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The Phillies need to go over the luxury tax if they want to be World Series contenders

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The Phillies reportedly are intent on staying under the tax, which is a questionable decision.

MLB: MAR 02 Spring Training - Bryce Harper Press Conference Photo by Cliff Welch/Icon Sportswire via Getty Images

The signing of Zack Wheeler to a five-year, $118 million contract is no doubt a controversial one.

On the one hand, you have a guy who has had two seasons where he has performed at the level of a No. 3 starter, a guy with a Tommy John surgery in his past and who is being given top-of-the-rotation money on the hopes he can turn into a top-of-the-rotation starting pitcher.

On the other hand, you see a guy with elite stuff, a pitcher who has been worth anywhere from 3.5 to 4.5 wins above replacement each of the last two seasons and is a clear upgrade for a team that desperately needed someone to come in and provide capable starting pitching.

No doubt, the Phils were desperate to sign a qualified big league starter, and Wheeler certainly qualifies. He has been good, but not great. He is not Gerrit Cole and he is not Stephen Strasburg, and the fact he is not either of those two stars will eat away at many Phillies fans who see those two pitchers on the market and wonder why the front office is apparently content to let other big fish duke it out for their services.

So why did the Phillies go with Wheeler? They certainly like his upside, but the cost of Wheeler vs. the cost of Cole/Strasburg had something to do with it. While spending $118 million on Wheeler is a ton of cash, it will cost them $23.6 million a season. Signing Cole or Strasburg would have cost them $30 a million in AAV easily. Probably more.

Why should that matter, you ask? After all, the Phillies are a rich team with a thick wallet. But according to Matt Gelb of The Athletic, two team sources tell him the front office has been told to stay under the luxury tax in 2020.

That’s a serious bummer, one that could prevent the Phillies from being a true World Series contender.

The Phillies came into the off-season needing two starters. An ace would have been really nice, however, they got Wheeler instead. Wheeler could become an ace, but isn’t one yet. Perhaps the team has faith that new pitching coach Bryan Price can help him increase his strikeout rate and stay out of the middle of the plate with two strikes, but that’s something that needs to be seen first in order to be believed. Regardless, they still need another starter, and adding a guy like Hyun-jin Ryu, Dallas Keuchel or even Madison Bumgarner (who I’m not wild about, by the way) would certainly make the rotation more October-worthy.

A rotation of Aaron Nola, Wheeler, Jake Arrieta, Zach Eflin and some combination of Nick Pivetta/Vince Velasquez and perhaps later in the season Spencer Howard, doesn’t inspire a ton of confidence. Sure, the Wheeler signing creates separation between the Phillies and Mets, but it probably doesn’t get them to where the Nationals and Braves are (although of Washintgon’s fate is yet to be determined with Anthony Rendon and Strasburg still on the market).

The Phillies also need another quality infielder, and adding two would make even more sense. Didi Gregorius seems to be the hot name at the moment, and given the connections to Joe Girardi and Rob Thomson, adding him on a two or three-year deal seems like a no-brainer. But general manager Matt Klentak could really go hard and improve the offense by adding Gregorius and someone like Josh Donaldson to play third base.

The team could also add new talent by making trades, and one of the ways a team like the Phils can get away with not giving up their few good prospects is by taking on salary. But given their stated goal of staying under the luxury tax, it’s hard to see how they could pull that off.

And make no mistake, the luxury tax is a self-imposed salary cap. For a team that goes over the tax a first time, they have to pay a 20% fine on how much they go over. If a team goes over it a second time, the penalty is a 30% tax on the overage. After that, it’s a 50% fine. Teams also get dinged extra for going over the tax by a certain amount — 12% for going $20 million or more over, 42.5% for going over by $40 million or more, and 45% if they repeat going over by $40 million or more. Teams that go over by $40 million or more also have their top draft pick moved down 10 spots, as long as it isn’t a top-six pick. If it is, that team would have their second-highest selection reduced 10 spots.

According to Fangraphs, the Phillies currently have an estimated luxury tax payroll of $191.9 million, putting them about $16 million from the $208 million tax. MLB Trade Rumors put an estimated contract for Gregorius at three years and $42 million, an AAV of $14 million a season. That would leave the Phils just $2 million under the tax with which to sign another starting pitcher and/or get bullpen help.

An off-season where the only two major additions are Zack Wheeler and Didi Gregorius isn’t enough to push the Phils into World Series contender status unless Rhys Hoskins explodes for the 35-40 homer season some were expecting last year, Bryce Harper plays for an entire season like he did in the second half, J.T. Realmuto does the same, Aaron Nola bounces back and has an ace-level season again, Wheeler produces, Jean Segura rediscovers his .300 stroke, Andrew McCutchen re-establishes himself as a quality leadoff hitter, Jake Arrieta resurrects his career and one of Vince Velasquez or Zach Eflin finds some consistency. Oh, and finding bullpen arms internally that don’t get hurt or stink.

That’s a lot of “ifs.”

The Phillies are in the position of needing to go over the luxury tax because they drafted poorly over the last decade and because they haven’t developed a single star-level player outside of Nola. Maybe Hoskins and Kingery take the next step forward, and maybe Alec Bohm becomes that guy in the next couple years, but so far, watching Nick Williams, Aaron Altherr, Roman Quinn, Jerad Eickhoff, Velasquez, Pivetta, and others fail to provide the team with low-cost talent from within the organization has been terribly harmful.

If Middleton were to go $15 million over the tax, it would push the payroll to $223 million, and the Phils would pay a 20% penalty on that $15 million. That’s $3 million, which would turn a $223 million payroll into $226 million. In 2018, the Red Sox paid a little less than $12 million in taxes for going $40 million over the tax.

That ain’t much.

Spending $208 million on a baseball team certainly does not make owner John Middleton cheap. But given the minor tax cost associated with breaching the tax for the first time, it’s hard to believe the Phillies would restrict themselves in this manner. And looking to next year, the team will shed about $49-50 million, which includes expiring contracts to Jake Arrieta and David Robertson and players whose arbitration is up, which includes J.T. Realmuto and Jose Alvarez (although it’s widely assumed Realmuto will be extended). Virtually all of Jay Bruce’s contract is being paid by the Mariners and Mets, so his departure next year won’t affect the AAV numbers much. The team could move on from a number of other players, too, so one would think going over the tax this year could be a one-time thing.

It’s clear the team has spent a ton of money the last three off-seasons, and the Phillies should be applauded for that. They clearly want to win. The question remains whether they’re ready to go above and beyond to truly compete for a World Series. If they are, they’ll go past the luxury tax and fill all the holes that need filling. If they don’t, it’s hard to see how they do what’s necessary to truly become World Series contenders.

On the latest episode of Hittin’ Season, Liz Roscher of Yahoo! Sports joined me to talk about the Wheeler signing and the luxury tax, and Fangraphs’ Dan Szymborski stopped by to talk about Wheeler, Gregorius and what he expects from Hoskins and Harper in 2020, too.