The Yankees began the off season trumpeting their intention to fall below the luxury tax threshold for the first time. With a superstar free agent class looming in 2018, avoiding the tax and resetting the penalty from 50% to 20% was deemed an economic imperative. So, what did Brian Cashman do? He traded for the most expensive contract in baseball history.
By acquiring Giancarlo Stanton, the Yankees hit the jackpot, but didn’t break the bank. Because of how the deal has reportedly been structured, Cashman was able to turn a contract with a $295 million balance into a relative bargain. The chart below contains a breakdown of Stanton’s contract based on its impact to the Yankees’ luxury tax position. Included is an explanation of how the average annual value is calculated, both for the contract alone and how it’s applied to the Yankees’ payroll. In addition, there is an analysis of how a potential opt out by Stanton would effect the Yankees’ payroll after the 2020 season.
Breakdown of Giancarlo Stanton’s Contract Based on Luxury Tax Implications
Source: 2017–2021 MLB Basic Agreement and Captain’s Blog
What makes Stanton’s high price tag affordable is the length of the deal, which reduces a record setting total value to a more pedestrian $25 million average annual value (AAV). Further mitigating the impact to the Yankees is the pro rated $30 million being sent by the Marlins, which, though contingent upon Stanton remaining in pinstripes beyond 2020, is applied to the team’s payroll calculation immediately. The result is a $22 million hit against the luxury tax threshold.
The Yankees began the winter with about $35 million to spend, so even at an AAV of $22 million, Stanton’s contract is still substantial. That’s one reason Starlin Castro was included in the deal. By shedding Castro’s contract, which had an AAV of about $8.5 million (including pro rated bonuses), the Yankees were able to increase their cushion to about $20 million, which should be enough to fill the two remaining roster holes (most notably a starting pitcher) and leave room for a mid-season acquisition or two (click here for a look at the Yankees’ estimated preliminary 2018 payroll).
Without shedding more payroll, the Yankees seem to be in a good position to trim their payroll below the $197 million tax threshold. But, that doesn’t mean Brian Cashman won’t attempt to create more wiggle room. The most obvious way to do that would be by dumping Jacoby Ellsbury’s contract. Even if the Yankees paid 70% of what’s owed on his deal, they’d still save over $6 million. That sum could come in handy at the trade deadline. There are other candidates for savings, such as Dellin Betances, Chase Headley, and Brett Gardner, but Ellsbury would clearly be the preferred option because of his seemingly limited role on the team.
The Yankees may have rocked the baseball world by acquiring Stanton, but their attempt to dip below the luxury tax threshold remains on solid ground. To the extent that Stanton’s on-field value lessens the need for the Yankees to acquire more (expensive) players, his contract is more than just affordable, it’s a facilitator of the team’s financial aspirations. When you further consider the minimal prospect cost, the Yankees’ acquisition of Stanton is more than just a home run…it’s a walk off grand slam in the middle of December.
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