Ilitch willing to take tax hit for Upton's big bat

Lynn Henning
The Detroit News

Mike Ilitch’s drive to bring a baseball championship to Detroit has been well-documented and well-financed, particularly since the Tigers owner began investing in celebrity free agents with the 2004 signing of Pudge Rodriguez.

Justin Upton's reported $22 million salary in 2016 could push the Tigers' payroll beyond the $189 million threshold imposed by Major League Baseball and result in a penalty of upwards of $3 million.

The latest billboard player to seize wealth, and perhaps a playoff run, with the Tigers is outfielder Justin Upton, who Wednesday is expected to be introduced at Comerica Park after agreeing to a six-year, $132 million contract.

The contract is significant and not only because Upton is regarded as the high-performance left-fielder Ilitch and the Tigers front office preferred for manager Brad Ausmus’ lineup.

Upton’s salary in 2016 is $22 million. The Tigers privately acknowledge Upton’s payday has taken them above the $189 million threshold allowed by Commissioner Rob Manfred’s office before a luxury tax for excess spending is imposed.

While various salaries and costs are still being settled, the Tigers are known to be appreciably above $200 million for 2016, and could approach something closer to $210 million when their payroll is finalized.

That cues Manfred’s tax man to assess the Tigers with a 17.5-percent penalty for 2016 — something upwards of $3 million, perhaps, once the ink has dried.

The current contract between players and owners expires after 2016, and new figures or structure could be introduced beginning in 2017. But, as presently arranged, should the Tigers remain above the luxury tax in 2017, the penalty climbs to 30 percent of above-ceiling dollars, and then to 40 and 50 percent in each of the following two years.

That, at least for now, is something to think about when the team is not slated to see big contracts expire at the end of ’16. Not that it overly disturbs the Tigers owner.

Ilitch has always understood the tax and its consequences. In fact, the Tigers were once salary-limit violators, in 2008, when they were fined $1.3 million. They are only one of six teams through the years to have been hit with luxury-tax penalties. They will be socked again this year, although they aren’t in the class of regular violators (the Yankees), frequent miscreants (Red Sox), or occasional scofflaws (Dodgers). The Angels and Giants, like the Tigers, have been nabbed only once ahead of 2016.

McCosky: Why the Tigers chose Upton over Cespedes

That he is slipping past the chalk lines again in 2016 is part of doing business, the Tigers owner appears to be saying. He acknowledged as much in November after the Tigers had signed starting pitcher Jordan Zimmermann to a five-year, $110-million free-agent package.

“Well, I’m supposed to be a good boy and not go over it,” Ilitch said, speaking of the payroll barrier during Zimmermann’s introduction. “But, again, if I’m gonna get certain players that can help us a lot, I’m going to go over it.”

Ilitch caught himself, and said, as a media audience snickered: “Oops, I shouldn’t have said that.”

The owner added, in something of a foreshadowing of the Upton deal:

“I don’t care about the money. I want the best players.”

In contrast to a 2015 season that ended the Tigers four-year playoff run and saw them spill into last place in the American League Central, Ilitch, six months from 87, wants especially a shot at baseball’s championship.

In that sense, it probably should have been no surprise when the owner, a month or so after the Zimmermann signing, began hinting to his front office that perhaps the Tigers should take a swing at one of the blue-chip outfielders still sitting on the free-agent shelf.

Alex Gordon was there. So, too, was a man who played one-half of the 2015 season in Detroit, the splendidly talented Yoenis Cespedes.

And then there was Upton, 28, with impressive numbers and some prime years ahead of him.

Ilitch and general manager Al Avila, in concert with chief negotiator John Westhoff, went to work on bringing another star to Comerica Park’s stable.

It turned out to be Upton. He was about to break the Tigers’ bank, which at least to a certain owner, shouldn’t be interpreted as anything damaging.

How big-league payroll and luxury tax are tallied

The limit for big-league clubs and their 2016 payrolls is $189 million per team. Any figure over $189 million is taxed, during the first year, at 17.5 percent of the excess, meaning the Tigers are likely to pay upwards of $3 million for a payroll that in 2016 could finish somewhere north of $205 million.

Should the luxury-tax figure be exceeded in immediate years following the first triggering, the tax climbs each season to 30, 40, and 50 percent of whatever amount surpasses the salary ceiling.

Among the components that determine a big-league team’s annual payroll:

*Salaries of all players on the 40-man roster.

*Salaries for any players not on the 40-man roster who might be on the disabled list.

*Salaries of any players who are part of 40-man roster options.

*Award bonuses

*Salaries for players called to the big leagues when rosters expand during September.

*Money paid to honor contract obligations for players no longer with the team (Example: Prince Fielder, $6 million to the Rangers each year from 2016-2020).

*Option buyouts (Example: Joe Nathan, $1 million in 2016).

*“Benefits” as in pension-related pay-ins.

*“Extended benefits” – funding for medical costs, spring training costs, etc., which are extensive.

Average annual value

Players with long-term contracts commonly have numbers that change during the course of their agreement. For annual payroll purposes — and determining, for example, if the luxury tax has been triggered — a player’s salary is computed as an average of the final figure. The term is: average annual value (AAV).

*Some examples from the 2016 Tigers payroll:

*Miguel Cabrera $28M 2016, $32M AAV

*Justin Verlander $28M, $25.6M

*Jordan Zimmermann $18M, $22M

*Justin Upton $22M, $22M