The San Diego Padres Borrowed $50 Million And Now Face Tough Questions

The San Diego Padres were supposed to still be playing baseball right now—at least that was the plan. The roster was built to win the World Series, but finished an underwhelming 82-80 and missed the playoffs instead. Now they must reconfigure the team while cutting payroll.

According to Evan Drellich, Dennis Lin, and Ken Rosenthal of The Athletic, the team took out a $50 million loan in September to meet payroll obligations. This is a somewhat common practice in MLB, and the team had sufficient credit to obtain the loan after all, so it’s not concerning in a vacuum. However, it reinforces the report by Kevin Acee of the San Diego Times-Union in September that they intend to cut payroll by roughly that same amount.

Padres Payroll And Finances

As per Cot’s Contracts, the Padres’ Opening Day payroll was just under $249 million— the third-highest in MLB behind the New York Mets ($331 million) and New York Yankees ($278 million). Their year-end payroll isn’t yet known, but Acee reported it being around $253 million. This is a 243% increase from the club’s $104 million payroll at the end of the 2019 season.

The estimated $253 million is the sum of the checks they had to write to their players, but for competitive balance tax (CBT) purposes, their payroll was over $296 million. Those figures differ for a few reasons, primarily because players on long-term contracts have a CBT salary equal to the average annual value of their contracts. For example, Fernando Tatis Jr. received $6.9 million this season, but his CBT salary was $24.2 million. Manny Machado took home $21.1 million, but the Padres were assessed $31.8 million for him for CBT purposes.

2023 was the third consecutive year in which the Padres were over the CBT threshold, which was $233 million on the bottom rung. As a third-time payor, they will pay a 50% tax on each dollar from $233-253 million, a 62.5% tax on each dollar from $253-273 million, a 95% tax on each dollar above $273 million, and a 110% tax on each dollar above $293 million. All told, the club will owe an estimated $44 million in CBT fees.

Prior to the 2023 season, Forbes gave the Padres a valuation of $1.75 billion. This was an 11% increase over their 2022 value despite an operating loss of $53.2 million—third-worst in MLB. That operating loss figure is right in the ballpark of the amount the club borrowed at the end of the season as well as how much they intend to reduce payroll.

Roster Decisions

As Bernie Pleskoff described a few weeks ago at Forbes, the Padres have some difficult choices to make this offseason to achieve their payroll goals while improving their win-loss record.

San Diego has eight players on guaranteed contracts next season, which add up to $130.5 million in commitments including buyouts of players with options. An additional contract is as good as guaranteed—Matt Carpenter has a $5.5 million player option, which is far more than he is likely to receive on the open market.

Another major expense are their six arbitration-eligible players, headlined by Juan Soto. The star outfielder earned $23 million in 2023 and will almost certainly break the record for an arbitration-eligible salary in 2024. MLB Trade Rumors projects him to earn $33 million and the six players to receive $50.65 million altogether.

Between their guaranteed contracts and arbitration obligations, the club is already approaching $187 million. They also must pay for pre-arbitration players to fill out the roster, which could add up to another $6-10 million depending on what moves they make this winter.

As is, the team is right around the $200 million mark, but they stand to lose between nine and 13 players to free agency. Some of them are important contributors. Blake Snell is the presumptive favorite to win the Cy Young Award. Josh Hader is perennially one of the top relievers in the sport. Seth Lugo has a player option he will surely decline, while Michael Wacha and Nick Martinez have mutual options with the club.

Those five pitchers compiled 14.0 WAR (Baseball-Reference version) and threw 627 1/3 innings in 2023. If they all walk away, it will be impossible for the Padres to replace them with similar quality pitchers just with pre-arbitration players from the minors.

Therein lies the problem. In baseball, a team can improve its roster or it can slash its payroll—but doing both at the same time is tantamount to magic. Soto is a widely-speculated trade candidate. Clearing his salary off the books a year before he reaches free agency would give them flexibility to bolster their pitching staff. They can aim to receive players in return who would achieve the same ends. However, he led MLB with 132 walks last year and blasted 35 home runs with a .410 on-base percentage. Trading him away substantially weakens the lineup.

How do the Padres balance a 20% payroll reduction with a need to improve upon their 82-80 win-loss record and reach the postseason? That’s the question general manager A.J. Preller must answer over the coming months.