New York Yankees Rumors: Luxury Tax May Thwart Gerrit Cole Pursuit

The New York Yankees are one of the few teams in Major League Baseball who could realistically sign Gerrit Cole. There are other suitors, for example, the Los Angeles Dodgers or Houston Astros, but it is the Bombers who have the biggest reputation of throwing their financial weight around.

However, due to the luxury tax implications, the Yankees may not be able to sign their man this winter. They are already dangerously close to the first competitive tax balance threshold of $208 million and signing Cole would mean committing around $35 million per season to the flame-thrower.

Forget the entry-level luxury tax, adding that much to an already heavy payroll would put the Yankees above the highest threshold, incurring the heaviest penalties as a result. Plus, Cole is known to want several years on his next contract, meaning the fiscal repercussions would affect the club for years down the line.

All of this throws doubt over the Bombers' pursuit of Cole. According to Sportrac, the Yankees currently have $204,385,714 committed to their 2020 payroll, leaving just $3,614,286 to sign new players without incurring a penalty.

As per MLB’s competitive tax balance rules, a team exceeding this threshold must pay a 20 percent tax on all overages during the first season in which they breach the rule. A team exceeding the limit for two seasons will see the tax rise to 30 percent before the penalty becomes 50 percent in the third season as well as any additional years.

Additionally, any team exceeding the luxury tax by $20 million will also be subject to a 12 percent surtax. Those who exceed it by $40 million are taxed at a rate of 42.5 percent for the first season and 45 percent for each additional season.

Meanwhile, clubs exceeding the luxury tax by $40 million will also suffer in the rule four draft. In that case, the first draft pick for that team would be moved back by ten places unless it is a top-six pick, in which case the second pick would move back by ten spots.

So, signing Gerrit Cole would clearly cost the Yankees far more than the salary he would earn. That would be true for a few seasons even after 2020 and would realistically affect the team’s future plans for free agent signings and contract negotiations.

Would that be worthwhile for the league’s richest club? Perhaps not right now, at least until some payroll is freed up with some trades. J.A. Happ at 37 years old and earning $17 million would be an excellent trade candidate.

He will likely not help the team beyond 2020 and is among the team’s highest earners. The real issue here would be that Happ’s contract is probably worth more than the player himself, so the Yankees would probably have to eat some salary to move him.

This tight budget also helps to explain the Jacoby Ellsbury situation. The outfielder, who hasn’t played since 2017, was released by the club and claims he is owed $26 million for 2020, his salary plus a buyout expense.

However, the team claims that Ellsbury’s doctor gave him prohibited performance-enhancing drugs thus negating their obligation to pay Ellsbury the $26 million. Should the Yankees win this battle, that would go a very long way to freeing enough money to sign Cole.

Just how all this will shake out is anyone’s guess. The Yankees will certainly try to sign Gerrit Cole but their luxury tax issues may make that impossible.