Tanaka Signing Ends Yanks’ Bid to Avoid Luxury Tax

Tanaka1So much for Operation 189. Yesterday, the Yankees announced that they had agreed to sign Japanese pitcher Masahiro Tanaka to a seven-year, $155 million contract. The deal effectively makes it impossible for the Yanks to achieve their prior-stated goal of getting their 2014 salary under the $189 million luxury-tax threshold.

Here’s a look once again at the New York Post’s 2014 Luxury Tax Meter, updated to include Tanaka’s contract:

Total Luxury Tax Payroll – $192.201 million

  • CC Sabathia ($24.4 million)
  • Mark Teixeira ($22.5 million)
  • Masahiro Tanaka ($22.143 million)
  • Jacoby Ellsbury ($21.857 million)
  • Brian McCann ($17 million)
  • Hiroki Kuroda ($16.085 million)
  • Carlos Beltran ($15 million)
  • Derek Jeter ($12.81 million)
  • Ichiro Suzuki ($6.5 million)
  • Brett Gardner ($5.6 million)
  • David Robertson ($5.215 million)
  • Alfonso Soriano ($4 million)
  • Matt Thornton ($3.5 million)
  • Ivan Nova ($3.3 million)
  • Alex Rodriguez ($3.156 million)
  • Kelly Johnson ($3 million)
  • Brian Roberts ($2 million)
  • Shawn Kelley ($1.765 million)
  • Brendan Ryan ($1.67 million)
  • Francisco Cervelli ($700,000)

NOTE: Every team is charged about $11 million for insurance and pensions, and most teams also budget $5 million for in-season minor league call-ups.

When you consider the moves that New York has made this offseason, it’s remarkable they even had the chance of sliding under that $189 million figure up to the Tanaka signing.

Earlier this week, New York reached agreements with all five of its arbitration-eligible players: Brett Gardner ($5.6 million), David Robertson ($5.21 million), Ivan Nova ($3.3 million), Shawn Kelley ($1.7675 million) and Francisco Cervelli ($700,000). Those deals brought the Yankee’s luxury-tax payroll to just over $170 million.

That left the Yankees still seven players short of a full 25-man roster, but most of those positions were expected to be filled by players making near the minimum salary (guys like Preston Claiborne and David Phelps).

The Yankees arguably could have pursued one of the other remaining free agent starting pitchers and netted them for less than $10 million per season. That possible would have allowed them to fill their glaring need for pitching and complete their 25-man roster without crashing through the self-imposed $189 million payroll ceiling.

But reports all offseason indicated that the organization simply was not that intrigued by any starting pitcher on the market not named Tanaka, and that signing the 25-year-old right hander was the club’s number one priority. It basically came down to a choice between acquiring a player the team didn’t really like, or foregoing their goal of fiscal responsibility and snagging the hurler they felt gave them the best chance to win next year.

The Yankees believed that avoiding the luxury tax would have allowed them to save roughly $100 million over the course of the next three seasons. However, after missing the playoffs in 2013 – only the second time the team has done so since 1994 – it appears that the front office came to the conclusion that those savings were not as important as the overall health and on-field success of the organization.

Some have argued that, now that the Yankees are already going to be subject to the luxury tax, they may as well continue to spend freely. Rumors are that New York would like to spend a little bit more money to add a top-tier relief pitcher to help fill the void left by the retirement of legendary closer Mariano Rivera. But we should keep in mind that the Yanks will be taxed 50 cents for every dollar spent over that $189 million threshold figure, so there is still incentive to curtail further spending as much as possible.

A few more details on Tanaka’s contract:

The deal will pay Tanaka $22 million in each of the first six season, and $23 million in the seventh season. Tanaka will also receive a $35,000 moving allowance, an annual $100,000 housing allowance to be used in New York or near the team’s Spring Training facility in Tampa, and an interpreter of Tanaka’s choosing at an $85,000 annual salary. Tanaka will also be given four first-class round trip tickets between New York and Japan.

He will have the option to opt-out after the fourth year and become a free agent after the 2017 season. Apparently, this opt-out clause was a mandate from Tanaka’s camp. The deal also gives Tanaka a full no-trade clause.

The Tanaka signing has been a long and winding road that began just days after Boston was crowned World Series champions. Now that he has finally found a landing place, I expect a surge in free agent signings in the next two weeks, particularly among those starting pitchers still on the market.

About Matthew George

Matthew George graduated from the University of Kentucky in 2008 with a bachelor of science in journalism. He spent three years writing sports for the Kentucky Kernel, the university's daily paper, and served as assistant sports editor. After undergrad, Matthew attended Chase College of Law at Northern Kentucky University where he earned his juris doctorate. He is now admitted to practice law in Kentucky and Indiana.

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