Tigers' payroll could trigger luxury tax in 2014

Jesse Johnson-US PRESSWIRE

Tigers could lose Peralta, Infante, Benoit, and four others to free agency and payroll could still increase without replacing them. If payroll goes much higher, the team could be in danger of paying a luxury tax.

It may seem like the Tigers don't have to make many adjustments to their roster in order to contend in 2014 -- and they really don't -- but there are significant raises due to many of their key players that is certain to result in an increase in payroll, even without replacing their departing free agents.

Detroit had one of the five highest payrolls in the major leagues in 2013, starting at just under $150 million on opening day and coming in just above that mark by the end of the season when they added Jose Iglesias and Jose Veras to the roster. As with everything else in life, prices are only going to go up.

There are seven players on the current 40-man roster whose contracts expire at the end of the 2013 season.

Player 2013 Salary Status
Jhonny Peralta $6.0 million Free Agent
Joaquin Benoit $5.5 million Free Agent
Omar Infante $4.0 million Free Agent
Octavio Dotel $3.5 million Free Agent
Ramon Santiago $2.1 million Free Agent
Brayan Pena $875,000 Free Agent
TOTAL $21.975 million

*Jeremy Bonderman was picked up mid season after being let go by Seattle, so Detroit paid a pro-rated portion of the major league minimum salary, and is a free agent. He was not on the postseason roster. His replacement on the roster will likely make as much. Many of the departing free agents could be replaced from within the organization, in theory, at a cost of $500,000.

Returning Players

The Tigers return a solid, experienced but expensive core nucleus of players in 2014. Seven players under contract return with a total cost of over $110 million in salary. Several are scheduled for salary increases.

Player 2013 Salary 2014 Salary
Prince Fielder $23.0 million $24.0 million
Miguel Cabrera $21.0 million $22.0 million
Justin Verlander $20.0 million $20.0 million
Anibal Sanchez $8.8 million $15.8 million
Torii Hunter $12.0 million $14.0 million
Victor Martinez $13.0 million $12.0 million
Jose Veras $1.85 million $3.25 million*
TOTAL $97.8 million $111.05 million

*Veras has a club option for $3.25 million, which the Tigers are certain to exercise. Veras essentially replaces Octavio Dotel on the roster. Each of these players has over six years experience in the major leagues.

The net increase in payroll due to salary increases is $13.25 million

Arbitration Eligible Players

The Tigers had a larger arbitration class in 2013 than they had the previous season, and the 2014 arbitration class will be larger still. Nine players are eligible this winter, led by Cy Young favorite Max Scherzer, who figures to double his salary next season.

Player Arbitration Year 2012 Salary 2013 Salary 2014 Estimate Estimated Increase
Max Scherzer 3 of 3 $3.75 million $6.725 million $13.5 million $6.775 million
Rick Porcello 3 of 4 $3.1 million $5.1 million $7 million $2.2 million
Doug Fister 2 of 3 $500,000 $4.0 million $6 million $2.0 million
Austin Jackson 2 of 3 $500,000 $3.5 million $5.25 million $1.75 million
Alex Avila 2 of 3 $500,000 $2.95 million $4.75 million $1.55 million
Phil Coke 3 of 3 $1.1 million $1.85 million $2.5 million $650,000
Don Kelly 3 of 4 $900,000 $900,000 $1.2 million $300,000
Andy Dirks 1 of 4 $485,000 $505,000 $2.1 million $1.6 million
Al Alburquerque 1 of 4 $495,000 $500,000 $1.0 million $500,000
TOTAL -- -- $26.0 million $43.3 million $17.5 million

The estimates for 2013 are pretty rough. We'll break down each individual case in the weeks ahead, but the estimates here won't be too far off the mark. Don Kelly, Phil Coke and Andy Dirks could be non-tender candidates. But then, that's what I thought about Brennan Boesch this time last year before he was given a $2.3 million contract. He was also released in the spring for one sixth of that amount, since the contract was not guaranteed. His salary also comes off the books in 2014. Dirks and Alburquerque will qualify for arbitration as "super two" players, meaning they will have four seasons of arbitration eligibility.

