The Pirates enter 2018 with a significantly lower payroll than last season.
Photo by Matt Freed/Pittsburgh Post-Gazette
Payroll ?it ?s a touchy subject among many fans and media members that follow the Pittsburgh Pirates. Unfortunately, it ?s also something that ?s often hard to understand and even harder to pin down. Every outlet has their own calculation and they all seem to be different. Some are lower than others and some are higher, which even leads some fans to question higher amounts simply because they want to grouse about cheapness (something actually seen on Twitter). These misunderstandings often lead many fans to simply bemoan how much ?or how little ?the Pirates are spending on payroll when they ?re not even sure themselves.
Well, that ?s not what this is. This is not a critique, positive or negative, on the Pirates Opening Day payroll. This is simply an examination of the CBA, how teams calculate payroll based on the details it outlines, and how those details impact the final calculations of the Pirates.
While I believe more fans should have a better understanding of the financial side of sports, I ?m aware that many would rather read the ?Terms and Conditions ? for their iTunes account before they would read the MLB CBA; luckily, I actually enjoy it.
The following are the rules pertaining to calculating payroll concerning the Competitive Balance Tax (CBT) ?as this is the number front offices and the commissioner ?s office are actually concerned about ?amounts for the Pirates Opening Day Payroll following these rules, and examples from 2017 and 2018, when pertinent, to help clear up any CBA jargon related confusion.
So without further ado ?
Determination of Actual Club Payroll
According to the 2017-21 CBA, ?Actual Club Payroll ? is the total of a 1/30th share of Player Benefit Costs, plus the sum of yearly salaries, plus any other amount includible in or deductible from Actual Club Payroll from December 2nd of one year to December 1st of the next. While all three come into play, the bulk of all transactions fall under ?the sum of yearly salaries ? and are broken out in many different ways.
Benefits: This is often neglected by most outlets, but included in the final payroll are costs such as workers ? compensation premiums, unemployment compensation, and social security taxes. Also included in these costs are moving and travel expenses, medical costs, funding for the College Scholarship and Continuing Education Plan, among others. As of 2017, the CBA stipulates these costs as $219,300,000 split across all 30 teams ?$7,310,000 per team ?with built in increases every year. However, contributions to the Major League Baseball Players Benefit Plan are not included in this amount. Since the increase for 2018 is not certain, as well as the contribution to the Benefit Plan is not exact, no total will be included for benefits. However, keep these costs in mind next time a payroll number is cited, as it ?s probably not included and it ?s a significant amount ?more than likely upwards of $10 million.
Major League Salary: This is fairly straight forward; this is any salary paid to a player who spent time on the active 25-man roster on a prorated basis over the 186 days in the 2018 schedule. As stated, this exercise is to determine the Pirates ? payroll based on the CBT calculation; however, this is the only salary section that isn ?t quite following those rules. For multi-year contracts, the Average Annual Value (AAV) is used to determine payroll for the CBT; however, this exercise is using the reported contract details broken down by year. For example, the AAV of Felipe Rivero ?s new contract is $5,500,000 per year, but for 2018 his reported salary is $2,500,000.
To start the season, the Pirates are paying major league salaries to 29 players. This exceeds the active 25-man roster due to the inclusion of two players currently on the Restricted List ?Jung Ho Kang and Nik Turley ?as well as A.J. Schugel and Nick Burdi, who will open the season on the 10 and 60-day DL, respectively. Players on the disabled list make their full major league salary.
Currently, the highest base salary for the Pirates to start the year is Francisco Cervelli at $10,500,000, ranging to 17 players making the minimum major league salary, which is $545,000 for 2018. Not all minimum players will make this exact amount though; many will agree to salaries slightly higher based on service time.
Finally, an example of pro-rated salaries: Juan Nicasio spent 151 out of 183 days on the Pirates ? roster last year, with a base contract of $3,650,000. Therefore, he counted on the Pirates ? payroll at $3,011,749 (3,650,000/183 * 151). The difference accounts for the $600,000 (or $638,251) that burned Pittsburgh to the ground late last season.
Major League Salary Total: $79,740,000 (or $82,481,667 AAV)
Minor League Salary: While it doesn ?t account for much, this is often a major difference when comparing payroll sources. While many only look at opening payroll for the 25-man roster, it ?s the 40-man roster that is analyzed come the end of the year, so it makes sense to account for these salaries at the beginning as well.
Basically, players on the 40-man roster but not the 25-man can make one of two salaries while on minor league assignment ?players signing their first ML deal will make $44,500 in 2018, while any player signing a second or subsequent ML deal will make $88,900. This salary also applies to any player signing a contract that has at least a day of major league service. As with major league service days, these salaries are pro-rated based on any stint a player might spend in the minors. The Pirates have 11 players projected to make a minor league salary at the start of the season.
This total included Jordan Milbrath until he was returned to Cleveland after clearing waivers as a Rule 5 Draft pick. He ?s worth noting as an interesting aside, as the Pirates actually do owe him some salary compensation. According to Rule 6(d) of The Official Professional Baseball Rules Book, the Pirates actually owe Milbrath the difference of what his Major League salary would have been and his minor league salary from last season. No amount is being added to this total, however, since minor league salaries aren ?t really reported. Milbrath would have made $545,000 with the Pirates this year, and the difference wouldn ?t be much lower than that, as he split time between High A and Double A last season and minor leaguers make notoriously low wages.
