Looking for a lower tax bracket
Why the Yankees and Red Sox aren't spending big on free agents this offseason
Here's a little offseason quiz for you. The biggest-name free agent the Yankees have signed this winter from outside their organization was:
Ready for Question No. 2? All right, here we go. The biggest-name free agent the Red Sox have signed this winter from outside their organization was:
Still thinking? Sorry, kids. Pencils down. Here come the correct responses:
Question No. 1: Huh? What's the definition of "big," anyway?
Question No. 2: Ummm, this would have been a lot more fun last year.
All right, so these were trick questions. Sue us. We just posed them to make a point. And that point is: This has been one of the most bizarre offseasons in the free agent era. Hasn't it?
Maybe it wouldn't be quite accurate to say the Yankees and Red Sox -- two teams that paid out a combined $390.1 million in salaries last year -- have essentially sat out the entire winter. The Yankees, after all, did find $30 million to keep CC Sabathia around.
And the Red Sox have been, eh -- what's the word we're looking for here -- "busy." By which we mean spinning managers and GMs in and out of Fenway's revolving door while trading for back-of-the-bullpen arms in their spare time.
The bottom line is this: The most dollars either of these two behemoths has guaranteed to a free agent from outside their organization this offseason is $3 million, by the Red Sox, to Punto (over two years). To put that in perspective, they'll pay Carl Crawford more than that just to put on his uniform for the first 25 games this season.
So repeat after us: Punto is the highest-paid "outside" free agent signed by either the Yankees or Red Sox this winter. Is that surreal or what?
But you should also know this: It's NOT a coincidence.
Both teams have been quietly alibi-ing that to find the reason for their newfound outbreak of thriftiness, you have to point your finger at the new labor deal.
They're not being cheap. They've just developed a sudden allergy to paying luxury taxes.
In the case of the Red Sox, that's not all that shocking. They've never been big fans of taxation, and they've run up less than $19 million in luxury-tax bills in the nine years that tax has been around in its current form. (They were billed $3.4 million last year.)
But the Yankees are a whole different deal. They've had nearly a decade to work up a healthy hatred of this tax. Yet until now, on the list of modern-day Yankee nuisances, the luxury tax ranked well below midges, Alex Rodriguez's love life and Kei Igawa.
Since 2003, the Yankees have written more than $206 million worth of luxury-tax checks -- an average of nearly $23 million per season. They've always regarded those payouts as just another cost of doing business. So it's fair to ask: What changed?
Their answer, according to folks around the sport whom they've talked to about this, is that the new labor deal has created millions of dollars in incentives to get under the threshold when it rises to $189 million in 2014.
LUXURY-TAX BILLS, 2003-2011
|Source: The Associated Press and BizofBaseball.com|
What are those incentives? From the Yankees' point of view, they come in three forms:
1) The top luxury-tax rate for four-time repeat offenders (in other words, THE YANKEES) will rise to 50 percent from 40 percent beginning next year. (That rate phases in at 42.5 percent for 2012.)
2) For the first time, under this labor deal, a team that drives its payroll below the threshold, even for one year, can hit the reset button. So if it then goes back over that threshold in a future season, it's treated as a first-time offender and taxed at only 17.5 percent. (For all you non-math majors out there, a 17.5 percent rate compares to a 50 percent rate kind of the way Nick Swisher's salary compares to A-Rod's. Big difference.)
3) Finally, also for the first time, if a team can avoid going over the tax threshold, it becomes eligible to get money refunded from its revenue-sharing tab. That money would come from a new rule preventing teams in the 15 biggest markets from receiving ANY revenue-sharing handouts. So if any of those teams generate so few dollars that they ordinarily would have gotten revenue sharing, that money instead will get rebated to the teams that pay into the pool. At the moment, this rule, which also will be phased in, would affect only the Nationals, Braves, Blue Jays and Astros. But who knows what the impact will be down the road?
