In 2020 and 2021 the Phillies tried desperately to avoid the luxury tax. It came with increased penalties on qualifying offer free agents and money out of John Middleton and other owner’s pockets for not much gain. In 2022, that changed with Dave Dombrowski getting Middleton to jump over the tax line and take the QO penalty increase and increased payroll cost. In 2024, they crossed another threshold, which only increased their tax bill, but not team building penalties. The last remaining hurdle is the third tax line, a high threshold in dollars paid, but 10 spot reduction on a team’s first round pick. It is a sizeable penalty, but not one that is totally unconquerable and certainly less than some trade costs.
Whether the Phillies should cross the line is fairly certain. Both John Middleton and Dave Dombrowski have indicated that they will likely cross it, but we don’t need to actually take their word for it, the writing is actually fairly clear. Both Cot’s Contracts and Spotrac have the Phillies at or above the $281 million threshold right now depending on your estimates for arbitration eligible players. The Phillies will almost certainly non-tender Austin Hays which will know $6-$7M off the number, but it is still going to be close even if they resolved arb and called it and offseason, which they won’t do.
It is also probably worth quickly addressing how payroll jumped so much without the Phillies making a move or adding a large salary on a midseason trade. The answer is they have 3 MLB free agents in Jeff Hoffman, Spencer Turnbull, and Carlos Estevez who cost them about $7M in tax calculations. Arb salaries are increasing with Alec Bohm and Ranger Suarez leaving the way. Really the increases come largely from Zack Wheeler and Cristopher Sanchez. Wheeler’s extension took his tax number from $23.6M to $42M and Sanchez is going from $.7M to $5.6M as his salary goes from pre-arb to his extension AAV. His extension is some short term pain, but his tax number will be under his salary number in 2027 and 2028.
After this season, the Phillies will clear (and then need to replace or retain) $42M of salary for J.T. Realmuto and Kyle Schwarber. The year after that they clear $38M of Taijuan Walker and Nick Castellanos. In that time Alec Bohm and Ranger Suarez will reach free agency. The Phillies have options on Jose Alvarado and Matt Strahm for 2026, so they will also be off the books and need to be replaced. So there is some salary clearing off the books, more in 2 years, but if the Phillies were to spike above the tax this year, they aren’t obligated to be above that forever.
That said, two things are true. The first is the most obvious and that is if Juan Soto wants to come to Philly you go into the third tax forever to make it happen. The second assumes that either Soto doesn’t make you forever in the 3rd tax level or that he doesn’t want to come to Philly, and that is there is no point other than money to only go over the third line by a small amount.
Essentially the draft pick happens if you are at $281.1M or $400M, so there are no more team building penalties to spending. If you don’t get Soto and you want to have an idea on resetting in a year or two years as hopefully prospects make your team cheaper, there should be incentive for short term large money spending and for extensions that smooth money for later years. The first is probably how you view the bullpen, if possible. Look for 1-2 year deals that maybe are bit higher $, but don’t tie you to a long term commitment. It may also factor into thinking about trades in general.
The second is normally an extension topic, and right now that is not a lot options this offseason as Ranger Suarez’s second half performance makes it hard to go in on an extension. The overall concept is the actual cash is in the future, but you push some of the tax obligation to this year where while it is expensive in the higher tier, you may be able to lower some of the future burden when the actual dollar figure goes up.
I don’t expect the Phillies to go deep into the $300 millions or even get close to $400M, but much like when they first crossed the tax threshold in 2022 and they were more free and flexible with money they should embrace the inevitable and for at least the next two year window look at what money can do before they do some reformatting of the roster.