This article is free for anyone to read, but please consider becoming a Patreon subscriber to allow me to keep writing posts like this one. Sign up to receive articles like this one in your inbox here.
The Padres have been, and still are, cutting payroll. It’s a bit of a cause for alarm, when paired with the news that they took out a $50 million loan back in September — and wanted an even larger one than that — but there are also reasons to believe that maybe this isn’t such a big deal after all. What we really need at this point is some clarity, and we maybe got a little bit of it over the weekend. Emphasis on maybe.
Per a report from The Athletic’s Dennis Lin, the Padres would “prefer” to get their payroll under $200 million in 2024, which would allow them to reset their luxury tax state, avoid penalties, and keep from stacking up further ones with repeated threshold crossings. However, “prefer” is not the same as “will,” and the team is apparently leaving open the possibility of crossing the threshold again, anyway:
The Padres, who are now revenue-sharing payors in one of the league’s smaller media markets, have incurred escalating penalties while exceeding the luxury tax threshold in each of the past three seasons. Their franchise-record $255 million payroll in 2023 contributed to, according to a league official, a final luxury tax figure of $291 million — which would require a tax bill of $39.15 million payable by Jan. 21. That expense was racked up during a year in which San Diego lost its television deal, failed to make the postseason, took out a $50 million loan in September despite booming attendance and mourned the recent passing of owner Peter Seidler. And, because the Padres were more than $40 million above the $233 million tax threshold, their first-round selection in the 2024 draft was moved back 10 places.
Reached Saturday, interim control owner Eric Kutsenda said the organization would not comment on payroll plans or projections. Other team officials, speaking on the condition of anonymity, have suggested the Padres could end up going slightly above the luxury tax threshold if a particularly attractive opportunity presents itself later this offseason.
The thing that throws a wrench in it all is the need to get back to complying with the league’s debt service rules. The Padres are focused on doing that, while also trying to stay competitive, which is why they traded away Juan Soto for some pieces they can use now, and are looking to reinvest that freed up money back into the rest of the roster, to fill additional holes. It’s going to be a difficult needle to thread in a reality where Shohei Ohtani is now on the Dodgers and Los Angeles is still looking to upgrade and spend, but the league can go hard on San Diego for the debt service issues if they choose to. And considering that the very public reaction from other owners and the league a year ago was to blast the Padres for spending, well. They aren’t going to get much slack here.
So, here’s where we are. The Padres probably spent above their means a little bit, but didn’t mind taking the financial hit, as they figured if they make the postseason they’ll be able to break even or even make a profit. They didn’t make the postseason, however, and then their television deal vanished, replaced by a setup where MLB would cover up to 80 percent of what they would have made. They ended up taking out a $50 million loan in September, possibly due to the timing of payments not lining up exactly with bills that were due, and then, principal owner Peter Seidler, who was very much at the center of this lack of concern for losing money, passed away. So now the Padres are left with a high payroll, MLB grumbling about how much debt they’ve piled up, and a luxury tax bill to pay, and are attempting to reset their penalties while avoiding further ones, which will help them toward settling their debt service, too. There doesn’t seem to be a fire sale planned, or anything of that nature, but instead, just a few moves to maybe better allocate resources and leave the roster from being top heavy.
The real answer to all of this might come next offseason: if the Padres do get and stay under the luxury tax threshold for 2024, and their television deal works out better than last year’s, and their debt service issue is more under control, and then they don’t go back to spending more or trying, or they tear things down even further? Well, that would tell you a lot about how much of what the organization was doing was through Seidler himself.
Given the team still is reportedly open to the idea of paying the tax yet again (although, just “slightly” going over, not like in 2023), my hunch is that they still want to compete. They still want to sell tickets, they still want fans to be engaged, they still want to try to win. Which, with three wild cards per league, is certainly possible even if the Dodgers keep spending and win the NL West, again. Their behavior will be worth a close look throughout the season, however. The Padres have needs, but they also have potential. They won’t be able to realize the latter without taking care of the former, and how they go about it, and how much money they’re willing to put toward it all, might answer all those unanswered questions about the state of their finances going forward.
Visit my Patreon to become a supporter and help me continue to write articles like this one.