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Yankees appear to be scrapping plan of staying below $189M payroll

Jeff Passan
Yahoo Sports

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The age of austerity doesn't look like it'll last long for the Yankees. (USA Today Sports)

All along, the New York Yankees have stated the effort to cut their 2014 payroll to $189 million is merely a goal. More and more, it's one major league sources don't believe they'll reach.

In recent months, the Yankees have become far less bullish on their publicly stated austerity plan, admitting to other executives and agents that staying beneath the $189 million threshold is unlikely and impractical.

"They're going to be over 189," one source familiar with the Yankees' plans said. "They know it. Everyone knows it. You can't run a $3 billion team with the intentions of saving a few million dollars."

The logic holds up well: The Yankees are arguably the greatest brand in American sports, and already with an injury-depleted roster this season, they could suffer a down year. To dilute the Yankee name for multiple years would necessitate a humongous monetary benefit – one sources say the Yankees no longer believe is coming to them, even if they were to dip beneath $189 million.

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Derek Jeter has a player option for $8 million next season with the Yankees. (AP)

While the stash of money New York expected to reap was in the tens of millions, it's not nearly as large as the Yankees had hoped, a prognosis that is pushing the team to recalibrate its plans, sources said. The Yankees expected to receive money not just from a decreased luxury tax rate but a complicated clause in the collective-bargaining agreement called the market-disqualification rebate.

MLB's revenue-sharing program works like this: The league taxes every team at 34 percent on its local revenue, pools the money and distributes it evenly. Beyond that, as a means to funnel more money to lower-revenue and smaller-market teams, it uses a variable tax rate that forces teams with big revenue streams in big markets to pay more on top of the 34 percent.

The flaw in the system is that some teams in the top half of market size are not in the top half of revenue, meaning big-market teams are getting revenue-sharing dollars like small markets. In recent years, these teams have included Washington, Atlanta and Toronto. Starting this season, such teams were mandated to give a portion of that money back to the bigger-market teams – 25 percent in 2013, 50 percent in 2014, 75 percent in 2015 and 100 percent in 2016. The catch: Teams needed to be under the luxury tax threshold to qualify.

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Considering the money would be distributed proportionally to contributions, the Yankees expected their rebate to be significant – upward of $45 million between 2014-16 if they kept their payroll below $189 million for those seasons, according to two sources.

One hitch: Washington's success has thrust it from so-called payee club to payor. And the Braves, despite a bad TV contract, and Blue Jays, with an old stadium, aren't far behind. The Miami Marlins, expected to be payors, have quickly reverted to payee status. Barring a change in the game's economics over the next few years, the big rebate money, sources said, simply won't exist, and the impetus for the Yankees won't be nearly as strong.

"The assumptions on the market-disqualification rebate haven't held," one American League executive said. "The pool is going to be much less than everyone anticipated."

The more well-known portion of the Yankees' plan involves the luxury tax, and it's likely not significant enough savings by itself to push the team below $189 million. Because they are repeat offenders, the Yankees get taxed at 50 percent of every dollar they spend over $189 million. If they dipped under that threshold in 2014, the tax would reset and charge them only 17.5 percent and 30 percent for the next two years.

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With a hypothetical $205 million payroll from 2014-2016, the Yankees would pay a total of $24 million in luxury tax. Were they to dip under $189 million in '14 and go back above it in '15 and '16, they would pay $8.4 million. The savings are more significant at higher payrolls. A $220 million payroll the next three years would equal $46.5 million in luxury tax payments, while jumping to $220 million after a year under $189 million would save the Yankees more than $30 million.

All of this comes amid a transition unlike any the Yankees have seen in two decades. Even if they sign Robinson Cano to an expected big extension, a massive class of free agents and a thinned-out farm system leaves them with a number of holes.

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CC Sabathia is among the Yankees' big three in contracts. (USA Today Sports)

Their current contract situation for 2014 looks like this: Among the big three – CC Sabathia, Alex Rodriguez and Mark Teixeira – the Yankees have $73.9 million in taxable salary commitments for 2014. Ichiro Suzuki costs $6.5 million, David Robertson and Brett Gardner an estimated $10 million or so combined in arbitration. If Derek Jeter exercises an $8 million player option, it actually will count for $14 million – the average value of the $8 million, plus his contract that paid him $48 million over the first three seasons. Including an estimated $11 million in benefits for players, the Yankees already are at $115.4 million before Cano, who could command more than $25 million a season.

Even if the Yankees hand Cano a massive signing bonus that can be prorated out over the life of the contract – he could receive a $20 million bonus and $5 million salary on an eight-year contract, for example, that would cost just $7.5 million against the tax rate for 2013 ($5 million salary plus $2.5 million as 1/8th of $20 million) – they need to fill out the rest of their roster. And that won't be easy to do on the cheap.

Unless they're inclined to go with Francisco Cervelli and Chris Stewart again, they need a catcher. Depending on Jeter's ankle and Rodriguez's hip, they may need a new left side of the infield. Unless Vernon Wells keeps hitting, they'll surround Gardner with a pair of new outfielders. And there's the pitching rotation, which, beyond Sabathia and his diminished fastball, is comprised of free agents (Hiroki Kuroda, Andy Pettitte, Phil Hughes) and supplemented by question marks (Ivan Nova, Michael Pineda, Manny Banuelos).

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Because of their failure to develop a farm system with impact players near the major leagues, the Yankees face difficult choices: re-enter a free-agent market that not only left them with aging and injured players but is expected to grow even larger based on the wave of local television revenue, or work on the margins, a place general manager Brian Cashman has proven himself particularly adept.

Neither choice is particularly good, though top Yankees officials err more toward winning than tight-fisted fiscal responsibility – and though winning doesn't always correlate with dollars spent, high payrolls are likelier to breed success.

"It was a good idea to try," one Yankees official said. "But deep down, we all pretty much knew it wasn't going to happen."

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