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How the Yankees’ payroll can shape the team’s offseason plans

New York is very close to the luxury threshold, and the team has a number of needs to fill.

Washington Nationals v Baltimore Orioles Photo by Rob Carr/Getty Images

Yankees General Manager Brian Cashman has been up front about the team’s offseason objectives. He wants to upgrade the starting rotation, maintain the dominant bullpen, find a replacement for the injured Didi Gregorius, and trade beleaguered starter Sonny Gray. Owner Hal Steinbrenner echoed these goals, but it’s unknown whether he’s willing to authorize the spending which may be required to get it done. When pressed on the issue, Cashman mentioned that payroll could be an obstacle to checking off every box on his wish list.

The main concern is the Competitive Balance Tax. The Yankees exceeded the luxury tax threshold and paid the surcharge every year of its existence, save for 2018. Prior to this season, they announced that getting under the threshold was the organization’s number-one goal. Cashman dutifully observed that mandate as he made moves before and during the season to build the roster.

By reaching this long-sought target, the Yankees avoided paying luxury taxes this past season, and they also reset the 50% surcharge on payroll exceeding the threshold back down to zero. The next time they exceed the limit, the Yankees will be treated as first-time offenders.

Many fans hoped that the primary purpose of ducking under the threshold in 2018 was to reset the tax rate, and that once they did, the Yankees would resume spending freely. That may be the case, or the team could continue to treat the line as a hard cap moving forward — or settle on something in between. We don’t know what they’re planning, as they haven’t announced their specific intentions. Nor will they, since it doesn’t make any sense to show your hand to competitors.

MLB: Winter Meetings Kim Klement-USA TODAY Sports

Right now, the Yankees don’t have much headroom under the luxury tax mark, which increases to $206 million for the 2019 season. According to Cot’s Baseball Contracts, the Yankees have six players under contract who — for luxury tax purposes — will earn a combined $101.7 million in 2019. Based on average annual value, the salaries of Giancarlo Stanton, Masahiro Tanaka, Jacoby Ellsbury, Aroldis Chapman, CC Sabathia, and Brett Gardner are included in that figure.

In addition, Gregorius ($13 million), Gray ($8.75 million), James Paxton ($8.5 million), Dellin Betances ($8 million), Luis Severino ($7.75 million), Aaron Hicks ($5.5 million), Austin Romine ($2 million), Tommy Kahnle ($1.75 million), and Greg Bird ($1.1 million) are expected to earn an estimated $57.2 million combined through salary arbitration.

When one factors in the estimated $5.175 million total that other players under team control will earn, $2.25 million for 40-man roster players in the minors, and $14.5 million for player benefits, the team’s projected payroll for luxury tax purposes stands at $180.825 million. That means the Yankees can only spend around $25.175 million before they hit the threshold and have to start paying a tax on any overage.

It’s a foregone conclusion that Gray will be dealt, it’s just a question of when, to whom, and what the Yankees will get in return. With Kyle Higashioka waiting in the wings and earning slightly more than the league minimum, it also makes sense to trade Romine, who is out of minor-league options. Kahnle — who spent most of 2018 in the minors and was ineffective when he wasn’t — is also out of options. Bird is another player who might benefit from a change of scenery, particularly if the team is committed to continue starting Luke Voit at first base.

Trading all four would free up about $13.6 million, but that doesn’t mean the Yankees will spend it all immediately this winter. They have to budget for the inevitable moves that will need to be made during the season. Remember, when a player gets hurt, he still gets paid, as does his replacement. Even if a contract is insured, the full value still counts for luxury tax purposes.

Cashman already improved the team immeasurably by acquiring Paxton via trade. It‘s been reported that the Bombers GM has engaged with numerous teams regarding possible trades, so it’s likely that he will continue trying to achieve the club’s offseason objectives via this route. Whether he is actually able to execute additional deals which are favorable to the Yankees remains to be seen.

MLB: Spring Training-Detroit Tigers at New York Yankees Kim Klement-USA TODAY Sports

Remember, the Yankees already gave up their top prospect to land Paxton, and they now have only three players remaining who rank among MLB Pipeline’s Top 100. The farm system simply isn’t what it used to be, so Cashman’s success in upgrading the team via trade may depend greatly on how much value potential partners place on New York’s prospects, the aforementioned arbitration-eligible players, and other trade chips like Clint Frazier.

