Why the Phillies might not be able to avoid paying baseball’s luxury tax this season

At the outset of spring training, before everything changed, two words dominated the conversation about the Phillies: luxury tax.

Five months later, those words are about to reenter the discourse.

To recap: After the offseason additions of free-agent pitcher Zack Wheeler and shortstop Didi Gregorius, the Phillies’ projected payroll for luxury-tax purposes was nearly $205.2 million, according to salary data compiled by Spotrac.com. In addition to being a club record, it was also only about $2.8 million short of the $208 million threshold for triggering a 20% surcharge on all overages.

It turns out the Phillies won't actually spend anywhere near that much money. Not in this pandemic-shortened season in which players will get paid on a per-game basis. If Major League Baseball is able to complete the 60-game schedule, players will make 37% of their salaries. Bryce Harper's earnings would go from $27,538,462 to $10,199,430; J.T. Realmuto's from $10 million to $3,703,704; Rhys Hoskins' from $605,000 to $224,074, and so on.

But the luxury tax will still be calculated on a full-season scale. The $208 million bar won't rise either, even though opening-day rosters will be expanded from 26 players to 30 and remain at that capacity for two weeks until being reduced to 28 players and eventually to 26.

There's a chance, then, perhaps even a likelihood, that the Phillies will be over $208 million on opening night, which isn't any big deal by itself. Luxury-tax bills don't come due until the end of the season.

But considering the Phillies' proximity to the threshold and the probability of needing to add players to the 40-man roster to fill the expanded roster and/or replace players who get injured or wind up missing time because of COVID-19, they may find it difficult to get back under $208 million once they exceed it.

The Phillies have never crossed into tax territory since MLB and the players’ union agreed on the tax system in 1997. That doesn’t mean they’re opposed to it.

In February, general manager Matt Klentak described the Phillies’ view of the luxury tax this way: “I don’t think it’s a barrier. I think it’s a guide.” A few months before that, owner John Middleton said he would be willing to pay the tax if the Phillies have a chance of winning more than the National League’s second wild card.

In this crazy season, who knows?

A first round of decisions with luxury-tax implications comes Saturday.

The Phillies must inform veteran infielders Neil Walker and Logan Forsythe and reliever Francisco Liriano if they will make the opening-day roster or offer retention bonuses to keep them in the organization with the players who will be working out at triple-A Lehigh Valley. If they don’t accept the retention bonus, they could choose to opt out of the minor-league contracts that they signed last winter.

Other players with opt-outs (but not retention bonuses) include infielders Josh Harrison, Phil Gosselin, and Ronald Torreyes and relievers Anthony Swarzak and Blake Parker.

Putting any of them on the opening-day roster would require adding them to the 40-man roster, which has one vacancy. Other spots could open up if relievers Tommy Hunter and Ranger Suarez and any other players begin the season on the COVID-19 injured list. (Players with that designation don’t count against the 40-man limit.)

But for the Phillies, there are luxury-tax factors at play here, too. Liriano and Swarzak, for instance, would have made $1.5 million over a full season in the majors. Carrying both of them in the opening-day bullpen could push the Phillies over $208 million, and that’s before adding Walker, Forsythe, or anyone else.

The Phillies are hopeful of retaining as many of those players as possible. Depth is always important but never more than in this condensed season with the risk of COVID-19 infections and exposures.

Walker, for one, said in March that he has no interest in playing in triple A after spending most of the last 11 years in the big leagues. It’s unclear whether he still feels that way. After all, “going to the minors” this year won’t involve bus travel or other inconveniences. It requires only camping out in Allentown and staying ready for when the Phillies need reinforcements.

But sticking around on the “B team” still means risking exposure to COVID-19 and, in some cases, being separated from family for minor-league pay. It’s not a sacrifice that every non-roster player will be willing to make.

Barring injuries or illness, 21 roster spots seem to be locked up: pitchers Aaron Nola, Wheeler, Jake Arrieta, Zach Eflin, Vince Velasquez, Nick Pivetta, Hector Neris, Jose Alvarez, Adam Morgan, and Deolis Guerra; catchers J.T. Realmuto and Andrew Knapp; infielders Rhys Hoskins, Scott Kingery, Gregorius, and Jean Segura; outfielders Bryce Harper, Andrew McCutchen, Adam Haseley, Roman Quinn, and Jay Bruce.

Pitchers Cole Irvin, Reggie McClain, and Edgar Garcia are on the 40-man roster and also likely have spots.

But that leaves six more openings, likely three pitchers and three position players.

The Phillies could opt for lower-salaried players such as Gosselin and outfielder Nick Williams, or start the service-time clocks on prospects such as lefty Damon Jones, touted right-hander Spencer Howard, and third baseman Alec Bohm.

Or they could keep enough of the veteran players (Liriano, Swarzak, Walker, Forsythe, Harrison, etc.) to nudge the luxury-tax payroll beyond $208 million.

Ultimately, the latter consequence might be unavoidable no matter what the Phillies choose to do.