How Phillies’ payroll reached such high levels and penalties originally appeared on NBC Sports Philadelphia
No MLB franchise comes to a sudden offseason realization that it’s capped out or hampered by financial restraints. It’s a process that is mapped out years in advance based on raises and extensions due to players, money coming off the books and holes that will require free-agent expenditures.
The Phillies knew that eventually, they’d suffer the consequences of all their splash signings as their financial penalties increase. It wasn’t a conclusion drawn by their front office this month or last, but it’s real and it’s affecting their ability to plug holes with ideal solutions.
MLB does not have a salary cap. What it has is a Competitive Balance Tax, often referred to as the luxury tax. Teams that spend below $241 million on players in 2025 will not pay any tax. The calculations are made after the season ends.
Repeat payers
Each consecutive year a team exceeds the luxury tax matters because the penalty increases for a second- and third-time payer. The first year, you’re charged 20% on all overages. That increases to 30% with two consecutive years and 50% with three or more.
The Phillies exceeded the luxury tax in 2022 for the first time and have done so each year since. Thus, they’re subject to the harshest penalties now at 50%.
Plus the surcharge
Beyond that, a team will pay an additional 12% surcharge in 2025 if it finishes with a luxury tax payroll between $261-281M.
That surcharge increases to 42.5% if a team spends between $281-301M.
And it increases to 60% if a team spends more than $301M.
An important point about luxury tax calculations is that they include more than just a player’s annual salary. It factors in the annual average salaries of every player on a team’s 40-man roster, plus about $19M for player benefits and the bonus pool for those with less than three years of service time.
As of now, the Phillies’ luxury tax payroll is approximately $299M, just shy of the most expensive threshold.
Additions now costing the Phils double
What does this all mean? It means that every player they add now essentially costs double. Max Kepler’s one-year deal is reportedly worth $10 million. But the move actually cost the Phillies $19.25 million because they were already over the $281M threshold and are thus paying an extra 92.5 cents on every dollar.
How did it get to this point? has been a popular question from fans this week.
First and foremost, the Phillies have spent a ton of money on Bryce Harper, Zack Wheeler, Aaron Nola, Trea Turner, J.T. Realmuto, Nick Castellanos, Kyle Schwarber and Taijuan Walker. The combined luxury tax figure for those eight players in 2025 is just under $203 million.
