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For Yankees, Dollars Make Sense

Why the Yankees Care About Their 2014 Payroll

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COMMENTARY | As he looks to 2014, Yankees general partner Hal Steinbrenner must be envious of his father.

George Steinbrenner never openly worried about money. Why would he?

The man led a group of investors to buy the Yankees for close to $8 million and, over three decades, saw their venture grow into a multi-billion dollar empire. Yet even in his early years, "King George," who once claimed that he was "dead set" against free agency and said that it could ruin baseball, doled out cash to put the likes of Reggie Jackson and Catfish Hunter in pinstripes. His goal? Championships. Above all else.

When it came to spending, Major League Baseball's "luxury tax" hardly mattered. When George died in July 2010, the Yankees were the only team to pay the tax every year since it went into effect in 2003, and were being taxed at the highest rate - 40 percent. In fact, of the $227 million in taxes levied throughout MLB from 2003 through 2010, the Yankees paid $206 million - more than 90 percent.

What George didn't live to see was the last Collective Bargaining Agreement between MLB and the MLB Players Association. The 2011 pact upped the luxury tax to 50 percent for perennial repeat offenders… beginning in 2014. In other words, for every $1 spent over a set amount ($189 million), the Yankees' true cost would be $1.50. Step aside, Bill Mazeroksi and Ken Griffey, Jr. Meet the ultimate Yankee killer.

Yet the agreement could also grant the Yankees a reprieve. If the team stays below the luxury tax threshold for 2014 and goes again over in 2015, their 2015 tax rate would only be 17.5 percent (and rise every year thereafter if the team continued to stay over the threshold). In addition, the team would receive about $10 million from MLB's revenue sharing program. The estimated net effect of the tax savings and revenue sharing proceedings is about $50 million… if the Yankees can keep their 2014 payroll under $189 million.

Enter Hal Steinbrenner, the new public face of the team's ownership.

Speaking about the team's cost-cutting concerns, Hal recently told reporters, "I'm a finance geek. I guess I always have been. That's my background. Budgets matter and balance sheets matter."

Along with the team's future, what really matters is money.

Not surprisingly, the Yankees have hardly opened their checkbook this offseason. Kevin Youkilis, Andy Pettitte, Mariano Rivera, and Hideki Kuroda all got one-year deals. The only impact on the team's 2014 payroll has been Ichiro Suzuki, who signed for two years at $6.5 million per year.

While some reporters speculated that the Yankees were making a push to sign outfielder Josh Hamilton - who eventually signed a 5-year, $125 million deal with the Los Angeles Angels of Anaheim - the team's short-term signings are probably the sign of things to come until after the 2014 postseason. That's when what could arguably be the greatest free agent of class of pitchers hits the market - Clayton Kershaw, Felix Hernandez, Justin Verlander, Johnny Cueto, and Jason Motte. Among hitters, Aramis Ramirez, Pablo Sandoval, Elvis Andrus, and Dustin Pedroia are set to be free agents.

The question for the Yankees is whether they have the restraint to hold out. In addition to Suzuki, the team has three other players signed for the 2014 season - Alex Rodriguez ($25 million), C.C. Sabathia ($23 million) and Mark Teixeira ($22.5 million). In addition, Derek Jeter has an $8 million player option. Combined, the five would make $85 million - more than combined salaries of 15 teams last season, including five playoff teams (Washington, Baltimore, Oakland, Atlanta and Cincinnati).

Even with those 2014 salaries on the books, the Yankees will still have $104 million to work with in order to stay below the luxury tax threshold. If they want to keep Robinson Cano, who is a free agent after the 2013 season, that number will likely go down to the mid-to-high $70 million range, more than enough to field a competitive team.

One expects the Yankees to be waiting on the other side when the free agents floodgates open for the 2015 season. The question, however, is whether Yankees fans have the patience to wait that long.

Howard Z. Unger is a freelance journalist ln Brooklyn, New York. For the past 15 years, he has written about sports, media, and popular culture. His work has appeared in The Village Voice, New York Post, and New York Times.

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