worthwhile.
        Cano would have to be willing to waive a NTC for this to work, though.

        • Coolerking101

          A better idea would be to give Cano less than market value but hugely front load it so the Yanks take much less of a salary cap hit, while making Cano happy b/c he could make more up front than he would have otherwise. Problem is, this would be invalidated by MLB as a violation of the CBA.

        • Tom

          NTC will mean nothing very shortly – he’ll have 10/5 rights by the time they would think of trading him.

          Waiving the NTC would be purely symbolic unless they were dealing him in the next year or two. (or if the potential team they trade him to down the line wants to flip him again)

        • Rob

          To hardy’s point, if the idea is to make him more palatable to mid-market teams at the back end of the contract, why wouldn’t you just pay x amount of the remaining salary (as is the procedure, such as with Burnett). Really no benefit in the way of trading on the back end, if team X is willing to pay $6m/yr for cano with two years left you just pay the remainder, and paying those dollars up front is less cost effective.

      • Dr. Grenaldine

        They should pay their players in bitcoins

        • Robinson Tilapia

          Would anything in bitcoins count towards the 189 plan? I mean, you can’t really prove WHO is paying.

          I think this man is onto something.

        • MannyGeee

          NO BITCOIN CELERY CAPZ!

  • Dr. Grenaldine

    Anybody know if the Mets still have Bobby Banilla on their payroll?

    • chriskeo

      I believe he gets paid $1,193,248.20 every July 1 until 2035.

  • mt

    We will know in a month or so whether Hal has agreed with Joe’s strategy (i.e., to assume Arod gone and sign free agents knowing we will probabaly be over $189 million if after signing free agents Arod’s suspension gets reduced to under 100 games.)

    I assume a lot of the major free agents like McCanns and Choo and Garza will sign around the Winter Meetings next month or shortly therafter. This does not apply to Cano who I see holding out as long as he can to find a team who will give him $250-$300 milion; unfortuantely there may be no cost to this strategy for Cano since I can see Yankees making an offer without adding any time limit for him to accept; therefore he can shop around ad nauseum knowing his fallback is the Yankees)

    As it stands right now, very unlikely that Arod decision comes out before early Deecember given testimony the week of November 18. If testimony extends beyond that week, there is almost no shot there will be an answer in early December.

    The other wrench is their two main free agent targets (Cano and I assume Tanaka, once posted) may actually bleed into January unless they pressure Cano with an expiring offer. As of today the exact nature of the new Japanese posting process is still “weeks away” from settlement with MLB so who knows what will happen with that.

    I can maybe see (30% chance in my estimation) Yankees taking a bet on Arod being suspended all year and being forceful over the next month with the Beltrans/McCanns/Choos/Garzas (or someone from that ilk). It would be great if they did that (as a fan it’s not my money). However, I can’t see any movement on this class of free agents if all three of Arod, Cano, AND Tanaka are all still up in the air at the winter meetings. (Yanks have little control over Cano timing and absolutely no control over Arod/Tanaka timing).

    So bigger question may be – what do you think Yankees will/should do if all 3 (Cano, Tanaka, and Arod) are all up in the air through mid-December?

  • Farewell Mo

    Great piece. Nice to have Joe around here more regular

    We may soon see which is more important to the Steinbrenners, fielding a playoff contending team or getting under $189 because if Arod only gets 50 games as many think he will, they’re pretty much mutually exclusive goals at least for 2014.

  • Dick M

    Joe is saying we can win either way which sounds good on paper but in reality you have to make a decision relatively soon about who’s gonna play third base. If there’s anything we learned last year, it’s that the longer you wait, the slimmer the pickings.

    I’m of the opinion that A-Rod gets somewhere between 50 and 100 games when it’s all said and done. Which in some respects is worse than either a one yr ban or having him for the whole year.

    And then you have Jeter in ironically, from a planning standpoint, somewhat of a similar situation in that you don’t know how much he will be able to play.

    Basically, you need caddies for both of these guys. I’d overpay for Ryan and let him know that he’s the guy post-Jeter. I want a SS that can play D. A-Rod’s caddie has to be someone reliable (not Chavez/Youkilis types).

  • PunkPitch

    Yessiree Bob! Hal is the new Boss, same as the old Boss – NOT. Hal may say he wants to win but who doesn’t? A one year plan is nice, my money is on a 3 or 5 year plan that has the look of a rebuild. A 1 year salvage, hail mary plan is not Hal’ style, unlike his Dad.

    • Robinson Tilapia

      A bunch of words strung together.

  • 2014LetsGet It

    It’s always easy to spend someone else’s money.

    Between luxury tax savings and NOT spending the extra $40 per year on payroll, you can’t say it’s foolhardy to save money.

    Besides, if you break down how much they spent last year on broken down players/guys who aren’t even on the team, it’s not rocket science to get close to $189. They might have to scrimp in certain areas, but welcome to the rest of the baseball world.