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Was the Yankees’ dip under the luxury tax an aberration, or the start of a cycle?

The Yankees’ actions this winter could inform us whether they viewed 2021 as a one-off opportunity, or the start of a new norm.

MLB: Winter Meetings Kim Klement-USA TODAY Sports

The 2021 Yankees season produced loads of storylines, as every year of baseball does. The campaign was defined by the team’s streakiness, its quest to push back into the playoff race after a rough start, by its consistent inconsistency. For those in the know, however, there was an off-field plotline that loomed just as large as any story that played out on the diamond, in the form of the Yankees’ journey back beneath the luxury tax threshold.

Every move the Yankees made ahead of and during the 2021 season was informed by the club’s desire to run a CBT payroll less than $210 million. The club attached a prospect to salary dump Adam Ottavino in the offseason, re-signed DJ LeMahieu to six-year deal because of how it lowered his CBT hit, picked up Rougned Odor early in the season because he cost nothing, and then paid extra in prospects at the trade deadline to acquire Anthony Rizzo and Joey Gallo at zero cost.

The Yankees did successfully dip under the threshold and reset their tax rates, and they now appear poised to spend more like the “Fully Operational Death Star” we all know and love. The evidence is there in the persistent rumors linking the Yankees to superstar shortstops Carlos Correa and Corey Seager, as well as the smoke emanating between them and secondary targets like Matt Olson and Rizzo. Moreover, GM Brian Cashman said it himself, telling reporters last week that “it was mission accomplished last year, getting under the CBT. [Payroll is going to have to be] higher, because we don’t have a lot of stuff coming off”.

That’s the Yankees’ lead exec stating point-blank that last year’s mission was to avoid the luxury tax, and that payroll will have to rise in 2022, because the team has few contracts coming off the books and expects some to come on this winter. It’s clear that the Yankees expect to blast back into the luxury tax after playing limbo for a year.

But this isn’t the first time the Yankees have gone through this dance. To less fanfare, the 2018 version of the club dipped under the threshold, resetting their penalties after 15 consecutive years in the tax. The team rushed right back over the threshold, running league-high payrolls in 2019 and 2020, before last year’s dip under.

This begs a very particular question: are we witnessing the start of a cycle, where the Yankees make calculated blasts into the luxury tax in certain years, before reigning themselves in a couple seasons later to reset their rates? Or, will last year’s dip prove to be an aberration, a one-off opportunity seized by Hal Steinbrenner, before the team pushes so deep into the tax it can’t pull itself back out?

It should be said, this exercise involves enormous amounts of uncertainty and speculation. We don’t know whether the new CBA will include the luxury tax system in its current form, though history suggests it will simply remain, with the thresholds revised higher. We obviously don’t know for sure which players the Yankees will sign this winter, and whether they’ll sign certain other players currently on the roster to lucrative extensions.

Even so, it’s worth considering how the Yankees’ potential offseason moves could impact their ability to repeat the luxury tax stunt they pulled in 2021. The biggest domino that could fall is, of course, that of Correa or Seager. Most public free-agent projections forecast that duo to pull in somewhere between $30 million and $35 million annually.

Let’s see what the Yankees’ long-term payroll picture looks like if we plug in a star shortstop on a deal that averages $33 million:

Long-term payroll outlook

Yankees Payroll 2022 2023 2024 2025
Yankees Payroll 2022 2023 2024 2025
# of guaranteed contracts 10 5 5 5
Guaranteed $ $171MM $119MM $119MM $119MM
Payroll projection $254MM* $135MM $136MM $137MM

*note that the 2022 final payroll projection includes arbitration salary estimates plus the cost of player benefits; the 2023-2025 figures include only the estimated cost of player benefits

The takeaway here is that if the Yankees sign Seager or Correa, they’ll have nearing $140 million of CBT payroll committed to just five players... in 2025.

This doesn’t take into account a deal for Aaron Judge, who hits free agency after 2022 and should earn at least $25 million on the open market. Joey Gallo, Gary Sanchez, and Jameson Taillon all also hit free agency a year from now. Arbitration-eligible players like Jordan Montgomery, Domingo German, Gleyber Torres, and Jonathan Loaisiga will get more expensive as they progress. Things only get pricier if the Yankees go full-bore and trade for Olson, or Bryan Reynolds, or sign someone like Starling Marte or Robbie Ray this winter.

If the Yankees re-sign Judge, the math starts to get pretty straightforward. They’ll have over nearly $170 million counted against the 2025 CBT threshold with just six players under guaranteed contract. That number will only go higher once the Yankees make more signings, and pay out salaries to arb-eligible players (consider: the Yankees could spend roughly $70 million on arb players in 2022, though that includes a large charge for Judge). Add it all up, and the Yankees look likely to pay something like a $240-$270 million payroll for at least the next four seasons, a number that will almost certainty breach any luxury tax threshold that carries over into the next CBA.

The calculus looks simple at this point. If the Yankees press the button and put a star infielder in pinstripes, and make any effort to retain members of the current core that hit free agency, then they’ll have almost no chance of dipping under the luxury tax in the next three or so seasons. Their core players will be so expensive (and so good!) that even modest expenditures elsewhere will push payroll to the top of the league.

In a way, this could seem scary. If Steinbrenner wants to reset the Yankees’ tax rates again in a few years, the only way they could do so would probably be to let players like Judge walk, and go on a multi-year free agent freeze. That would leave the Yankees with a pretty narrow window to win the World Series.

But to me, this is almost heartening. The Yankees are talking a big game on the free agent market, and when they talk a big game, they usually walk the walk. The club wants a stud shortstop, and they understand the consequences should they pull the trigger. If anything, the buzz linking the Yankees to every big name on the market signals that management is leaning towards rendering 2021 an aberration. If we’re lucky, Seager or Correa will be starting in the Bronx come April, and the luxury tax cycle the Yankees danced through the past few years will be consigned to history.