The Padres finalized their agreement with starter Michael Wacha this morning. That pact contained options from both the team and player perspective designed to meet the right-hander’s asking price while keeping the deal’s average annual value down for luxury tax purposes. It’s officially a four-year, $26MM guarantee, leading to a $6.5MM CBT hit.
That contract structure brings the Padres’ estimated luxury tax number around $272.2MM, as calculated by Roster Resource. That’s about $800K shy of the $273MM mark that delineates the third threshold of tax penalization. Public payroll figures are estimates, though Dennis Lin and Ken Rosenthal of the Athletic confirm with team officials the club remains narrowly below the $273MM figure. That’s no coincidence, of course, with the Padres’ front office intentionally structuring some recent contracts to add to the roster while staying under that threshold.
At the start of the offseason, the Friars signed Nick Martinez to a deal that was similarly built with dual club/player options and technically came out to an approximate $8.667MM average annual value. More recently, San Diego’s extension negotiations with Yu Darvish were shaped by the team’s CBT situation. The Friars signed the All-Star righty to a five-year, $90MM extension covering the 2024-28 seasons last week. That paired with Darvish’s preexisting $18MM salary for the upcoming season to result in a matching tax hit. Before the extension, Darvish had counted for $21MM against the luxury tax (reflecting the AAV of his prior front-loaded six-year, $126MM agreement with the Cubs). The extension trimmed $3MM off the team’s tax bill this year, which freed up breathing room under the $273MM mark for the Wacha money.
In the process, San Diego made a commitment to Darvish running through his age-41 season. Investing for that long in a pitcher of his age certainly isn’t without risk, though it’s one the Friars preferred to a shorter-term deal that could’ve come with higher annual salaries. Lin and Rosenthal report that Darvish’s camp initially broached extension talks seeking a two-year, $60MM deal. Instead, the Padres made a longer commitment that guarantees the veteran hurler an extra $30MM altogether but comes at a much lower annual value.
According to the Athletic, San Diego also pursued a multi-year guarantee with player options for Johnny Cueto before he signed with the Marlins last month. San Diego was known to be involved in the Cueto market. Rather than accept a deal similar to the ones Martinez and Wacha ended up taking, Cueto took a one-year, $8.5MM pact with a 2024 club option from the Marlins.
Ultimately, the Padres’ maneuverings allow them to open Spring Training a hair south of the third tax threshold. A team’s luxury tax number is calculated at the end of the season, not during exhibition play or on Opening Day. Depending on how much room exists below $273MM, the Friars could certainly wind up above that number — either by making a midseason acquisition via trade or waivers or simply by selecting the contract of a non-roster Spring Training invitee whose deal contains a base salary above the league minimum (i.e. Pedro Severino).
For the time being, however, the organization has an obvious desire to keep south of the $273MM figure. Finishing a season above the third tax threshold results in a team’s top draft choice for the following year (2024, in this instance) being moved back ten spots. It also subjects a team to higher payments. The Friars are set to pay a 50% tax on any spending between $233MM and $253MM and a 62% fee on spending between $253MM and $273MM. They’d be taxed at a 90% rate on spending from $273MM to $293MM. The latter penalties are ones they’re clearly looking to avoid right now.
San Diego heads into the season as one of the favorites in the National League. Perhaps they’ll eventually go beyond the third threshold to maximize this roster’s chances of contending. As of now, they project for the third-highest CBT payroll in the majors. The Mets are running away from the rest of the league in spending, while the Yankees are reportedly just under the final tax threshold at $293MM and reluctant to surpass that figure.
The new CBA included get out of jail free cards! One free $300+ million contract allowed for every team
A get outta jail free card woulda looked more like a 300 million dollar player for 100 millions
I’ll never understand the idea that players are overpaid or should take less money so the team can sign other players or as a hometown discount. The owners are the investors, so if they want a better team, they should spend the money it takes.
Players often work this to their advantage, though more so in the NFL. You add on another 1-2 useless years at a lower amount. It brings the AAV down, but makes the total higher.
If the Padres extend Soto, his AAV will take them up above the Yankees.
Nah he makes $23m already. They could sign him to one of those endless deals that are so popular right now, 15 years or whatever, and keep the AAV below $30m no problem.
That greedy guy turned down 15 year 440, though. The Padres will have to give him 30 years and 880 then.
I’m pretty sure he wanted to play somewhere with more potential. Worry about his contract after the season
Soto is getting 450 million at 15 years….
No reason to rush that, he’s on the Arb books this year and next. Maybe the Pads go hard after Ohtani in ’24 and then let Soto walk after that season… but altogether, what a year that would be, especially if Manny extends!
Some money coming off the books
How does the CBT calculation work when selecting a contract to the 40 man roster midseason? Is it prorated?
