Phillies Offseason: Let’s Talk About Money

I am going to blame Destiny Lugardo who got me to actually start writing some offseason stuff with this tweet.

Friendly Phillies offseason reminder: It’s not your money!

— Destiny Lugardo (@destiny_lugardo) October 30, 2023

She is 100% correct, fans shouldn’t care about efficiency in spending or spending in general, for the most part. However, it is important to keep in mind the parts of the Phillies offseason where it does matter, and that is the various competitive balance tax penalties.

Qualifying Offer

The Phillies pay the competitive balance tax, if they lose a player that was offered, and declined, a Qualifying Offer, they get a pick after the 4th round. If they sign a player that declined a qualifying offer, they forfeit their 2nd and 5th highest picks, and a $1 million in international money. This is per free agent, so sign one and you are down your 2nd and 5th round pick and $1M, sign a second free agent and there goes your 3rd and 6th round picks and another $1M. The Phillies hit the first level signing Trea Turner last year, and did not pursue a second free agent because of the penalties. For impact on the lost money, the Phillies pool fell from $5,652,200 to $4,652,200 or a 17.7% reduction per free agent they sign. It is a significant enough penalty that should be factored into decisions.

Where this matters is replacing Aaron Nola. Let’s say the Phillies pursued Sonny Gray instead of Aaron Nola, they would receive a pick after the 4th round, but would lose their 2nd, 5th, and ~18% of their international signing pool. That means the gap between your perceived talent of those players and the contracts they are signing must be huge. It does make a trade to replace Nola slightly more palatable, but it also makes non-QO free agents more attractive (not that there are many on the pitching side outside of Yoshinobu Yamamoto). It also means there is very little pick incentive to letting Nola walk.

The Steve Cohen Tax Level

The Phillies have crossed the luxury tax the last two seasons, but they have stay within $40 million of the mark. That means their penalties were limited to the above Qualifying Offer penalties and some extra money from ownership. If a team exceeds the tax by at least $40 million their first round pick moves back 10 spots (assuming it is not in the top 6 picks of the draft). The tax mark for 2024 will be $237 million, so this threshold will be $277 million. According to Cot’s Contracts the Phillies are currently at about $230 million in Competitive Balance Tax when accounting for arbitration estimates from MLB Trade Rumors. That leaves them with about $47 million to work with both in the offseason and during the season before they cross the Cohen line. Now they could reduce this slight by non-tendering a couple of arb players, but not by a meaningful amount.

This does not mean that $277 million should be a hard cap if there is a reason to do it, but it is once again part of the calculation. So that means:

1. You should only cross it if you are getting impactful enough talent to accept the draft pick penalty. Really we are talking about Ohtani deciding he really wants to come to Philly or a superstar is coming to Philly and you are extending him. Both of these are unlikely, but are not technically zero.
2. You should not just cross the $277 million line. Much like the normal tax thresholds, there is nothing but a monetary penalty for climbing the salary within a tier. Once a team has accepted that their first round pick is being penalized there is no incentive to stop spending outside of fiscal limits (the Phillies theoretically have one)

None of this is to say that the Phillies should be cheap, but there are actual team building penalties to some of their actions. Those penalties should be factored into the cost of a transaction because they will be the actual impact, not how much money ownership spends.