Yankees Likely To Exceed 2014 Luxury Tax Threshold

The Yankees appear increasingly likely to set the team's payroll above the $189MM luxury tax threshold for next season, writes Yahoo Sports' Jeff Passan. Passan quotes an unspecified source: "They're going to be over [$189MM]. They know it. Everyone knows it. You can't run a $3 billion team with the intentions of saving a few million dollars." Of course, the Yankees never thought they would be saving only a few million dollars when they began speaking publicly about their intentions. Instead, the club was reportedly looking to save something in the neighborhood of $50MM.

Passan explains why that anticipated saving may no longer be available. First, the team no longer expects to recover a substantial amount of the money that it contributes to the MLB revenue sharing system. Rule changes had promised big money to the Yanks if they got under the threshold.

The rules used to allow certain big-market clubs with smaller revenues — such as the Nationals, Braves, and Blue Jays — to receive shared funds. Beginning in 2014, however, such clubs will begin sending that money back to the large-market, high-revenue clubs (like the Yankees) from whence it came. The contributing clubs get a rebate in proportion to their contributions, but only if they fall under the luxury tax threshhold. But with clubs like those mentioned shifting toward higher payrolls, the imbalance is disappearing and with it the potential funds to be reclaimed. A Passan source says that "the pool is going to be much less than everyone anticipated."

The direct luxury tax savings, in turn, may not be enough on their own to make the limbo act worthwhile. Passan explains that, were the Yankees to dip under the threshold for one season (presumably 2014), the club's luxury tax savings over the next two years could range from around $15.6MM (on a hypothetical $205MM payroll for 2015-16) to over $30MM (on a hypothetical $220MM payroll in those years). In other words, the savings increase as the anticipated future salary goes up.

It could be difficult to engineer a one-year salary valley, followed by an immediate spike, in a manner that makes the maneuvering worthwhile while efficiently creating good results on the field. Looking ahead to 2014, the Yankees already have a large amount of money committed to a small number of players, many of whom face age, injury, and/or other issues that could limit their value. The team will also be looking to re-sign superstar Robinson Cano. Moreover, a purge-and-binge free agency strategy may not allow the Yanks to fill all their needs from an increasingly shallow free agent market, potentially leading to overspending on sub-optimal players. The future free agent classes will not be as flush with talent as expected by the time we actually reach them, with several of the biggest names already locked up. 

Of course, there is also an enormously valuable brand to protect and grow. Add it all up, and the risks may well not justify the relatively unimpressive savings that the Yanks could reap from getting under the salary ceiling. In early March, over 60% of MLBTR readers who voted said the Yankees would not get under the threshold for 2014. That community projection is looking good right now. What, then, would the impact be on the broader market for MLB talent?

To start, an uncapped Yankee budget would leave no obvious barriers to the retention of Cano. Perhaps more importantly, the Yanks would seem to be positioned to take on major additional salary obligations even after putting a Cano extension in the books. While no unquestionable impact players appear atop the class of prospective free agents (excepting, of course, Cano), Yankee money would nevertheless have a major impact on market demand. Even last year, when the Yankees seemed quiet in anticipation of the 2014 austerity plan, the club had the seventh-highest total offseason spend according to MLBTR's Offseason In Review tabulations. (The Yanks issued over $95MM in new money commitments, all in short-term deals. That figure includes free agent signings and exercised options, but not extensions.)  

Depending on how things shake out, the team could have needs all over the diamond, including catcher, corner outfield, the left side of the infield, and the rotation. In fact, with the exception of Chase Utley — assuming that he will look to sign as a second baseman — the Yankees' needs could conceivably match with any of the players listed by MLBTR's Tim Dierkes in his latest 2014 Free Agent Power Rankings.