As Major League Baseball's Winter Meetings continue in Nashville, the Detroit Tigers already have most of their offseason shopping done. They have acquired two starting pitchers, one outfielder, a backup catcher, and two back-end relievers thus far, but there are still tweaks that can be made before the roster is fit for contending in the 2016 season. However, those additions will come at a cost, as the Tigers' payroll has reached the $189 million threshold where a luxury tax will be applied to any further salaries added.
This offseason's additions come at a cost of $49.5 million in average annual value, leaving the team's projected Opening Day payroll at an estimated $172.6 million if they fill the remaining roster spots with players earning near the major league minimum salary. For purposes of calculating a potential luxury tax, the payroll is projected at $188.4 million after factoring in Mark Lowe's salary, and there are other costs such as bonuses, buyouts, and minor league call ups that will push that number over the tax threshold.
Indications are that Tigers' owner Mike Ilitch is willing to pay a luxury tax, much to the dismay of his comrades in ownership, if it makes a difference in the Tigers winning a championship. In fact, The Tigers were in a position to actually pay a tax before they traded David Price and Yoenis Cespedes last July. So, it should come as no surprise when he tells us that he’s willing to cross that threshold, if necessary. Well, it's looking like paying some taxes will be necessary to complete the roster.
Keep in mind that Opening Day payroll and luxury tax payroll are two different things. When general manager Al Avila says even that having a payroll between $189- 200 million was "ridiculous," that doesn't necessarily mean that the team would not cross the tax threshold of $189 million.
The Opening Day payroll, which is what you see listed on Baseball Reference or Cot's Contracts, is simply the amount that the team pays in player salaries for the 25 players on the opening day roster. Meanwhile, the luxury tax payroll takes into account the average annual value (AAV) of multi-year contracts, plus all players on the 40-man roster, plus performance bonuses, plus at least $12 million in the team's share of player benefits, and a few other factors. Here is where the Tigers stand after their most recent transactions:
|Status||2016 payroll||2016 luxury tax payroll|
|Multi-year contracts*||$156.4 million||$159 million|
|Arbitration eligibles||$10 million||$10 million|
|Minimum salary (12 players)||$6.2 million||$6.2 million|
|40-man roster (15 players)||-||$1.2 million|
|Player benefits||-||Approx. $12 million|
|Total*||$172.6 million||$188.4 million|
*Salaries for arbitration-eligible players based on estimates from MLB Trade Rumors.
Not included in the above calculations are performance bonuses, nor the cost of players called up during the season due to injury, or called up in September when rosters expand. Each additional month for a player earning the major league minimum costs about $85,000, so 12 months of players called up adds another $1 million to the payroll. Should the team decide to buy out a player's option for 2017 after the season, the buyout would also count against the 2016 payroll for luxury tax purposes. Any of these events would push the club into a luxury tax bracket.
In one sense, there has not been a better time to go over the luxury tax threshold. With the current collective bargaining agreement (CBA) set to expire after the 2016 season, the threshold is almost certain to increase if not be eliminated entirely. That would make it easier for a team that is right on the bubble to avoid any increased penalty for jumping the limit in consecutive seasons, if such a term is included in the new CBA.
As it stands today, the Tigers will be paying a 17.5 percent tax on every additional dollar they spend. It's a good thing that Mr. Ilitch has said he is willing to pay some taxes, because the roster still needs work before Opening Day.