The Luxury Tax and the Philadelphia Phillies' 2013 Offseason

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The Luxury Tax and the Philadelphia Phillies' 2013 Offseason
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First, let’s get a fundamental, working understanding of the most significant player in the upcoming free agent pool for the Philadelphia Phillies: the luxury tax.

A team’s payroll includes more than just player salaries. Things like travel expenses, Social Security, pensions, postseason pay, medical benefits, and several other elements factor into the luxury tax equation.

As far as salaries go, each player has an average annual value (AAV) that is based on the average of the amount of guaranteed money in his contract. If the AAVs of every player on a team’s 40-man roster exceeds $178M, that team will have to pay the luxury tax.

That might sound complicated; but, it’s not that simple, especially when trying to forecast the Phillies’ payroll, and then trying to determine their best free agency options in the upcoming offseason.

David Murphy of the Philadelphia Daily News projected the 2013 Phillies' roster operating under the luxury tax in an interesting way. Based on his analysis, below is the Phillies’ lineup with their salaries, and their AAV in parenthesis. Those with an asterisk are estimates based on upcoming arbitration.

Starting Lineup:

C: Carlos Ruiz, $5M ($3.375M)

1B: Ryan Howard, $20M ($25M)

2B: Chase Utley, $15M ($12.1M)

3B: Empty

SS: Jimmy Rollins, $11M, ($9.5M)

LF: Nate Schierholtz, $2.75M ($2.75M)*

CF: Empty

RF: Dominic Brown, $.480M*

Bench:

1. Laynce Nix, $1.35M ($1.25M)

2. John Mayberry, Jr., $.515M ($.515M)

3. Empty

4. Empty

5. Empty

Starting Rotation:

1. Roy Hallday, $20M ($20M)

2. Cliff Lee, $25M, ($24M)

3. Cole Hamels, $24M ($24M)

 

4. Vance Worley, $.515M ($.515M)*

5. Kyle Kendrick, $4.5M ($3.75M)

 

Bullpen:

1. Jonathan Papelbon, $13M ($12.5M)

2. Antonio Bastardo, $1.5M ($1.5M)*

3. Josh Lindblom, $.515M ($.515M)*

4. Jake Diekman, $.495 ($.495)*

5. Empty

6. Empty

7. Empty

Based on philly.com’s Matt Gelb’s analysis, let’s assume the Phillies’ other expenses that will count against the luxury tax will include $10.5M on benefits, $2.5M on the rest of the 40 man roster’s AAVs, and $2M on bonuses (for awards, All-Star appearances, etc.).

Hunter Martin/Getty Images

So, going into the 2013 offseason, all things considered, Ruben Amaro, Jr. and the Phillies will have $157.5M already against the $178M luxury tax. That leaves them with $20.5M to invest in free agency.

With that $20.5M, the Phillies need a third baseman, a center fielder, three bench players, and three arms in the bullpen.

Now, I am in no way qualified to project MLB free agent contracts, or to determine which minor league players should be called up, but I am going to give it a shot.

Let’s address the pitching needs first, since this is the area where the Phillies’ farm system is most abundant.

I’m sending Kyle Kendrick to the bullpen, and calling up Justin De Fratus or Phillippe Aumont to join him.

There are three names, one of whom would replace Kendrick in the rotation. They are: Trevor May, Jonathan Pettibone, and Tyler Cloyd. My money is on Jonathan Pettibone. Trevor May is having a rough year, and Cloyd throws between 85 and 90mph, which isn’t hard enough for the MLB. I’m not too sure his minor league success would translate to the big leagues. But, I think he definitely deserves a shot.

Now, we'll address the three empty bench spots by giving Tyson Gillies and his .295/.375/.448 a shot. He’s fast, and he’s not having a terrible year in the minors. Plus, we need money for free agents.

Rich Schultz/Getty Images

Also, we’ll Keep Erik Kratz as our backup catcher, and assume he’ll continue to make something around the league minimum after arbitration.

We still need a utility man. So, I’m going to propose keeping Freddy “The Juice” Galvis around to fill that void on the bench. He’s an outstanding defensive player, and his bat was starting to come around before he got suspended for using PEDs. I’ve taken that into consideration.

With these moves, we’re assuming that the players who are eligible for arbitration stay somewhere around the league minimum. In that case, we have about $2.5M more against our $157.5M, and we’ve plugged five holes.

Now, we turn our attention to free agency. We have $18M so spend on players for the 2013 roster.

The free agent outfielder market is pretty deep, but the most logical choice for the Phillies is Cody Ross.

Ross rakes at CBP, and he is currently outperforming his one year, $3M deal with the Red Sox.

I could see him coming to Philadelphia for three or four years, at something between $6M and $8M. So, we’ll split the difference and make it $7M.

Mind you, this is a speculative, best-case scenario. So, we have $11M to spend on a third baseman and an arm.

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At third base, Kevin Youkilis has a $13M club option for 2013, which I don’t see the White Sox picking up. So, let’s say he hits the market, and in the best-case scenario, he wants $8M-$10M. Again, we’ll split the difference and say he’s asking $9M, and the Phillies sign him.

We now have $2M left to spend on the bullpen, or we can keep Jeremy Horst around. I’d recommend offering Peter Moylan $2M. But, who knows if that's acceptable? There’s really not much flexibility here.

 

In summation, with these kinds of moves, and a healthy 2013 lineup, the Phillies could be back in NL East contention.

Players like Cody Ross and Kevin Youkilis are the kinds of contributors the Phillies haven’t had all year: solid players who know what it takes to win games.

Now, I am not a major league GM. But, if the figures I’ve assembled here are anything close to accurate, I don’t see the Phillies having many other options for the future. Unless, of course, Cliff Lee is traded.

Then, we’d have a whole new ball game. 

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