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A new era dawns: Why it’s not business as usual for Yankees, Red Sox

03.02.12 at 2:31 pm ET
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MLB Executive VP Rob Manfred, Commissioner Bud Selig and MLBPA executive director Michael Weiner (AP)

All offseason, the Red Sox were subject to intense scrutiny for the fact that they are mindful of the luxury tax threshold when planning their operational budget. The Sox are willing — and indeed plan — to blow past the $178 million mark for this year, with their planned payroll reaching approximately $190 million (as calculated for luxury tax purposes), according to CEO/President Larry Lucchino.

Nonetheless, the team was portrayed as operating on the cheap because its most expensive offseason acquisition (not counting David Ortiz, who will receive $14.575 million on a one-year deal) was that of likely closer Andrew Bailey, who will make just over $4 million this year. That, of course, is less than the $6 million Marco Scutaro will make from the Rockies after being traded by the Sox, and even less than the $7.67 million that Scutaro will count against the luxury tax.

Increasingly, however, it appears the Sox’ mindfulness of the luxury tax threshold is not isolated. Indeed, the team is being joined by another notable franchise in its efforts to get under the luxury tax by 2014.

The Yankees, Lucchino has said on a number of occasions, are in another universe from every other team in the majors when it comes to available revenues. Both their ballpark and their broadcast rights exist in another stratosphere from every other club in the majors, including the Sox.

Yet on Thursday, Yankees general managing partner Hal Steinbrenner proved entirely candid in suggesting that his team plans to get under the luxury tax threshold by 2014, when teams will be penalized for spending more than $189 million.

“Is it a requirement with baseball that we hit 189? No, it’s not a requirement, but that is going to be the luxury tax threshold and that’s where I want to be,” Steinbrenner told reporters on Thursday. “I don’t think it’s an unrealistic goal. My goals are normally considered a requirement. … I’m just not convinced we need to be as high as we’ve been in the past to field a championship-caliber team.”

The motivation of both the Sox and Yankees to get under the $189 million figure by 2014 is not just driven by the luxury tax. Both teams have shown repeatedly that they are willing to pay a premium for expenditures beyond the threshold for the competitive balance tax in any given year. The Sox and Yankees were the only two clubs hit with tax bills in 2011, with New York paying $13.9 million and the Sox popping $3.4 million into Major League Baseball’s Central Fund.

But while both teams are hoping to avoid the stick (and by 2014, if neither team gets under the luxury tax threshold prior to that season, they would be penalized at a rate of 50 percent for all spending over the $189 million threshold), they are also motivated by a carrot. Indeed, the carrot might be one of the most significant components of the new CBA.

Teams that play in the top half of market sizes will no longer be eligible to receive revenue sharing money. To date, clubs such as the Blue Jays and Nationals that operate in major markets have nonetheless received money from teams such as the Yankees and Red Sox based on the amount of revenues trickling into the club. Going forward, that will no longer be the case.

That money will be rebated to the clubs that are currently paying into the revenue sharing pool — but only if they are below the luxury tax threshold. So, by 2014, teams such as the Yankees and Red Sox will face the possibility of a refund of some of the money they plow into revenue sharing — but only if their payroll falls below the threshold of $189 million in 2014-16, the final three years of the current Collective Bargaining Agreement.

While the amount of the refund will vary on a year-to-year and team-to-team basis, there is little question that the revenue-sharing refund is a huge, powerful incentive for teams to stay under the luxury tax threshold. That is just as true for the Yankees as it is for the Red Sox.

“That’s what’s driving this change right now,” one industry source said of the Sox’ and Yankees’ efforts to get below the luxury tax threshold by 2014. “That’s why the Yankees and the Red Sox haven’t been spending as much as they normally do.”

It remains to be seen how the new landscape of the CBA will take shape (indeed, the final language of the agreement is still being negotiated), but for now, it looks very much as if the combination of the luxury tax penalty and the revenue sharing incentive has a chance to create a de facto salary cap in the sport.

The gap between teams appears to be narrowing, and for the first time since the implementation of the luxury tax, it appears that by 2014, the Yankees may no longer be in a class of their own when it comes to spending. That, in turn, creates the possibility for more payroll parity than the game has seen in years.

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