How Phillies' payroll reached such high levels and penalties

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.

(How costly does Walker's $18M per year look right now?)

This is also the first year the extensions of Wheeler and Cristopher Sanchez kick in. Wheeler's annual average salary jumps from $23.6M to $42M. Sanchez goes from $755,000 to $5.6 million.

Alec Bohm's $4 million salary from 2024 will double through arbitration. Ranger Suarez will go from just over $5 million to about $9 million.

Brandon Marsh and Bryson Stott will each jump from the $770,000 range to $3-3.5 million. Edmundo Sosa will earn about $1 million more.

That's over $37M more than those same players cost the Phillies in 2024, and the only notable salaries to come off their books were $7M of Whit Merrifield, $2.2M of Jeff Hoffman and the half-season salaries of Carlos Estevez and Austin Hays.

This is why the Phillies' two biggest moves of the offseason have been one-year deals for players coming off injuries in Kepler and Romano. Every dollar matters more than usual. If you overpay Anthony Santander, for example, you're not just spending $50M more than he might be worth, you're spending about $100M more than he might be worth.

"Well, I don't want to say it's a tight payroll in the sense that from an ownership perspective, I don't think I've ever gone to John (Middleton) on anything and him say no, don't do something," president of baseball operations Dave Dombrowski said Friday.

"But you still try to keep things in perspective, and I don't know what the exact payroll is but we're over $300 million in the threshold. Everybody we sign is a major penalty at this point. You're cognizant of that. It's not so much the injury factor with the guys (we signed), we just think that Romano and Kepler are both good players. There's been other players that we've looked at this wintertime coming off injuries that we haven't been comfortable with their medicals but we felt very comfortable with both of these guys."

The Phillies do have significant money coming off the books after the 2025 season, and their three top prospects — starting pitcher Andrew Painter, shortstop Aidan Miller and centerfielder Justin Crawford — should be knocking on the door to the majors. Those will both be huge developments in the Phillies' ability to pursue big-money players. They'd trim $61.35 million with Realmuto, Schwarber, Kepler and Romano set to reach free agency, though they could also look to extend or retain multiple players from that group. It'll be hard to let go of Schwarber in particular.

"With the one year deals, we're in a situation where, as you know, we have a lot of long-term contracts," Dombrowski said. "We've got some young players coming up through the system that we're excited about and we're very close to getting that impact. So the one-year flexibility doesn't hurt. It doesn't mean that we can't keep guys in the organization beyond that."