New York Yankees Must Dump Salary After Signing Gerrit Cole, Here Is Why

The New York Yankees made history this week as they signed star free agent Gerrit Cole to a record-breaking nine-year $324 million contract. The southern California native was the Bombers' top priority of the offseason so landing him is a massive achievement. However, it is one that carries financial problems along with it.

The Yankees now project to have a $247 million payroll in 2020 which exceeds MLB’s cap of $208 million. Teams are allowed to do this but they have to pay a luxury tax on each dollar over the cap they go. There are also brackets that, if exceeded, make the tax greater.

As per MLB regulations, any team that exceeds the cap must pay a 20 percent tax on every dollar spent over the $208 million limit in the first season for which they go over. If the team doesn’t rectify the situation after the first season they then incur a 30 percent tax and a 50 percent tax comes into effect during year three.

Additionally, teams exceeding the limit by $20 million to $40 million are also subject to a 12.5 percent surtax. Clubs exceeding the threshold by over $40 million are taxed at a rate of 42.5 percent for the first year with the surtax growing to 45 percent for each additional season.

Furthermore, teams exceeding the limit by more than $40 million will also see their highest draft pick at the next rookie draft moved back by ten places unless the pick is in the top six. In that case, the club’s second-highest pick will be moved back.

Teams can reset these taxes by slashing salaries and getting under the limit for one season.

The Yankees’ 2020 salary will fall $39 million over the luxury tax threshold. Therefore, as things stand, they will be subject to both the luxury tax and a luxury surtax after signing Cole. The 20 percent luxury tax comes to $7.8 million and the 12.5 percent surtax comes to $4.875 million for a total of $12.675 million.

That’s not even mentioning the fact that the Yankees haven’t yet concluded their business this winter. Long-serving outfielder Brett Gardner has long been linked with a new contract in the Bronx despite not being offered a qualifying contract.

Even signing Cole in general cost the Yankees as the Houston Astros did, of course, tender a qualifying offer for the player at the end of the 2019 season. New York forfeited one million dollars in international signing bonus allocation money, plus their second and fifth-highest picks at next summer’s draft.

Industry experts are already projecting that GM Brian Cashman will try to move on at least one or two contracts before the season starts. J.A. Happ has been actively shopped around by the Bombers in an effort to move his $17 million per year salary.

That wouldn’t get the Yankees under the luxury tax but it would give them breathing room against the highest threshold which they are so close to breaching, even if they do re-sign Brett Gardner.