Late Tuesday night, the New York Yankees agreed to terms with Gerrit Cole on the richest contract in pitching history, and the fourth-largest deal in all of baseball history: a nine-year deal worth $324 million. The contract includes an opt-out after the fifth season, as well as a full no-trade clause. (Some would argue a $324 million contract is, on its own, a no-trade clause, but nevertheless.)
Because baseball teams have become, some out there might wonder what Cole's record-breaking deal means as it pertains to the Yankees' figures. We're here to answer that.
With Cole in tow, the Yankees' projected Opening Day payroll is now $232 million, per Cot's Contracts. Because the competitive balance tax calculation uses annual average values rather than year-to-year salaries, the Yankees have a much higher CBT number of $245 million, or some $37 million above the threshold. Remember, the steepest penalties -- including additional surtaxes and draft-pick dropping -- occur once a team exceeds the $40 million mark.
Seeing as how the Yankees have other moves to make -- presumably attempting to re-sign Brett Gardner, perhaps Dellin Betances, and maybe finding a shortstop -- it stands to reason they'll want to create some breathing room between themselves and the highest luxury-tax threshold. How might they do that?
The most obvious solution is finding a taker for J.A. Happ. The Yankees retained him last winter on a two-year deal worth $34 million that includes an option for a third season. Happ was too homer-prone in 2019, yet notched nearly three strikeouts per walk. He figures to appeal to teams as a No. 4 starter type who could perform better if the baseball plays closer to normal during the upcoming season.
If the Yankees can move Happ, they'll reduce their luxury-tax calculation by some $17 million. Even if the Yankees retain Gardner for a wage similar to his 2019 salary (technically $7.5 million, though they paid him an additional $2 million through a buyout), they'd maintain wiggle room between themselves and the $40-million threshold.
It's worth noting the Yankees were one of three teams to exceed the luxury tax in 2019. That means they'll pay a 30 percent tax rate as a second-time offender in 2020. Because they're also likely to exceed by more than $20 million, they'll also be subject to a 12 percent surtax. In other words, if the Yankees end up with a luxury-tax figure of exactly $230 million, they'll owe about $10 million in penalties.
Considering the Yankees look like the best team on paper in the American League, if not all of baseball, that seems like a perfectly fine price to pay.