There will be multiple repercussions of the Giancarlo Stanton trade to the New York Yankees. This trade goes far beyond the reshaping of the NL East as well as the supremacy of the American League which had the Astros as the runaway 2018 favorite until this trade. Alex Cora’s Red Sox might have to fortify further to circumnavigate the perilous fjords of the potent Yankees lineup. With Stanton going to the Yankees, you can almost with certainty ⊗ off the Yankees as the primary suitor of Bryce Harper in free agency next year.
When the Yankees were spurned by Shohei Ohtani, they became the lucky recipients of the Stanton sweepstakes as Giancarlo named the four teams he would accept a trade to. The Cardinals and Giants did not make the list — but the Yankees were there. Derek Jeter‘s former lifelong team as a player, made for the perfect trading partner, as Jeter was now the head of the Miami Marlins ownership group and the authority to cut the deal. It would make for a much smoother transaction with his former team as well as a gift to the fans of the Bronx Bombers who can now resurrect another iteration of Murderer’s Row.
Competitive Balance Tax
There will be a financial burden as well as draft penalties for teams exceeding the competitive balance tax aka the “luxury tax”. The new 2017 Collective Bargaining Agreement set in motion far reaching penalties if teams exceed the payroll thresholds with a tax rate increase annually based on the number of consecutive years a team has exceeded the payroll threshold.
The new Collective Bargaining Agreement sets these limits on the competitive balance tax :
- 2018: $197 million
- 2019: $206 million
- 2020: $208 million
- 2021: $210 million
If a team exceeds the Competitive Balance Tax threshold for the 1st time, they must pay a 20% tax on all overages above the limit. A team exceeding the threshold for a 2nd consecutive season will see that figure rise to 30% on the overage.
The penalties get even stiffer after the 2nd consecutive season. A 3rd consecutive season that a team is above the threshold comes with a 50% luxury tax.
If there is good news for a team, the threshold rises by almost 5% in 2019 making the limit $206 million. If a team is able to go below the limit in any season, then the penalty level is reset as if they had never exceeded it.
MLB guidelines also call for teams that “exceed the threshold by $20 million to $40 million are also subject to a 12% surtax. Meanwhile, those who exceed it by more than $40 million are taxed at a 42.5% rate the first time and a 45% rate if they exceed it by more than $40 million again the following year(s). Beginning in 2018, clubs that are $40 million or more above the threshold shall have their highest selection in the next Rule 4 Draft moved back 10 places unless the pick falls in the top six. In that case, the team will have its second-highest selection moved back 10 places instead.”
Not only will teams have a cash penalty but they start to have their draft picks affected. There is enough disincentive to even scare the Los Angeles Dodgers. With all that said, Yankees GM Brian Cashman believes he has a plan to get below the threshold. Creativity like salary deferrals won’t work as MLB imputes a present value known as AAV.
AAV is the acronym for average annual value. The AAV of every contract on the 40-man roster computes the salary plus medical benefits and performance bonuses. That is a different definition than the typical way of computing payroll by how much the team is actually paying a player in a given season. Teams tried to circumvent the tax threshold by including easy targets to pay bonuses along with future service agreements. It will be difficult to give financial incentives and circumvent the AAV calculation now.
At the GM meetings in November, super agent Scott Boras had a new metaphor for the competitive balance tax comparing it to a “property tax” and coining a new Boras-ism that teams need to live in “Playoffville”.
When you are a super agent representing the biggest names in the sport, you need to prime the pumps to get ready to spend big. The Boras message to teams is that they need to spend to their revenues not to their tax limit.
Boras has also called out teams for not spending money like he did to the Mets when he said they foraged in a supermarket’s “fruits and nuts” section before moving on to the “frozen foods”.
“The team cutting payroll is treating their family where they’re staying in a neighborhood that has less protection,” Scott Boras said. “They’re not living in the gated community of Playoffville. And certainly they’re saving a de minimis property tax, but the reality of it is there is less firemen in the bullpen. There’s less financial analysts sitting in the press boxes. The rooms in their houses are less so obviously you’re going to have less franchise players when you move to that 12-room home in Playoffville.”
This year Boras has some biggins like Jake Arrieta, Eric Hosmer, and J.D. Martinez. He was asked specifically about Eric Hosmer which elicited this response:
“He’s Playoffville Federal Express,” Boras said. “He can be overnight delivery, one-day, two-day, three-year, whatever. He fits every franchise.”
Will the Boras-ism “Playoffville” metaphor become a “thang” this off-season? Just wait for Boras’ time to shine when Ohtani and Stanton are replaced with his hype machine as he works teams on Arrieta, Hosmer and Martinez. The Red Sox and Dave Dombrowski must now respond in kind which puts Hosmer and J.D. Martinez front and center with the team from Boston.
Boras also has a second tier of players named Mike Moustakas and Greg Holland. Boras controls 5 of the top 10 free agents remaining this year.
The Mets as mentioned have been a target of Scott Boras’ disdain for years as a team that is not spending big. Boras has said that several of his players would fit well with the Mets.
“The Mets have all the materials to live in a palatial estate of Playoffville,” Boras said. “The question is, ‘When do they choose to begin construction?’”
“You talk about what Major League Baseball provides them in revenues, just without selling a ticket, and then you look at their local TV revenues, you look at their radio and you look at their parking, concessions and others,” Boras said. “Where is the money going? And then it’s Casper finance. Where’s the ghost?”
Where’s the ghost? Who or what is Scott Boras referring to there? The ghost could be the disappearing revenues scared away by the tax threshold. Some teams also want to be in position for the 2019 free agent market that could include Manny Machado, Bryce Harper and Clayton Kershaw.
The Bryce Harper Effect
If Bryce Harper hits free agency next year, you can almost certainly count the Yankees out with their acquisition of Giancarlo Stanton.
What teams do we see in the running for Bryce Harper? The Philadelphia Phillies top the list as they have enough cash to sign Harper, Machado and Kershaw and remain well under the salary cap as they lie-in-wait for Mike Trout to hit free agency.
Harper would have to decide if he wants to join a losing team like the Giants and Phillies who will have the cash to spend or go to a team that could be playoff bound with Harper in 2019 like the Dodgers, Red Sox, Cardinals, Cubs, Diamondbacks and Mariners. There could certainly be other teams and of course don’t count out the Washington Nationals.
“We have a lot of things going for us. Bryce and I are very close. We have a great relationship with the [Boras Corporation]. Bryce was scouted, drafted, signed and developed here in Washington — his home away from home. I think he loves the fanbase and loves the city and I think we have as good of a chance to sign him long-term as anyone in baseball. He’s the type of iconic, historic, type of player who would love to be with the same organization throughout his whole career such as Jeter and that group of guys. I think he wants to be here and we want him here. I think there is a chance for him to make history.”
Since the competitive balance tax is an overage fee, any team that acquires Harper and watches their payroll go over next year’s $206 million level it will compound any salary exponentially. For the Dodgers, a $35 million salary would have an effect well in excess of that sum and closer to $53 million a year with the tax hit.
The Dodgers and Cubs have been fixtures recently in Playoffville without Harper. Keep that in mind. Many teams will be in the hunt but the teams that need him most are the ones that see him adding enough WAR to push them to Playoffville and beyond.