Perhaps Cashman has some ninja moves left. After all, he managed to acquire Stanton for Starlin Castro and Voit for Chasen Shreve — two moves none of us saw coming. Just for fun, though, let’s take a look at what the Yankees might be able to do on the free-agent market based on various budget scenarios.

Plan A: Break the bank

What if the Yankees sign the top two position players, top two starting pitchers, and top two set-up men? MLB Trade rumors estimates that Bryce Harper will fetch a 14-year contract worth $420 million, Manny Machado will get $390 over 13 years, Patrick Corbin will earn $129 million over six years, Dallas Keuchel will receive $82 million over four years, and Zach Britton and David Robertson will get $33 million apiece over three years.

Signing all six players would add an estimated $124 million to the Yankees’ payroll for 2019, pushing the grand total to $304.825 million. They would pay a 42.5 percent surcharge on the nearly $99 million over the luxury tax mark in 2019, but that’s not the worst of it. As repeat offenders who exceed the threshold by more than $40 million, the Yankees would get taxed 92.5 percent on overages in 2020, and that tax would rise to 95% in 2021 and remain at that level every year into the foreseeable future. They’re not going to do that. It’s nice to spend a few moments on a dreary winter day dreaming about snapping up the top free agents, though, isn’t it?

Plan B: Spend big, but not too big

If the Yankees sign Machado and Corbin, plus either Britton or Robertson, it would add an estimated $62.5 million to their payroll, putting the 2019 total at $243.325 million. By exceeding the threshold by less than $40 million, they would only be taxed 32.5 percent ($12.1 million) on the estimated $37.325 overage for 2019. Not too bad, right?

Not so fast. Being so close to that $40 million overage threshold almost guarantees that they’ll have to exceed it in 2020 and beyond due to ongoing needs. That puts them right into the 95% tax bracket. So signing both Machado and Corbin, plus one star set-up man isn’t going to happen either.

Plan C: Loosen the belt a little

The key to avoiding a surcharge of more than 50 percent in future years is to never exceed the threshold by more than $20 million, so now would be a good time to talk about those other needs. Cashman said that he intends to pursue contract extensions with Gregorius, Hicks, and Betances — three stars who are set to become free agents following the 2019 campaign. In order to do all that, plus sign one top free agent, the Yankees will have to loosen the belt a little bit.

Inking Gregorius to a deal with an AAV of $18 million, Hicks $15 million, and Betances $11 million, would add a total of $17.5 million to the 2019 payroll. Signing Corbin as well what would put the Yankees around $13.825 million over the threshold for next year. They’d pay a 20 percent tax on the overage in 2019, 30 percent in 2020, 40 percent in ‘21, and max out at 50% in ‘22 — unless they find away to reset it again at some point.

Plan D: Treat the luxury threshold as a hard cap

Should the Yankees choose to treat the luxury tax threshold as a hard cap in 2019, then signing any of the top free agents is out of the question — especially if they want to extend all three players who are in their final arbitration years. They could sign either a much lower-tier starter, or one of the top set-up men, but that’s about it.

Boston Red Sox v New York Yankees Photo by Jim McIsaac/Getty Images

It’s now easy to see why Cashman has been so active in pursuing trades. In an interview with Jack Curry that will air on YES at 6:00 pm EST today, he talked about this approach extensively. When Curry asserted that “the Yankees’ DNA is (to) make splashy moves,” and asked Cashman whether the team will continue doing this by signing Bryce Harper, Manny Machado, or both, the GM balked at the descriptor. Although he acknowledged that the club had done those types of moves in the “80s and 70s,” and more recently when they acquired Stanton, he stated: “I disagree with the Yankees’ DNA being splashy moves.”

“Under Hal Steinbrenner’s leadership, I’d like to think that we’re making smart, savvy moves that hopefully pay big dividends. That’s what we’re trying to do,” said Cashman.

He cited the deal that brought Hicks to the Bronx in exchange for John Ryan Murphy, as well as the acquisition of Gregorius. “We’re trying to make sound decisions that will positively impact us, not cripple us at the same time,” Cashman said.

When George Steinbrenner was alive, he might have ordered his GM to sign every top free agent after the Yankees were eliminated in the Division Series by the Red Sox. I could also envision him calling Cashman minutes after his team’s nemesis clinched the World Series title, demanding to know why both Harper and Machado weren’t wearing pinstripes yet.

Things are different now, though, and we’re going to have to get used to it. I have faith that Ninja Cash will find a way to make the organization’s changing philosophy work.