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A Quick Payroll Update Following Salary Settlements

Championship Series - Texas Rangers v Houston Astros - Game Six Photo by Carmen Mandato/Getty Images

Besides Mauricio Dubón, the Astros have avoided a hearing with all its remaining arbitration-eligible players this offseason. A “file-and-trial club” under previous general managers Jeff Luhnow and James Click, it remains unclear whether Dana Brown will do the same with Dubón this year. The two sides are still allowed to reach an agreement following last week’s exchange deadline, but typically a file-and-trial club uses that same date as a hard deadline in settlement negotiations. If so, then it is up to an arbitrator to determine a player’s salary for the upcoming season.

Only $500,000 separates the Astros’ offer — $3 million — from Dubón’s filing of $3.5 million. Not an insignificant sum of money, without a doubt, but in the context of a baseball operation, $500,000 isn’t much. Of course, it isn’t only about this year as a compounding factor is involved. Dubón is arbitration-eligible for the first time this offseason. If his salary for 2024 is higher, then he stands to make more in future rounds of arbitration. Kyle Tucker, for example, is now scheduled to earn $12 million in 2024 based on the agreement he reached with the club late last week. Last offseason, Tucker was asking for $7.5 million and the Astros countered with $5 million, taking the case to arbitration. The arbitrator ultimately sided with Houston. It is quite possible that if Tucker made $7.5 million as he argued for in 2023, he would stand to make even more than $12 million in 2024.

But the compounding factor isn’t the only variable at play. There is also the 2024 player payroll component, especially for a club like the Astros already pushing up against, or even slightly exceeding, the first tax threshold of $237 million. As these numbers aren’t finalized until the conclusion of the league year for 2024, the overall CBT figures are going to vary based on the source information. There are three sites — Cot’s Baseball Contracts, FanGraphs, and Spotrac — that I usually cross-reference for player payroll figures and would recommend. These values will vary as each site has differences in Average Annual Value (AAV), pre-arbitration figures, money received from other clubs to offset salaries, and estimated salaries for 40-man players in the minors.

Cot’s Baseball Contracts
$240,323,810

FanGraphs (RosterResource)
$236,321,032

Spotrac
$235,308,809

Of the three sites, Cot’s currently has the highest payroll estimate for the Astros in 2024, with the club already exceeding the first tax threshold by roughly $3.323 million. Accounting for the first-time payor rate at 20%, then this overage would generate a projected $664,762 tax hit to the club. But there are variances to account for for each site. For example, it appears that the difference between Cot’s and FanGraphs is primarily due to the calculation of Justin Verlander’s AAV and money contributed by the Mets. In this case, Cot’s and Spotrac show Verlander’s AAV as $43.333 million before outside of contributions. With those contributions included ($25 million), Verlander’s AAV that counts towards the Astros' total is roughly $18.333 million. FanGraphs, however, calculated a $40.555 million AAV, with New York contributing $26.250 million. So, yes, these figures will vary based on the source, but the three sites do provide at least a general range of what to expect.

For the Astros, it isn’t the financial penalty that ought to weigh heavily on its ownership and front office. Again, Cot’s projected penalty is slightly below the major league minimum of $740,000. But if a club in the Astros’ financial position exceeds any tax threshold, then it is also subject to penalties in draft compensation for players attached to qualifying offers. In this case, this development could apply to draft pick compensation for Jose Altuve and Alex Bregman, who are both scheduled to enter free agency next offseason. Typically, a club would receive a draft pick after the first round and before the third round, with final placement contingent on revenue sharing revenue. But for a club that exceeds any of the tax thresholds, those compensation picks will not occur until after the fourth round of the draft. Houston has possibly two free agents who would net the organization two additional high draft picks, as soon as the conclusion of the first round, if player payroll for tax purposes doesn’t exceed the initial $237 million threshold.

Ultimately, the Astros will have a decision to make in roughly the next six months whether to exceed or remain below the first tax threshold. Along with the decrease in income from RSN fees, the possibility of receiving less in draft pick compensation if Altuve and/or Bregman leave next offseason has prevented the organization from spending more this winter. Of course, this rationale won’t prevent some corners of the fanbase from claiming that Crane is cheap, but somehow still runs a top-six payroll in the sport. However, I think criticism is warranted for how the existing has been spent — hello, last offseason — when Rafael Montero and José Abreu were signed to multi-year contracts. A proper general manager in charge of the operation likely prevents such a conundrum from occurring now. But the lack of spending this offseason isn’t necessarily due to being cheap; instead, it is due to adhering to a soft tax line and not wanting to risk reduced draft pick compensation. In turn, Brown is attempting to maintain flexibility to the tune of remaining within a few million in either direction of the first threshold. By doing such, it provides options for a club that may decide to go for it one more time at the deadline or shed salary if the season goes sideways in a hurry.