Cardinals meet payroll pledge, but remain shy of luxury tax. How much more can they spend?

There’s an argument to be made that only people who own baseball teams should really care what and how players are paid.

If your favorite team is acquiring top talent and you get to see competitive ball year in and year out, what does it matter how much they make in the process? What’s the benefit to the average fan in counting an owner’s dollars?

That is, of course, not how things work for any number of reasons.

Observers of the game fixate on salaries because teams do work on budgets, even if they hold the numbers closely, and because owners who are either undercapitalized (Cincinnati, Miami, Milwaukee) or miserly (Oakland, Pittsburgh) can point to increasing salaries as bizarre warrants for baseless claims about their inability to compete.

What’s relatively new, however, is the structuring of salaries in a way that’s designed to maximize money flowing to a player while minimizing the punishment directed to a team from the league. MLB’s new collective bargaining agreement established four thresholds of the competitive balance tax (CBT), traditionally referred to as the luxury tax.

The levels for the 2023 season are $233 million, $253 million, $273 million and $293 million. The calculation for those numbers includes average annual value of salaries in addition to player benefits such as bonuses earned and pension payments. Financial penalties and the loss of draft position are applied to teams at the various levels, compounding if the teams exceed over a period of consecutive years.

The Cardinals, at present, are roughly $50 million short of the first threshold, even as they’ve fulfilled their end of season pledge to increase payroll year over year. The New York Mets, by contrast, have blown past the fourth level, which was nicknamed “the Steve Cohen tax” in reference to their free-spending new owner, who is the wealthiest man in the game.

Eliminating risk of aging curve

Part of the reason the Mets have exceeded the final number by so much — currently, including penalties, they’re sent to spend nearly $450 million on payroll in 2023 — is their strategy of committing to high dollar, short term deals with some of the game’s biggest stars. Both Max Scherzer and Justin Verlander will be counted at an AAV number of $43.3 million this season, accounting for nearly a fourth of New York’s payroll expenditure themselves.

Some teams, however, have decided to eliminate the risk of an aging curve on a long term deal by simply turning the out years into a tax avoidance strategy. If you go in with the assumption that a player is bound to decrease in skill and value over the life of a long deal, a team can make a better, smarter bet when it comes to stretching up front value over a longer time period.

Take, for example, the Philadelphia Phillies. Their 13-year deal with Bryce Harper, signed prior to the 2019 season, was the bellwether of this strategy. Harper was guaranteed $330 million at signing — an astronomical sum which more than qualifies as a lifetime deal. By spreading the number over 13 years, though, the AAV which is used for CBT calculations dips below $26 million.

Natural reaction to Turner, Correa deals

It’s the same track they pursued this winter with Trea Turner, who received $300 million spread over 11 years. The Giants this week did the same with Carlos Correa — $350 million, but for 13 years.

The natural reaction to deals of that nature is to wonder how, exactly, the Giants are planning on getting top notch production from Correa as a 41-year-old shortstop. That question misses the mark. For the Giants, simply receiving seven years of Correa’s production can pay for the deal and make the remaining six moot.

It’s a tactic that makes the deferred money pursued by the Cardinals — Nolan Arenado, Willson Contreras, and Adam Wainwright’s deferments for 2023 total approximately $25 million — one that cuts against the grain. If the Cardinals indeed have no plans to approach the first luxury tax market, what then is the benefit of pushing off those obligations?

A cynic would argue that money paid in the future is simply cheaper than money paid now. A million dollars was worth more five years ago than it is today, and it’ll be worth less in five years than it is today. Paying out over a longer stretch benefits the team financially, but also adds to flexibility.

More about CBT, what Cardinals can ‘afford’

Even without approaching the CBT, the Cardinals could more than afford — “afford” meaning within their preferred model a conservative addition — another salary in excess of $20 million annually. For a team with a clear need in its starting rotation for the 2024 season and perhaps long before that, it’s easy to see where a top trade or free agent addition could be in the offing with the space they’ve created.

MLB is soon to settle down for its unofficial winter slumber, kicking back into gear just after the New Year. By all indications, the Cardinals are done shopping for the season, but anyone who’s ever bought Christmas presents knows that there’s always a little more to add, always another box that somehow ends up under the tree.

By bucking budgeting trends, the Cardinals may have created an opportunity in their tax bracket with little fanfare but big potential impact.