Yes
Must be nice buying victories!!! Every team in any sport should have a limit to the payroll and all equal. I heard a pundit the other day say “go padres, take um all”. Go A’s!!!!! Don’t take my all but Jesus if they happen to win the series before 2030 I’ll be on my knees in the rain like the Shawshank crying happy tears
Salary cap – maybe
Equal payroll – No way! Owners have a right to spend money. If the owner(s) wants to set his money on fire and blow through it (say Jon Gray, Marcus Semien, and Martin Perez), that’s a choice. At least this year, Texas actually spent it more efficiently.
They’ve essentially traded their farm system to build this team. Manny and Bogaerts are the only notable big FA they’ve spent on
It’s a monopoly. There should be a floor that requires every team to spend at least 100 million two out of every four years. You don’t need to spend like Uncle Steve to win, but you do need to spend a certain minimum to justify the monopoly.
‘Must be nice buying victories!!! Every team in any sport should have a limit to the payroll and all equal.’
Communism is a disease that must be extinguished at all costs.
The Padres just give off that vibe of being desperate, and that always leads to implosion during the season either by injuries or just internal rifts.
If you were a billionaire team owner, would you rather be average and pocket a couple hundred million per season? Or pocket a little less after increased revenues, most likely be a perennial playoff force, and be a GOD in San Diego?
‘Or pocket a little less after increased revenues, most likely be a perennial playoff force, and be a GOD in San Diego?,
Exactly this. If I owned the Phillies and had the funds every year would be a celebration.
It feels like you are ignoring the investment side of things. The Padres drew 800,000 more fans last year. How much of that converts to profit? And if 800,000 more are going to the game, how many more are watching on TV?
Why do people, including apparently Rob Manfred, keep referring to San Diego as a “small market”?
8th biggest city in the US in the richest state in the country and they’re the only pro sports team in town. That is not a small market.
It seems that because the Padres used to be cheap that they get labeled that way for life…?
City population doesn’t measure the size of tv market. S.D. has border, desert and ocean limiting it’s market. Just as Jacksonville has a bigger population than Miami,but Miami/Dade county market is much bigger. Look up tv market list and you’ll see
San Diego market 27th on the list
You forgot the 9 in-between 66
…and then there are the A’s.
I usually hate Boras and greedy players, but the As are one of the few teams I actually cheer against in arbitration. They probably necessitate some sort of minimum payroll (not a higher minimum wage). This way, they at least spend the money of talent instead of being forced to pay mediocre guys more. The Dodgers are what you get when you have a small market type farm system and an enormous payroll. The Padres here aren’t quite the Dodgers, but they at least got something out of their farm system via trade. Darvish was also traded for, along with Musgrove.
I think the salary cap and floor like the NFL has is the best system. Every team goes into the season knowing they have a chance if they have competent management who builds a team. Sure there are tankers (looking at you Jacksonville and Miami) but the point is there is a level playing field, which is why the sport is popular across the country instead of just in the large markets.
Football is popular because Americans crave violence. It’s basically a chance to watch someone get creamed. We love that. As long as it’s someone else. And so it goes.
What did Sachel Page say “DON’T LOOK BACK. SOMEBODY IS GAINING ON YOU” Dodgers Heads Up.
Back when he spelled it Paige.
As a life long Padres fan, I’m super excited that our owner wants to win and is willing to pay for star players. Imagine if your team had 8 winning seasons and 3 playoff series win in a 25 year span of your life. Harsh vibes.
Attending games at the Murph before Ray Krok bought the Friars. I am overjoyed at the FO and Oweners direction. They have a Master Plan for the Pads, for sure. We all remember the LEAN YEARS.
Yeah, buddy! The Murph! Went to my 1st game there in 85. Also was at Petco for the first series ever. Moved to Oregon in 2000, right when the Beavers became the Padres AAA affiliate. Started paying attention to the farm sysyem then. Lots of lean years and miniscule payrolls. So thankful for Seidler! Go Padres!
This is terrible business. Your paying extra down the road, that you know isn’t worth it. So your wasting that money to add to the tax bill later, When the player is basically a shell of themselves. ? What about the team then ? The Next GMs Problem. ?
The Pads said it themselves, the Minor leaguers are really going to have to produce something. But that’s ridiculous, when you have so many years of contacts in the books. Your hemorrhaging financials down the road. Thinking that rings will make it all back. This high level risk reward stuff. They better win. And even still they need to be a consistent winner. And become like Mexico’s team and go world wide in Latin America. And sell tons of merch. Sell out every night. And become the face of baseball. I don’t see it happening.
I don’t have a problem with the route they’ve taken in signing Boegarts and Darvish to their respective deals. Paying Darvish 15/14/14m/yr the last 3 years I think is a perfectly fine tradeoff for not having to pay him 30m/yr on a 2/60m extension if they were to have gone the more traditional route following 2023.