So the Yankees have been telling people in the game that if they play their contract cards correctly, avoid big, dumb long-term contracts for the sake of giving out big, dumb long-term contracts, and structure future deals right, it could be worth up to $40 million a year. Yeah, $40 million.
If that's not a major incentive to avoid giving Edwin Jackson $80 million to be a No. 4 starter, we don't know what is.
The Yankees have no hope of getting below the current threshold ($178 million) this season or next. But by 2014, when the goal is to nudge below $189 million, they conveniently have more than $50 million in guaranteed money disappearing off their books -- more than $30 million of it just for the right to throw a goodbye party for A.J. Burnett and Rafael Soriano. So they're clearly shooting to get down to approximately $188.99999999 million by then.
FINAL 2011 PAYROLLS -- TOP 10 TEAMS
|Source: The Associated Press|
But is this abrupt attack of frugality really inspired primarily by the labor deal? There are skeptics around baseball who aren't so sure.
For one thing, they say, The Boss, the all-powerful George M. Steinbrenner III, is no longer ruling their universe. The modern Yankees brain trust -- Hal Steinbrenner, GM Brian Cashman and team president Randy Levine -- no longer feels compelled, by Boss-ian pressure, to spend money just for the sake of pure gluttony.
"I think this is what the Yankees were going to do, regardless," said one skeptic. "It's not that surprising that the Yankees are being more conservative in this market, given George's death and considering Brian's and Hal's attitude about the way to run a team."
For another thing, the cynics claim, the luxury tax was always supposed to be providing incentive for teams (in other words, THE YANKEES) not to overspend. In the past, they just chose to ignore those incentives.
The facts show that the Yankees started working to reduce their payroll -- and their luxury-tax bill -- even before this labor agreement came around. For six straight seasons between 2004 and 2009, their tax bill ranged from $23.88 million to $33.98 million, according to Maury Brown's invaluable Biz of Baseball website. Since 2009, they've whittled that tax tab down from $25.69 million to $18.03 million in 2010 and last season to "only" $13.9 million.
So they were already heading in this direction. One baseball official we spoke with estimates that the impact of those new revenue-sharing rebates is being overblown, that they could be worth no more than a few million dollars a year to a team like the Yankees and possibly next to nothing eventually.
Meanwhile, the savings for the Red Sox -- who have never paid more than $6.06 million in luxury tax in any given year -- would be even smaller. Nevertheless, their front office has been telling agents and other clubs that the new labor deal has created a whole new incentive to get below the threshold, by next year at the latest.
|The newest Hall of Famer, Barry Larkin, made 12 All-Star teams in his career. There are only five active players (i.e., guys who played in the big leagues in 2011) who have made a dozen All-Star teams or more. Can you name them? (Answer later.)|
Now maybe the labor deal fine print explains what's going on in this market. And maybe it doesn't. Either way, if we're charging toward a world in which NOBODY is going to pay a luxury tax in a $7 billion industry, recognize what that means for this sport.
If this is where we're heading, we're looking at a revolutionary shift in the landscape of baseball.
For years and years, baseball's payroll structure hasn't just been top-heavy. It's been Yankees-heavy. As recently as 2009, no team was spending within $65 million of them. Go back to 2005, and no club was within $80 million.
But suppose the Yankees and Red Sox really are determined to keep their payrolls below the tax thresholds within the next two years. Well, all around them, huge TV deals will begin to kick in for some of the teams chasing them. So then what?
One GM forecasts that in the American League alone, you could see the Yankees, Red Sox, Angels, Rangers and Tigers all bunched in a similar payroll neighborhood. Over in the National League, the Phillies, Giants, Cubs and Dodgers could move into that same neighborhood. And they might not be alone.
Oh, there are still issues at the bottom of the payroll neighborhood, and it definitely isn't safe to say this sport now has a level playing field. But the moral is that there's more going on this winter than the transactions column is letting on.
