The Major League Baseball offseason is, for the second consecutive year, incredibly slow with the owners increasingly beating the players at the negotiating table. We keep hearing about, which now seems to be operating as a salary cap. Again, the owners are winning as the percentage of revenue dedicated to player salary will very likely drop for the .
Some might wonder about the penalties of exceeding the luxury tax threshold and I'm here to point out that -- unless a team is over it three straight years -- it's not that much. It's really not.
For this season, the threshold is $206 million. Here's the rule:
A club exceeding the Competitive Balance Tax threshold for the first time must pay a 20 percent tax on all overages. A club exceeding the threshold for a second consecutive season will see that figure rise to 30 percent, and three or more straight seasons of exceeding the threshold comes with a 50 percent luxury tax. If a club dips below the luxury tax threshold for a season, the penalty level is reset. So, a club that exceeds the threshold for two straight seasons but then drops below that level would be back at 20 percent the next time it exceeds the threshold.
With this in mind, let's say a club decides to spend $216 million on payroll in 2019. That's $10 million over the threshold, meaning the tax is $2 million. Given how much money in which Major League Baseball is swimming right now, that's a drop in the bucket. If your favorite team is avoiding signing Bryce Harper or Manny Machado because of this, you should be off-the-charts angry.
Now, it's much more complicated than that, of course. If a team is over the threshold two straight years, the tax is 30 percent. Still! That only adds $1 million -- to $3 million in taxes -- in the above example of running a $216 million payroll instead of $206 million.
If a team is over the threshold three or more years in a row, the tax goes up to 50 percent. That sounds really steep, but, again, the tax on a $216 million payroll would be $5 million. Left-handed reliever Justin Wilson is making $5 million in 2019. That should illustrate just how easily MLB teams -- especially a relatively cheap one like the Mets -- can afford $5 million.
Now, there are extra taxes for spending more. Teams that go at least $20 million over the threshold get taxed in the $20M-$40M overage range by an addition 12 percent (so 32 percent total). It's marginal, like our taxes, so it would go like this for a $236 million payroll in its first year over the threshold:
- First $206 million: Zero tax
- $206M-$226M: $4 million
- $226M-$236M: $3.2 million
That's $7.2 million in taxes for going $30 million over the threshold. That's less money than the Twins are going to pay Jonathan Schoop this season after he hit .233/.266/.416 with 19 walks and 115 strikeouts in 501 plate appearances last season.
Last season, only the Red Sox and Nationals owed luxury tax ( ). No other teams would be hit with the extra fees this season, meaning the Cubs, Dodgers, Yankees and other high-profile teams could go $30 million over the threshold and still owe a meager $7.2 million in taxes. Making a deep playoff run makes a team a helluva lot more money than $7 million. And yet, almost every high-profile team is refusing to go over the threshold at this point for the 2019 season.
This isn't to say the owners should be recklessly throwing money around and paying a 50 percent tax on the overages required for a $300 million payroll year-in, year-out and, yes, it's a lot easier to spend other people's money. At the end of the day, however, MLB is posting record revenues on an annual basis and player salary is decreasing as a percentage of it. The owners won with this CBA and are continuing to win over the players.
When we look at Harper and Machado, it's not like they can even be compared to previous free agents who signed 10-year deals. They hit free agency at age 26, not 30. The back-end of a 10-year deal to Harper or Machado is likely still going to a very productive player.
Instead, most high-profile teams are more worried about saving $7 million than putting together the best roster possible.
This is bad news for the fans, and you should be upset at this point, because not only is it likely your favorite team is operating on a tighter budget, but it's also likely there will be a work stoppage at some point in the coming years if this keeps up.