Yesterday, the Seattle Mariners signed pitcher Felix Hernandez to a seven-year, $175 million contract, the biggest contract given to a pitcher in Major League Baseball history. This, of course, reflected on the Yankees, because: (a) Felix Hernandez has been an object of Yankees fans' covetous loins for several years now; and (b) if anyone's supposed to be giving out the biggest contracts of all time, it's the Yankees, dammit! This has led to continued consternation that, as the rest of baseball spends money like it hasn't in a decade, the Yankees keep paring their payroll down, down, down. This can be frustrating, particularly as teams like the Blue Jays and Tigers and Angels are ramping up. We're the Yankees! We're the ones who are supposed to be outspending everyone. But the Yankees know what they're doing. They're not spending now, so they can spend like crazy later.
The Yankees have made a big deal of letting everyone know that they want to get under the $189 million luxury-tax payroll by 2014. But we're not sure they've done as efficient of a job explaining why as perhaps they could. So let us try.
The $189 million luxury-tax number is important less for its number and more for its basis as a way of calculating penalties for teams that go over it. You can go over it, but you do so at your peril. Last year, the Yankees were hit with a $18.9 million luxury-tax bill, and with a payroll of almost $207 million this year, it'll be more this time. But the worst part is that you're punished even more for being repeatedly over the luxury tax. Here's the scale of tax punishments, starting this year:
First-time offenders: 17.5 percent
Second-time offenders: 30 percent
Third-time offenders: 40 percent
Four-time or more offenders: 50 percent
Now, that's 17.5 percent of the amount you go over the luxury tax, not your entire payroll, but still: It's steep. And if you go over for repeated years — like the Yankees have — it just gets more and more painful. The Yankees have paid $224.2 million in luxury taxes over the last ten years. No matter how much money an organization has, no one wants to just throw that much money down the drain. You could have had an A-Rod for that amount. (Okay, bad example.)
The thing is, though: You only have to get under the luxury tax once. Then you get to start over. When/if you go over the number again, you're back at 17.5 percent, not 50 percent. It restarts the clock.
And the Yankees are going to need that clock restarted, because in five years, two of the biggest free-agent buys in baseball history are going to be hitting the free-agent market at the same time: Bryce Harper and Mike Trout. In 2018, the Yankees will finally be out from under Alex Rodriguez's contract (CC Sabathia's and Mark Teixeira's end the season before), and Harper and Trout will almost certainly be hitting the open market at the ages of 26 and 27, respectively. In other words: right in the thick of their primes. That's when you want to go over the luxury tax (which will probably go up a bit by that time anyway). It's difficult to build a team through free agency these days; teams are wrapping up their own players too early, before they can hit the market (see Felix Hernandez, Evan Longoria). But Trout and Harper are hitting the market: They're too amazing at too young of an age not to. Harper has long said he wants to be a Yankee, a fact the Yankees are more than aware of. When those guys become available, the Yankees want to be ready.
So you pare back now, you don't make any sudden crazy moves just to fill a gap or two; you don't do, essentially, what the Yankees have done for decades. (And what teams like the Angels and Dodgers are doing right now; they're very likely to be so hamstrung by all of their crazy spending that they'll be facing massive luxury-tax bills themselves around the time the Yankees are getting their house in order.) The Yankees have a plan. You take it easy, you try to get under that tax, you try to get expenses under control while you can ... and then, when opportunity arises, you spend money in such lavish, over-the-top fashion that even George himself would have been taken aback. The Yankees are being prudent now, and that's understandably frustrating for a lot of fans. But don't worry: The Yankees are still the Yankees. The money's coming. They're on this.