Major League Baseball and the MLB Players Association have agreed to a significant change to the collective bargaining agreement that will redirect some money collected through the competitive balance tax (CBT) to teams losing local television revenue, reports The Athletic. The arrangement is in place for one year, and the union believes it will increase spending on players.
"We believe this agreement should positively affect the player market by softening the impact of revenue declines, by increasing the number of clubs who have monies to spend, and by undermining the ability of clubs to weaponize recent developments in RSN markets," the MLBPA wrote in a memo to players (via The Athletic).
According to the Associated Press, nine teams cut payroll this past offseason, with uncertainty regarding local television revenue a frequently cited reason. Diamond Sports Group, which operates the Bally Sports regional networks, is going through bankruptcy proceedings. Twelve teams are still broadcast on Bally Sports networks, down from 14 at the start of 2023.
Projections put this year's CBT revenue in the $150 million range and, under the new agreement, half will be distributed to teams that lose local television revenue. Those teams will receive whichever is lower: $15 million or the amount of revenue lost. That money will be distributed at the discretion of commissioner Rob Manfred.
Here is what you need to know about the CBA adjustment and the new CBT rules:
Which teams could receive CBT money?
Within the last 15 months or so, the Arizona Diamondbacks, Colorado Rockies, and San Diego Padres were dropped by their local network and had their broadcasts taken over by MLB. The Padres and D-backs were with Bally Sports, the Rockies with AT&T SportsNet. MLB guaranteed those teams at least 80% of the revenue they were set to receive through their original contract. It stands to reason those three teams are in line to receive CBT money, though, to be clear, that is only my speculation.
The Atlanta Braves, Cincinnati Reds, Cleveland Guardians, Detroit Tigers, Kansas City Royals, Los Angeles Angels, Miami Marlins, Milwaukee Brewers, Minnesota Twins, St. Louis Cardinals, Tampa Bay Rays, and Texas Rangers are the remaining 12 teams on Bally Sports, though not all reduced payroll this past offseason or had their television deals altered. The Seattle Mariners, an AT&T SportsNet team, also operated with limited financial flexibility over the winter. These teams could also be in line to receive CBT money. Again, that is only my speculation.
Which teams will pay CBT?
The CBT threshold is $237 million this season and, according to FanGraphs, a whopping nine teams are over the threshold. Last year a record eight teams paid CBT. Here are the nine teams over the threshold this season and their CBT payrolls as they stand today:
- New York Mets: $340 million
- Los Angeles Dodgers: $326 million
- New York Yankees: $313 million
- Atlanta Braves: $273 million
- Philadelphia Phillies: $261 million
- Houston Astros: $256 million
- San Francisco Giants: $253 million
- Texas Rangers: $249 million
- Toronto Blue Jays: $247 million
The CBT penalties escalate. A team that did not pay CBT last year, like the Astros, pays a 20% tax on the first $20 million over the $237 million threshold. The next $20 million is taxed at 32%, the next $20 million after that is taxed at 62.5%, and then everything after that is taxed at 80%. A team paying CBT for the third straight year, like the Mets, has the highest tax rates: 50%, 62%, 95%, then 110%. The fourth CBT tier is the so-called "Steve Cohen tax."
The MLBPA projects $150 million in CBT payments this year, down from a record-smashing $210 million last year. Prior to last season, the CBT record was $76 million in 2022. Only half that projected $150 million will be distributed to teams losing local television revenue. Essentially, the teams with the highest payrolls in the sport will help subsidize teams losing TV money.
It should be noted payroll for CBT purposes is calculated using the average annual value of contracts, not the player's actual salary. For example, a player on a two-year, $20 million contract that pays him $8 million in 2024 and $12 million in 2025 counts as $10 million in both years for CBT purposes.
What happens to CBT money?
The rules regarding the use of CBT money have changed over the years. Prior to the current CBA, a large portion of CBT money was used to fund player pensions and benefits, and the rest was distributed equally to non-CBT paying teams. The union did not like that because it gave teams incentive to keep payroll under the CBT threshold.
Here's what the current CBA said about the use of CBT money before the change that directs half to teams losing local television revenue:
- First $3.5 million is used to fund player benefits.
- 50% of the remainder is used to fund player pensions.
- The rest is distributed to teams that do not pay CBT and meet certain local revenue growth criteria.
For this year, half the CBT money collected will go to teams losing local revenue revenue. It's unclear what happens to the other half, though it seems likely a chunk of it will still be used to fund player benefits and pensions.
