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Where the Yankees’ payroll stands now

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With much of their offseason shopping already done, where do the Yankees stand in terms of the payroll and the luxury tax?

Citi Hoops Classic - Kentucky v Monmouth Photo by Michael Reaves/Getty Images

In contrast to the snail-like pace of the overall MLB offseason, the Yankees have kept quite busy in recent weeks. The team has crossed off nearly every item on their winter checklist. They re-signed the veterans they intended to keep around, added a premier starter in James Paxton, and imported a bucketful of former Rockies in DJ LeMahieu, Troy Tulowitzki, and Adam Ottavino.

With Sonny Gray reportedly on his way to the Reds, the Yankees are essentially set. Whether they intend to make an aggressive move for Bryce Harper or Manny Machado, or to make a surprise entrance on the trade market, remains to be seen. Regardless, at this point, the Yankees have made a flurry of moves, and appear close to ready for the 2019 season.

Even with the offseason not yet over, the Yankees already profile as excellent heading into 2019. The moves they’ve made thus far have left them with a solid five-man rotation, a terrifying bullpen, and a deep roster of position players. As of now, the Yankees have managed to edge themselves ahead of the Red Sox for first place in FanGraphs’ current depth chart projections. Those projections should be taken with a grain of salt this far from the start of the actual season, but it’s a good sign that the Yankees have improved the team this winter.

Of course, in this day and age of obsessive contractual analysis and $/WAR frameworks, the financial side of the offseason is perhaps just as important to the fan as the on-field impact of any move. For better or worse, the question on the minds of many in Yankees universe is how the team’s payroll now stands, especially with regard to the luxury tax threshold.

For a time earlier in the winter, it wasn’t even a guarantee that Hal Steinbrenner and company would green-light a move past the luxury tax, even after the team made a much-publicized dip beneath the threshold last season to reset their repeater penalties. Yet with their most recent signing of Ottavino, the team appears to have signaled that it will almost certainly be back to paying the luxury tax this year.

According Cot’s Contracts, the Yankees’ currently project to have $198.2 million committed to players’ contracts in 2019 (presuming the Gray deal is completed and his $7.5 million salary is sent to Cincinnati). This includes guaranteed contracts, projections for arbitration-eligible players (like Luis Severino), and players making pre-arbitration salaries. This does not include, however, estimated player benefits, which will likely come out to about $14.5 million this year.

Player benefits do count against the luxury tax, which puts the Yankees at a projected $212.5 million payroll with respect to the tax. That sits higher than the $206 million threshold. If the Yankees end 2019 at that $212.5 million figure, they will pay a 20 percent tax on the overage, equivalent to about $1.3 million.

If the Yankees made a signing or trade that pushed them over the second, $226 million threshold, they would incur a 32.5 percent tax on the overage. Should they exceed the last threshold at $246 million, they would incur a 62.5 percent tax on the overage, and see their first draft pick dropped ten slots.

None of these penalties are nearly as draconian as they may appear. Even if the Yankees ran a $250 million payroll, they would only pay $13 million in luxury tax penalties. Should the Yankees be as good as expected, the potential draft pick loss would also be minimal. Research has shown that the value of draft picks falls off much faster at the very beginning of the draft, rather than later in the first round. The difference between, say, the 28th pick and the 38th pick is marginal.

Interestingly, once the Yankees sit just about $33 million below the highest threshold. That would leave them with almost the exact amount they’d need to make a competitive offer to Machado or Harper, while also potentially leaving a bit of room leftover for a midseason trade or two. The Yankees shouldn't care about breaching any of the thresholds, given their sky-high revenues and the previous levels of spending they ran several years ago, but it wouldn’t be a surprise if the Yankees eyed the last threshold as one not to touch.

That’s where we stand now. The Yankees have almost no recourse to drop below the luxury tax threshold, and plenty of room between them and the highest threshold. The story is the same as ever, though, in that none of the luxury tax penalties should move the needle for the Yankees. The penalties are, to them, relative pittances. Thus far, they’ve shown a willingness to pay the lowest penalties. We’ll see if they push payroll a bit higher between now and the season’s start.