Were talking about the pitcher that got to 1500 K’s in the fewest starts in MLB history, memory says it was 196 games versus 205 for the Big Unit and who is in many ways still evolving. Paying him 43m for his age 39-41 seasons isn’t going to cause any great harm even if it doesn’t work out perfectly. Saying you know he won’t be worth that is nonsensical.
Boegarts looks poised to be a productive player during his 30’s and might be chasing down 3000 hits as his deal is waning down. What’s 25m in 2033 dollars? 17, 18m?? Similar to how paying Hosmer 12.5m to not play for them these next three years (sure didn’t prevent them making moves), Boegarts isn’t going to be an anchor around the neck when that time comes.
Their attendance numbers will be amongst the best and the talent on the team is worthy of those millions of fans paying their hard earned money to support the team.
There are always trade offs from signing a player to a large contract, or trading a bundle of prospects for an epic young superstar, but at the end of the day it’s a breath of fresh for most Padre fans that were accustomed to being one of the cheapest ran organizations in the game. Peter Seidler as the main owner is surreal to most of us. Jeff Moorad before him bought the team on a layaway plan because he was so poorly equipped to own a team (The payrolls were around 80% of what Manny makes by himself today) and John Moores before him was just as big of a schmuck, basically the anti-Seidler.
Packing the house, stacking the roster, nothing wrong with that business.
Should probably pinch myself, still feels like a dream.
If 25 mil in 10 years is going to be 17/18 mil, than inflation has gone stratosphere. And yes, the padres fans will most definitely pay. Owners , especially new owners front load payroll to build up the brand. But they have all the money they have, because they are very focused on making money. Not spending and losing money. The new owner is building equity in a low value business. Which means he will probably sell at some point before the bottom falls out. That’s my guess. I don’t know too much about the guy. But this screams recent tech deluge. Spend spend spend. Built up the business. And sell it to make a profit and mismanage all the way to the top. Not thinking about the future much. Forward forward forward. That never is a long term plan for running a business. But sports is different. That’s for sure. Winning is all that matters. And rings bring a spotlight to whatever business your doing.
I wish you luck man. I’m a Giants Fan. It’s wait n see mode. Nobody wants to come here mode. Cheap castoff mode. But they win games with what they’re doing. Championship, eh. To be determined. I watch baseball either way.
I wonder how the revenue stream can sustain the padres big expenditures. That’s my main question. We’ll find out if they unload some of these guys down the road. Play it cheaper. I don’t see them as the top of the financial heap for too many more seasons.
If they extend manny and Soto then they will be committed to a high payroll for the next decade. They are already going to be paying Xander and tatis for 11 plus years. Plus the next 5 plus years of darvish and mustrgrove.
The owner has already said he doesn’t look at this as a window. Maybe they are still making a little maybe they are losing a little but it doesn’t seem to matter.
When they say they will need some prospects to come up and help at some point that’s true. Even if they sign all these guys they will still need some cheap players to fill out the roster. They have resisted trading any prospects this off season which is a pretty major change from the last few years. They may switch to the Mets strategy the next couple of years to rebuild the farm. Then again they may trade them all away at the deadline.
Your paying extra down the road, that you know isn’t worth it.
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You are getting the savings up front, when it might be more important. Instead of paying Bogaerts $280M/8, they pay him over 11. That brings the current year value down by $10M, and effectively brings the tax down by $10M.
Assuming that you can eventually bring your payroll below the cap, it is a smart move.
Might be. Might not be either. Need to wait and see where they are at when they have $X in their CBT number that they are getting little or no production from. If they haven’t got the chocolates prior to that, and X is significant, things could easily get ugly.
But what about the Dodgers? What about the Dodgers!!!???? The hated ones!!!!!!
The Padres will be over the third threshold once Hamels is inevitably given his large contract before opening day.
Even if Hamels made the team out of ST, the luxury tax figure is based on the end of the year..not the start.
I think they’ll get a 12 or 13 year deal with Machado that knocks a few million off his AAV before the season starts.
I’m also interested to see if they can move Pomeranz at some point. That would free up a decent chunk of breathing room against this CBT threshold and he could be replaced internally with Morejon/Castillo. If he’s healthy and throwing well this year it would be a lot easier to do that.
I don’t really get teams that do all this work to give themselves the tiniest of CBT threshold margins. Do they not foresee needing a trade in-season or at the TDL to potentially help fix any holes from poor performances or injuries?
Looks like that 3rd threshold will be moot if Cole Hamels makes the team now. That deal was post Wacha so doesn’t seem like they are worried about it much.
Wacha is a huge bargain. Red Sox were idiots not to sign him. I bet he has a better year than anyone on their staff.