Non-Arbitration Eligible Players

The Tigers will round out the roster with players who are not yet eligible for arbitration unless those spots are filled by extending some of their own free agent players, signing new free agent players, or making trades. Players not yet eligible for arbitration usually make close to the major league minimum while they are in the major leagues, which is $500,000 in 2014. You can fairly assess that value to each slot that is occupied by one of these players, give or take a bit.

The exception is Jose Iglesias, who was signed as an international free agent by the Red Sox after leaving Cuba, so he'll receive small increases until he puts in enough service time to qualify for arbitration, which will very likely be in a year since he has no options left and is projected to be the team's starting shortstop in 2014.

Player 2013 Salary 2014 Estimate
Jose Iglesias $2.06 million $2.2 million
Matt Tuiasosopo $525,000 $540,000
Drew Smyly $498,000 $510,000
Darin Downs $494,000 $505,000
Danny Worth $500,000 $510,000
Bruce Rondon $490,000 $500,000
Luke Putkonen $490,000 $500,000
Hernan Perez $490,000 $500,000
Bryan Holaday $490,000 $500,000
TOTAL* $5.0 million $6.265 million

*Total includes a pro rated half season for Iglesias in 2013.

When comparing payroll to 2013, each departing free agent will be replaced by a player at least earning the major league minimum. So, six free agents leaving would mean that their salaries less $3 million comes off the payroll.

It is easy to see other players making the roster, such as Nick Castellanos replacing Tuiasosopo, or Brayan Pena returning instead of Bryan Holaday. Tui is out of options, as is Danny Worth, so they would have to clear waivers before being sent to the minors. For now, they're still on the roster so they're penciled in here.

You do the Math

Salary status 2013 Salaries 2014 Salaries Average Annual Value (AAV)
Free agents $21.975 million $0 ($21.975 million in 2013)
Players under contract $97.8 million $111.05 million $113,279,064
Arbitration eligible players $26.35 million $43.3 million $43,300,000
Non Arbitration eligible $5.0 million $6.265 million $6,265,000
TOTAL $148,693,600* $160,565,000 $162,844,064

*2013 total will be adjusted for replacing players on the DL, mid season acquisitions, buyout of released players, and savings from suspension. The average annual value in 2013 for departing free agents is equal to their 2013 salary.

The Tigers are due to save $22 million in expiring contracts, but they will pay an additional $40 million in salary and arbitration increases based on the above estimates. In total they stand to have a payroll a bit more than $160 million, more than $10 million higher than their 2013 payroll, without extending or replacing any departing free agents, or non tendering any of the arbitration eligible players.

Luxury Tax Looms Large

Major League Baseball charges a "competitive balance tax," also known as a "luxury tax," to teams that spend more than a certain level on their major league payroll. In 2013, the threshold was $179 million. In 2014, it goes up to $189 million.

The calculation is not as straight forward as looking at this year's salaries. The average annual value of player contracts is used for luxury tax purposes in the case of multi year contracts. Benefits are also added and those are in the range of $10-11 million per year, and performance bonuses are also added in the total.

If a club's payroll exceeds the $189 million level, and they did not exceed the threshold the previous season ($179 million in 2013), they will pay a tax equal to 17.5% of the amount over the limit. Repeat "offenders" would pay 30% to 50% (which is why the Yankees desperately want to get below $189 million in 2014 to "reset" the tax percentage).

Few teams have paid a luxury tax in recent years. The New York Yankees have paid the tax every season, while the Dodgers and Red Sox have occasionally crossed the threshold recently. The Tigers went over the mark in 2008, though not by much, when the tax threshold was lower.

We have seen the Tigers struggle in recent seasons for want of a second baseman, and the bullpen issues in the post season the last two years are certainly something the club would like to stabilize. While Peralta appears likely to be replaced by Iglesias at shortstop, he was the second most productive bat in the lineup for most of the season. If the Tigers wanted to replace his offense, there is a cost to that as well.

Even paying a luxury tax is not likely to deter Mike Ilitch in his quest to bring a World Series title to Detroit, but don't expect opening day payroll to put the team in jeopardy of crossing that threshold. Figure that the Tigers would have to be under about $175 million in salaries to be safe, so that doesn't leave a lot of room for adding or bringing back free agents to fill the holes that were filled by Benoit, Infante, Pena, and Peralta in 2013.

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