David Waldstein of the New York Times has reported that signing Masahiro Tanaka would likely push the New York Yankees over the $189 million luxury tax threshold. This conclusion comes after the team avoided arbitration with one-year deals for Brett Gardner, Ivan Nova, David Robertson, Shawn Kelley and Francisco Cervelli.
For this entire offseason, we’ve heard about the dreaded luxury tax threshold as though it were some mystical benchmark that, if surpassed, would doom the Yankees in 2014. Here’s how it works: there’s no salary cap in baseball, so in order to be fair to smaller market teams there’s a luxury tax for exceeding a certain spending limit. The limit from 2014-2016 is $189 million.
The luxury tax assessed depends on how much the team spends and how many consecutive years the team has surpassed the spending limit. According to FanGraphs, first time offenders are taxed at a rate of 17.5 percent, second time at a rate of 30 percent, third time at 40 percent and fourth time or higher at 50 percent. By getting under the $189 million threshold in 2014, the Yankees would be re-categorized as a first time offender, thus they could spend lavishly next season with a much lower penalty.
Clearly, getting payroll under $189 million would be advantageous by saving the Steinbrenner’s tens of millions of dollars when they inevitably exceed the limit next season. But we’re talking about the Yankees here; the team with the biggest market in the game; the team whose average ticket price in 2013 was $51.55. They’re not exactly pinching pennies. They can afford it.
It would have been great had they been able to put a contender on the field under the luxury tax threshold, but they’re not going to. By Waldstein’s calculations, the team is at about $180 million right now and they are still looking to add Tanaka (who could make as much as $18 million a year) and possibly one more starter.
The $189 million threshold will cost the Yankees one of two things: either millions in luxury tax or a possible run at a championship. Hal Steinbrenner seems to be opting for the former, and it’s not the end of the world.