The more you think this through, the more clear it becomes. When the Yankees and Red Sox -- of all people -- turn thrifty, the entire sport feels the ripple effects.
Ready to Rumble
• The Nationals continue to downplay their interest in Prince Fielder. But one executive who speaks regularly with the Nationals brass is so sure that Washington will be Fielder's eventual destination, he told Rumblings: "Every morning, I wake up and expect to see [that deal] done."
The same exec also said GM Mike Rizzo and ownership won't ever agree to a contract as long as the nine or 10 years that Scott Boras keeps pushing for. The exec said the Nationals would envision a deal of no more than six years. And even then, they would want some sort of protection that might enable them to trade Fielder to the American League if they're convinced he's no longer an adequate defender at first base. Boras, of course, has been locked in on a total no-trade from the beginning.
So with hang-ups that serious, you can understand why the Nationals have been shooting down the Fielder rumors so relentlessly. But never lose sight of Boras' tight working relationship with Rizzo, his rapport with the owners and Fielder's lack of attractive alternatives unless Texas plows back into this picture. If they can overcome the obstacles, the exec says, "I don't know why it WOULDN'T happen."
• With spring training about a month away, it's that time again -- time for agents to start getting agitated about the waiting game more and more teams seem to be adopting to flood the market with nervous free agents.
Here at Rumblings, we count 98 unsigned free agents who aren't named Prince Fielder. Just as significantly, we count 13 teams that haven't signed a single free agent (who wasn't on their team last year) who will earn more than $3 million a year. Here's that rundown:
American League: Yankees, Red Sox, Orioles, Tigers, White Sox, Indians, A's, Mariners.
National League: Braves, Nationals, Astros, Giants, Padres.
• One complaint that has resurfaced this winter is that, once again, the new labor deal contains no minimum payroll or even a "reverse luxury tax" that would penalize teams whose payrolls repeatedly fell below a minimum threshold.
"Clubs with no incentive to spend will not spend," grumbled one frustrated agent.
We've been told that a minimum tax threshold was discussed during the labor talks. But instead, the union pushed for a different set of regulations for low-payroll teams that receive massive revenue-sharing money. The three most significant new provisions that wound up in this deal:
1) Each team's payroll has to be 25 percent larger than its revenue-sharing payouts (meaning a club that collects $40 million from the revenue-sharing pot would need to justify having a payroll below $50 million).
2) Teams can no longer use revenue-sharing money for questionable practices, such as paying down debt.
3) Teams have to report specifics of how they spent their revenue-sharing dollars by midseason, instead of by the following April.
So are those rules working? You'd have a tough time convincing many agents they are. But it's early. So stay tuned.
• Front-office types and agents who have talked with the Reds this winter say they were shocked the team was willing to give Ryan Madson $8.5 million.
"All I've heard all winter was, 'We don't have any money. We don't have any money. We don't have any money,'" said one of them. "I guess they found the money."
Here's what people on the outside are missing: The Reds had already offered their old closer, Francisco Cordero, $7 million. So for another $1.5 million, they get a better closer. AND they'll get a draft pick for Cordero. (They'd have gotten no compensation for him a year from now.) AND they're likely to get two more draft picks for Madson next year, because they can make a tender offer after the season, knowing he wants to test the market again and won't accept it. Does it all make sense now?
• Now that they've added Madson and Sean Marshall, the Reds are full speed ahead on turning Aroldis Chapman into a starter. The Reds kicked off that transition last fall during the Instructional League and in the Arizona Fall League. They also wanted Chapman to start in winter ball but had to shut him down with a "tired arm" that has checked out as nothing serious.
So he'll come to spring training as a starter. But let's just say there's some skepticism he profiles in that role, 106 mph fastball or no 106 mph fastball.
