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Calculating the Phillies Luxury Tax Payroll

 


Most of the 2012 Phillies salary projections I've seen this off-season work this way: add up the Phillies obligations for next season, subtract that number from $178 million, and state the difference as an estimate for the Phillies remaining cash to spend before going over the luxury tax threshold.

Corey Seidman posted such a breakdown at Brotherly Glove on Wednesday, with a nice format showing the team's obligations related to guaranteed contracts, arbitration estimates, etc. As it turns out, however, the calculation for luxury tax purposes is different from the actual salary numbers owed in 2012, so the figures Corey used aren't necessarily appropriate for calculating the team's luxury tax payroll.

In the comment thread, Eric Seidman directed us to his primer 'The Phillies and the Luxury Tax' from May, which breaks down the way in which a team's payroll is calculated for the luxury tax. Surprisingly, the bulk of the luxury tax payroll is calculated by taking the average annual value of each contract and making certain adjustments based on rules for options, buyouts, signing bonuses, etc.

I've taken the liberty of attempting to calculate the Phillies 2012 obligations using Eric's primer, Cot's Contracts, and Matt Swartz's arbitration projections, and I hope the results will be helpful as we evaluate the Phillies off-season transactions.

Here are the assumptions that go into the calculations:

1. Use the contract's average annual value, not the amount paid in a specific year.
2. If an extension is signed before the end of a previous contract, the AAV from any full years remaining on the old contract are consolidated into the new contract (Howard, Halladay).
3. Signing bonuses are amortized over the life of the contract (Blanton).
4. Club or vesting options, if exercised, are counted only in the year in which they are paid (Ruiz, Papelbon).
5. Player or mutual options count toward the value of the contract the same as guaranteed years (Polanco).
6. Buyouts are treated as 1 year contracts when they are exercised, and do not count toward prior year AAV (Lidge, Oswalt).
7. Cash received in a trade must all be applied to the current year (Wigginton).

Got it? OK, here are the figures:

Under Contract

Player

Contract for Luxury Tax Purposes

 Luxury Tax AAV

Ryan Howard

6/$133

                      22.167

Cliff Lee

5/$107.5

                      21.500

Roy Halladay

4/$78

                      19.500

Jonathan Papelbon

4/$50

                      12.500

Chase Utley

7/$85

                      12.143

Joe Blanton

3/$24

                        8.000

Shane Victorino

3/$22

                        7.333

Placido Polanco

4/$22.5

                        5.625

Ty Wigginton

2/$7.5

                        3.750

Carlos Ruiz

3/$8.35

                        2.783

Jose Contreras

2/$5

                        2.500

Jim Thome

1/$1.25

                        1.250

Brian Schneider

1/$0.8

                        0.800




Arbitration Eligible

Player

Contract for Luxury Tax Purposes

 Luxury Tax AAV

Cole Hamels

Estimate

                      14.000

Hunter Pence

Estimate

                      11.100

Kyle Kendrick

Estimate

                        3.200

Ben Francisco

Estimate

                        1.500

Wilson Valdez

Estimate

                        0.900




Pre-Arbitration

Player

Contract for Luxury Tax Purposes

 Luxury Tax AAV

David Herndon

League minimum

                        0.480

Antonio Bastardo

League minimum

                        0.480

Michael Martinez

League minimum

                        0.480

John Mayberry, Jr.

League minimum

                        0.480

Michael Stutes

League minimum

                        0.480

Vance Worley

League minimum

                        0.480




Other

Player

Contract for Luxury Tax Purposes

 Luxury Tax AAV

Roy Oswalt

$2M buyout

                        2.000

Brad Lidge

$1.5M buyout

                        1.500

Ty Wigginton

less $2M from COL

                      (2.000)




Total


                   154.931

 

Add to this total 1/30th of player benefits to calculate the entire payroll applied to the luxury tax. I'm not sure how much that is, but if benefits cost the team $1 million per roster spot, the total is less than a million dollars for the entire roster, so I imagine it is a nominal amount.

The Phillies are left with about $23 million dollars to spend without being taxed, 24 players on the major league roster, and no starting shortstop. There are 10 pitchers on the roster, so two position players will likely be exchanged for relievers. Of course, if the goal is to stay below the threshold, some amount needs to be left for mid-season call-ups, acquisitions, and contract incentives reached.

The major ramifications seem to be that the Phillies can re-sign Jimmy Rollins and extend Cole Hamels without being taxed. Or, to create a bit more flexibility, they could sign Hamels to a one year deal now and wait until after opening day to ink an extension with Hamels; that way, the extension would not change this year's luxury tax number. Either way, it seems like the Phillies will not need to be especially frugal, even with the contracts already in place, in order to stay below the threshold for 2012.

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