$23.88 Million Tax? That’s Life, Not Luxury, for Yankees

By MURRAY CHASS

Published: December 26, 2007

The problem with doing business on the Yankees’ lofty economic level is the cost of doing business.

This past season, the Yankees signed Roger Clemens to pitch for them for 60 percent of the season, and it cost them just under $25 million, including virtually $7 million in luxury taxes. Now they are talking to the Minnesota Twins about Johan Santana, and he would cost them more than $7 million a year in taxes.

When the Yankees had a chance to sign Carlos Beltrán three years ago, they passed on him because they didn’t want to pay $40 million in luxury taxes over the life of a six-year deal.

Tax avoidance obviously is not an issue in Santana’s case, because the Yankees wouldn’t still be talking to the Twins if it were.

The Twins’ trade talks seem to be in a timeout. The Yankees and the Red Sox apparently are the teams most serious about Santana, but their interest isn’t necessarily sincere.

The feeling among baseball people is the Red Sox, with a solid starting rotation already in place, don’t need Santana, would be reluctant to pay the price he would demand — $20 million or more a year for five years or more — and remain in the bidding only because the Yankees are in it.

The Yankees’ go-slow approach stems from their ambivalence over whether they want to keep Phil Hughes and a younger pitching prospect, Jeffrey Marquez, or have Santana pitch at the head of their rotation.

At one point, the Twins were said to be holding out for Hughes and Ian Kennedy, another of the Yankees’ attractive triumvirate of major league-ready young pitchers (the untouchable Joba Chamberlain being the third), but the Yankees wouldn’t give up both, so the Twins asked instead for Marquez, a 23-year-old right-hander.

Last season, his fourth in the minors, Marquez had a 15-9 record and 3.65 earned run average for Class AA Trenton.

General Manager Brian Cashman wants to hold on to the young pitchers. No one with authority is pushing for Santana, but Hank Steinbrenner may be heading in that direction.

If the Yankees trade for Santana, they will sign him to a multiyear contract that will affect both their payroll and their luxury tax. If they were to add a five-year extension for $20 million a year to his $13.25 million salary for next season, the contract would cost the Yankees about $7.57 million in luxury taxes each year, with the tax being constant because it would be applied from the start based on the total $113.25 million figure.

Luxury taxes are the cost of doing business, but the business better be good, because bad business won’t be tolerated forever. Joe Torre learned that fact of Yankees life. Bad business cost him his job.

In the last five years that Torre managed them, the Yankees paid their players $945 million. They paid an additional $121.6 million in luxury taxes. With no World Series championships to show for all that money, George Steinbrenner considered them a billion-dollar bust.That’s why Torre no longer manages the Yankees. Oh, he could have retained his job in spite of his failure, but the contract the Yankees offered him — a $5 million salary plus a possible $3 million in bonuses based on how far the Yankees went in the postseason — insulted him. We all should be so insulted.

The financial stakes aren’t as high in Los Angeles, Torre’s new place of employment. In the last five years, the Dodgers have paid their players $501 million and the tax man nothing. They have never exceeded the luxury-tax threshold.

The Yankees have always exceeded it. They are the only team that has always exceeded it. They are 5 for 5 when it comes to the tax that was designed to keep big-spending teams in line.

Last season, the Yankees’ familiar $200-million-plus payroll went $59.7 million over the $148 million threshold for the luxury tax. Multiply that amount by 40 percent, the Yankees’ tax rate because they have exceeded the threshold so often, and you get the amount the Yankees were recently informed they have to pay — $23.88 million.

Relatively speaking, that amount shows economic progress for the Yankees. It’s their smallest tax in three years, and it’s $10 million less than their 2005 tax. Looked at in another way, though, the amount by which the Yankees exceeded the threshold last season was more than the payrolls of four teams — the two in Florida, the Washington Nationals and the Pittsburgh Pirates.

The luxury tax is not the only additional money the Yankees pay. They haven’t received their revenue-sharing bill, but when they do, they know that revenue sharing and the luxury tax combined will cost them more than $100 million for 2007.

Through revenue sharing, the Yankees have become benefactors for poorer teams, but some of the recipient teams are ungrateful enough to spend the money contrary to the rules of revenue sharing. Clubs are supposed to spend the money to improve their teams on the field, but they haven’t always done that.

With payrolls hovering around the $30 million mark last season, the Florida Marlins and the Tampa Bay Rays, for example, don’t seem to be spending the $20 million or more that they get in revenue sharing on player salaries. Teams don’t have to spend the money on salaries, but if the Marlins did, they might not have to keep shedding players like Miguel Cabrera and Dontrelle Willis.

Do the Minnesota Twins really not have the money to sign Santana to a contract extension that would preclude their need to trade him or his ability to be a free agent a year from now? Or is it that they don’t want to spend the money to retain him?

One thing the Twins, with a payroll of about $70 million last season, don’t have to worry about is paying the luxury tax.TAX ESTIMATE

News source：http://www.nytimes.com/2007/12/26/sports/baseball/26chass.html?ref=baseball