Phillies have plenty of luxury tax space, but how much is John Middleton willing to spend?
The competitive balance tax is set to increase from $210 million in 2021 to $230 million in 2022. This is great news for the Phillies. The Phillies were by far the league’s most egregious offenders when it came to spending up to the first luxury threshold over the past two seasons. In 2020 and 2021, Philadelphia finished with a luxury tax payroll less than $700,000 below the first threshold. No other team hit the brakes quite like the Phillies.
With the exception of the “Steve Cohen tax”, luxury tax penalties are status quo. Will the new thresholds alone change the Phillies’ behavior? Probably not. Do the Phillies need to go over the 2022 luxury tax to assemble a winning team? Not necessarily, but it could help a lot. Does Dave Dombrowski’s presence affect John Middleton, the Buck Family and the minority owners’ stance on spending above the tax? Maybe. Dombrowski isn’t afraid to negotiate a higher budget.
Before the second part of the offseason really gets going, let’s take a look at how much space the Phillies have before they hit the first luxury tax threshold. Here are a few notes to keep in mind and the methods used to calculate the final estimate.
- Luxury tax payroll, or what’s referred to as “actual club payroll” in the collective bargaining agreement, is the sum of every guaranteed contract’s average annual value, salaries for arbitration-eligible players, pre-arbitration salaries, salaries for minor league players on the 40-man roster, 1/30th of the league’s player benefits cost ($16 million in 2021) and a set charge for the new pre-arbitration bonus pool ($1.67 million).
- A contract’s average annual value is NOT the same thing as a player’s salary for a given season. For example, Aaron Nola’s contract has an average annual value of $11,250,000. That is the number that counts towards the luxury tax this year and every season since 2019, when he signed the contract. Since the extension is backloaded, he’ll make $15.5 million in 2022, the final guaranteed year of his four-year extension.
- Since the 2022-2026 basic agreement is not publicly available yet, we don’t know about every intricacy that could affect the Phillies’ luxury tax number. The player benefit charge for 2022 is unknown yet and while the minimum salary for minor league players on 40-man rosters is going up, we don’t know how to properly estimate that yet. FanGraphs Roster Resource does a really good job at estimating these things, so I will use their calculations from 2021.
- Arbitration salary estimates are from MLB Trade Rumors. It might be a while until we know exactly how much players like Rhys Hoskins, Zach Eflin and José Alvarado will make in 2022. The usual January salary exchange date was moved to March 25 and arbitration hearings begin in April.
- Every team will obviously have to spend less on pre-arbitration salaries if they sign or trade for a player with a guaranteed contract. Once the Phillies start signing guys, the pre-arbitration salary estimate should go down.
If you’re still with me, here are the numbers.
- Total AAV from Guaranteed Deals: $136,067,948
- Total Arbitration Salary Estimates: $16,225,000
- Total Pre-Arbitration Salaries (Roster Resource Estimate): $14,000,000
- Total Salaries for MiLB Players on the 40-man Roster (2021 estimate): $2,250,000
- Pre-arbitration bonus pool charge: $1,670,000
- Player Benefits (2021 estimate): $16,000,000
- Luxury Tax Payroll: $185,212,948
- Space under $230 million threshold: $43,787,052
With more than $43 million in space, the Phillies should be able to acquire two outfielders and a reliever while staying under the tax. Those are the surface-level needs, but depth concerns and other glaring holes on the roster indicate that the Phillies would be wide to use money to address other areas. The Phillies could look into the starting pitching market with Zach Eflin possibly missing a few weeks and Ranger Suárez’s Opening Day status up in the air.
Does $43 million in space mean the Phillies will spend up to the tax again in 2022? That might not be a guarantee.
While the 2021 Phillies luxury tax number was $209.4 million, the team’s salary payroll (what they actually spent) was $192.4 million. When factoring in 2022 salaries as opposed to average annual value and buyouts for Andrew McCutchen and Odúbel Herrera after the 2021 season, the Phillies are nearing $200 million in actual dollars spent. The ownership group gave Dombrowski a number a few months back and when asked for his thoughts on the budget, the Phillies president of baseball operations told reporters: “I don’t find it restrictive.”
It’s safe to assume that the budget for 2022 is higher than it was last season, but how much higher is the bigger question. The next few weeks will say a lot about just how much money Middleton and the ownership group are willing to commit.
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