"I just don't see it, at all," said one AL exec. "I don't see a repeatable delivery. I see a guy who's a thrower, not a starter. He doesn't throw enough strikes. He hasn't shown any feel for the changeup. He doesn't hold runners. He's not a good fielder. He can't bunt. He can't run the bases. He's never been asked to do some of these things starting pitchers have to do. He's a lead-pipe cinch as a reliever, but if he's a starter, I'll eat some serious crow."
• If you haven't read Buster Olney's piece this week on why Frank McCourt needs to let the Dodgers make a run at Fielder, you should. (The whole column is for ESPN Insiders only, but even non-Insiders can read enough to get the point.) Despite all of Buster's compelling arguments, though, there have been no indications that McCourt is interested in chasing Fielder or in making any other significant addition before the team is sold.
• After reports began to surface that Boras had "met" with Marlins owner Jeffrey Loria about Fielder during this week's owners meetings, one observer of that "meeting" checked in with Rumblings and described it this way: "They walked by each other. Scott stopped him. They chatted for a few minutes. And apparently, Scott turned that into a 'meeting.'" In other words, there is still no evidence that the Marlins have interest in Fielder. Yoenis Cespedes is the only high-profile free agent they're still actively pursuing.
• Meanwhile, one source with ties to the Cubs brass insists the Cubs are NOT totally out on Fielder, despite the Anthony Rizzo trade. His assessment: The Cubs will "be in it till the end -- just in case Scott has to do a deal somewhere" and is willing to make one on the Cubs' terms.
• Teams that have talked to the Cubs about Matt Garza are predicting they won't move Garza until July. There are too many free agent alternatives to allow the Cubs to get the big haul they're looking for right now.
• Hiroki Kuroda continues to send signals to the Yankees and Red Sox that he wants to sign with one of those two clubs. But both continue to resist ante-ing up the $13 million-14 million he's looking for. An exec of one club that considered Kuroda says the modest offers he's getting from teams on this side of the Pacific have put him in a dicey spot.
"It could be difficult psychologically for this guy to take a significant pay cut [from $12 million] after a pretty good year," the exec said. "If he goes back to Japan, he'd still be taking a pay cut. But is that more face-saving than taking less money to pitch here? That's what he needs to figure out."One source familiar with the negotiations described the Red Sox as being "nowhere near close" on Kuroda, while the Yankees were characterized as mostly "kicking tires." So this could take a while.
• The Astros haven't made any headway in their attempts to trade Wandy Rodriguez, Carlos Lee or Brett Myers. They're getting the word out that they'll be open for business through spring training. Clubs that have checked in say the Astros are willing to pay half of Lee's $18.5 million and "at least" $7 million of the $11 million Myers will earn this year. They haven't made clear yet how big a chunk of Rodriguez's $25.5 million (over two years) they're willing to digest. That just tells us how close they've come to actually dealing the guy -- by which we mean, not at all.
Tweets of the Week
• From the always-off-the-wall @PhilCokesBrain, which describes itself as a "metaphysical link to the inner workings" of the fictional brain of the Tigers' extremely left-handed reliever:
"I am resolved. This is the year I get a hit. I don't care HOW many times I have to put the ball back on the tee, I'm going to do it!"
• Meanwhile, Gar Ryness, the fabled Batting Stance Guy (@BattingStanceG), gives us this important non-update on the Yu Darvish negotiations:
"YuDarvish visiting Texas. Like most visiting players he'll desperately try to get a peek at RustyGreer's old locker."
Headliner of the Week
Finally, this just in from the humorists at TheHeckler.com, the onetime Chicago parody site that is now heaving grenades at those poor, defenseless New York teams:
TO SAVE MONEY, THE METS WILL USE JUST 2 OUTFIELDERS AT A TIME NEXT SEASON
Jayson Stark is a senior writer for ESPN.com. His latest book, "Worth The Wait: Tales of the 2008 Phillies," was published by Triumph Books and is available in a new paperback edition, in bookstores and online. Click here to order a copy.
Follow Jayson Stark on Twitter @jaysonst.
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