Minor League Salary Total: $844,700
Signing Bonuses: A player ?s signing bonus is pro-rated over the life of a contract and is not applied to any option years at the end of the contract. Also, pro-rated portions of signing bonuses transfer with a player when they are traded, so the Pirates are on the hook for $750,000 of Sean Rodriguez ? signing bonus this season, even though he originally signed his deal with the Braves.
Signing Bonus Total: $3,100,000
Signing Bonuses (or Pro-Rated Buyouts): This is a rule I didn ?t know about and thus have never seen accounted for correctly. According to Addendum A (Calculation of Player Salary) of the CBA:
The buyout associated with the first Club or Mutual Option Year shall be attributed, pro rata, over the guaranteed years of the Contract. If a Contract contains no guaranteed years, the buyout shall be attributed in full to the first year of the Contract. No portion of the buyout shall be attributed to any option year. If the Player ?s Contract is assigned to another Club, the pro-rated portion of the buyout will continue to be included in the Player ?s Salary.
What does this mean? Basically, according to the CBA, the first buyout of any option years at the end of a player ?s contract is treated as a signing bonus. As stated previously, signing bonuses are pro-rated over the life of a contract. Therefore, instead of seeing a charge for a $250,000 buyout of Chris Stewart ?s 2018 option on the payroll ?as many sources are showing ?this is truly not the case. A $125,000 pro-rated share would have been split between 2016 and 2017, and as Addendum A states, no buyout should hit in place of any option year. This also creates another interesting salary quirk, which will be touched on later.
Signing Bonuses (or Pro-rated Buyouts) Total: $1,745,833
Cash Considerations: This is money going to or from the Pirates in a trade to either acquire a player or cover a portion of an outgoing salary. Obviously, the highlights here are the portions of Andrew McCutchen ?s and Daniel Hudson ?s salaries that the Pirates are paying the Giants and Rays, respectively, from earlier trades. However, while they aren ?t as high profile ?and the amounts aren ?t often even released ?cash considerations for smaller trades also need to be factored in. For example, the Pirates included cash considerations in their trade for Josh Smoker, as well as traded considerations for Bryce Brentz.
Cash Considerations Total: $3,500,000
Credits: These are any stipulations in the CBA that will effectively lower the Pirates payroll for 2018. As most Pirates ? fans are (unfortunately) aware, players do not receive pay while on the Restricted List. Therefore, it ?s highly likely the Pirates won ?t be on the hook for any of Jung Ho Kang ?s salary for 2018. Also, Nik Turley is currently serving an 80-game suspension, which means 90 days of his salary ?or enough time to cover the 80 games ?will not hit the payroll.
Remember the quirk mentioned earlier? Well, here it is. According to Article XXIII(E)(5)(b)(ii):
if the Player ultimately does not receive the Option Buyout, then for the Contract Year covered by that option, no portion of the Buyout shall be included in any Club ?s final Actual Club Payroll. In addition, any Club whose final Actual Club Payroll in a previous Contract Year had included that Buyout (or a portion thereof) will receive a deduction (in the full amount of the Buyout included in previous Contract Years) in its final Actual Club Payroll in the Contract Year covered by that option.
Remember when contract buyouts were considered signing bonuses, thus pro-rated over the life of a deal? Well, the CBA states that if the player receives the buyout, then no-harm-no-foul; however, if the option is exercised and the buyout isn ?t paid, then a deduction can be taken by any club that had a portion of that buyout on their payroll over any previous year of the deal. This is a long way of saying the Pirates get a credit of the $1,000,000 buyout of Andrew McCutchen ?s 2018 option.
This makes sense; consider that this $1,000,000 hit the Pirates ? payroll pro-rated over the last six years. If it were included again, they would be accounting for the buyout twice. Also, if a deduction wasn ?t taken, that would be saying a buyout was in fact paid by the club, when in reality it was not.
Finally, while they are small and will probably go unreported, the Pirates received cash considerations ?or the ever popular ?Player to be Named for Gift Ngoepe, Shane Carle, and Engelb Vielma. If no player is ever sent the Pirates way, they will be able to deduct the cash received in these deals.
Total Credits: $4,326,210
Total 2018 Opening Day Payroll: $84,604,323
While this should still be considered an estimate ?no one outside of Major League Baseball can be sure of actual payroll figures, and as of this writing, the Pirates still have three open 40-man roster spots that could add to these amounts ?this should be close to an accurate Opening Day Payroll. Unfortunately, due to the intricacies of the calculations and the differences in the final numbers from other sources, there ?s no easy way to compare the Pirates Opening Day Payroll to that of other teams, which I know is what most fans want to do.
Therefore, I ?ll list the following payrolls for the Pirates using the same method used above:
2017 Opening Day Payroll: $97,960,905
2017 Ending Payroll: $100,913,373
2018 Projected Payroll before Gerrit Cole trade: $99,604,733
Let the debate begin ?at least there are valid totals to discuss.
Please feel free to leave any questions in the comments or @EthanHullihen for me. I would be more than willing to answer any questions, along with hold any interesting discussion. I ?ve put in a lot of reading, research, effort, and time into this, and would love to share with anyone who ?s interested.