Yankees to pay record $29 million luxury tax

Bob Nightengale | USA TODAY Sports

The New York Yankees, in danger of missing the postseason for only the second time in 19 years, are also facing a record $29.1 million luxury tax penalty, according to salary figures obtained by USA TODAY Sports.

That's about equal to the entire Houston Astros payroll.

The Yankees currently have a $236.2 million payroll for purposes of the luxury tax, and must pay a 50% tax over the $178 million threshold as a repeat violator.

The Los Angeles Dodgers are the other team Major League team that will be required to pay a luxury tax this year. The Dodgers currently have a franchise-record $234.5 million payroll for its 40-man roster.

Yet, the Dodgers' penalty will be much less of a financial hit than the Yankees since it's their first offense. They will be taxed at 17.5%, paying a tax of about $9.9 million to MLB's central fund.

"We are mindful of the tax,'' Dodgers president Stan Kasten told USA TODAY Sports. "We understand the impact it will be this year and in the future. But I think over time, we will become a team that doesn't pay tax.

"We had quite a significant rebuilding project in front of us, and that is what we turned our attention to. Over time, as we start developing our own homegrown players, we expect our payroll to go down.''

The Yankees are adamant that their payroll will plummet, and are hopeful of reducing it below the $189 million luxury tax figure beginning in 2014. If the Yankees fall below the $189 million threshold, they will not only be saving the $29 million in penalties, but it will also provide them the opportunity to spend lavishly in the future.

Once a team averts the luxury tax for one year, it resets the team's future tax rate. If the Yankees spent over the $189 million tax rate through the remainder of the collective bargaining agreement through 2016, their tax rate would return to 17.5% beginning in 2015.

The Yankees are baseball's lone team that has paid a luxury tax since it was implemented 10 years ago. They have already paid $224.2 million in taxes, and will climb over $250 million when this year's tax bill hits.

"I don't know what it will be,'' Yankee president Randy Levine said, "but it will be substantial.''

The Yankees are cautiously optimistic they can slash $47 million from their payroll with about $100 million in contracts coming off the books after this season. They will save $21 million alone in outfielder Vernon Wells' contract, which will be fully funded by the Los Angeles Angels in 2014. The Wells' contract will be added to the Angels' current $143.3 million payroll in 2014, likely limiting any extravagant signings this winter after spending $440 million on free agents Albert Pujols, Josh Hamilton and C.J. Wilson the last two years.

The Boston Red Sox ($173.3 million), Philadelphia Phillies (163.5 million) and Detroit Tigers (152.9 million) are the only other teams with payrolls above $150 million. There are 15 teams with payrolls under $100 million, including the Houston Astros ($29.2 million), whose payroll is $13 million less than the Miami Marlins, the next lowest team at $42.2 million.

Yet, six of those sub-$100 million teams are in playoff contention this season, including the first-place Oakland Athletics ($70.4 million) in the American League West and the Atlanta Braves ($95.2 million) in the NL East. The Pittsburgh Pirates (73.9 million) and Tampa Bay Rays (64.1 million) also would be in the playoffs if the season ended today, while the Cleveland Indians (88.1 million) and Kansas City Royals ($86.4 million) are battling for a wild-card spot.

The NL Central, which could be the first division to have three playoff teams since the addition of a second wild-card team last year, also has the most parity among payrolls. The St. Louis Cardinals at $119.2 million have a $45.3 bigger payroll than the Pirates, who have the lowest in the division.

In contrast, there is at least a $114 million difference between the highest-paid team and lowest in four other divisions, led by the Yankees' $176 million payroll bulge over the Rays.

If nothing else, high payrolls certainly have not guaranteed success in the standings, with six of the highest-paid teams expected to miss the playoffs.

The Phillies, Angels ($143.3 million), San Francisco Giants ($141.2 million), Toronto Blue Jays ($125.8 million), Washington Nationals ($120.6 million) and Chicago White Sox ($116.7 million) all are on the verge of elimination.

"The luxury tax is a good thing,'' Kasten said. "It's been a good thing for our industry, and I'm fully supportive of it. It's made a difference.''