“Baseball–Luxury Tax-Salary Cap”
The Dodgers, Yankees, Red Sox continue to spend enormous amounts of money on payrolls.
The Padres became a big time spender this year, which might be a one-off.
In Pittsburgh, Tampa, Oakland, Baltimore, they don’t spend and many of these markets are continued losers.
Baseball has become a 10B-business. The star players are making 30M per year and more.
And yet the owners want to put a lid on spending, the union wants a world without a salary cap or even the spending tax..
We have the luxury tax, in which the free spenders have to pay a tax when they go over the 210M-tax threshold. But we don’t have a requirement that the smaller market teams have a floor to spending, an amount they have to spend on payroll.
MLB has proposed to the union, changing the luxury tax rules, and mandating small market teams, which get revenue sharing, have to spend to a bottom line. Of course the union says that change in the tax would limit big spenders. But they do not talk about the small market teams would have to spend upwards of 50-to-60M each to reach the floor spending limit.
As of Monday…7-MLB teams spent under the 100M limit this season. Yes the Dodgers spent 261, but Tampa was at 47M, winning with young players.
The “Athletic” details the offer made by owners and the union response, and what it might mean. Here’s what the Baseball Economics table looks like:
In a face-to-face collective bargaining meeting in Denver on Monday, Major League Baseball made its first proposal covering core economics to the Players Association. The plan included a new tax on team spending, one that would both effectively lower the first luxury-tax threshold in the sport to $180 million, and charge teams who exceed that first mark a higher percentage than they pay today. One trade-off, people briefed on the league’s proposal said, would be a salary minimum of $100 million in the sport.
Money collected from teams paying tax would fund certain club payrolls to the minimum, but details about the mechanism are unclear, including what penalties teams might incur if they do not reach $100 million, or what year the minimum would take effect.
The current tax system includes three spending tiers, the first of which is $210 million. Today, a team that goes over that amount pays a tax of at least 20 percent. In the new system proposed by MLB, the three tiers would still exist, and the new tax would be introduced below them — making for what would function as a four-tier system. Taxation would begin at 25 percent for the teams above $180 million, and the rates would climb from there.
MLB and the MLBPA declined comment. Per Cot’s Contracts, seven teams began 2021 with payrolls projected to be under $100 million, as calculated for luxury tax purposes.
The proposal included many other components which are are not currently known, leaving an incomplete picture. But player reaction to the luxury-tax element was not expected to be positive. Even in the absence of additional details of the proposal, the luxury tax is no small matter, and the Players Association almost certainly wants to see luxury-tax thresholds raised, not lowered, to incentivize spending. Players are already leery that the teams treat the first tier of the luxury-tax system as a salary cap, or a soft salary cap. The Players Association long has resisted a cap, and MLB remains the only major sports league in North America without one.
The commissioner’s office might be marketing the deal as a way to force the bottom teams to spend, and help prevent tanking. But a team that wants to keep its payroll down could still give an above-market deal to a player just to satisfy the minimum, without meaningfully improving the team.
In some areas that MLB proposed changes, the league also offered an alternative to the union to leave the status quo in place, including with the luxury tax. But the players have publicly made clear they’re unhappy with the present deal. In the current collective bargaining agreement, which began in 2017 and runs through this season, the luxury tax — or competitive balance tax, as it is formally called — was not significantly raised from the prior deal. Some industry sources believe that it is crucial for players to negotiate higher thresholds this go-around.
Here’s what the first tier has looked like for the last 10 years, spanning the last two deals:
2012: $178 million
2013: $178 million
2014: $189 million
2015: $189 million
2016 $189 million
2017: $195 million
2018: $197 million
2019: $206 million
2020: $208 million
2021: $210 million
The league’s first economics proposal comes well after the union made its first, back in May, shortly after bargaining began in April. One person briefed on the union’s proposal said it included a mechanism to get more players to arbitration after fewer than three years of service time, a plan the owners likely would oppose. But there are many other components to that offer, as well, that are unknown.
The sides have been in regular discussion since bargaining began, making proposals on different facets of the game without going deeply into core economics. The league’s economics proposal was presented as a package deal. The MLBPA might like some components and not others, but the elements are not being offered independently of one another.
Monday was the first time MLB and the MLBPA have met face to face during this round of negotiations. Historically, collective bargaining meetings have been held in person, and in different major league cities. COVID-19 precautions relegated the bargaining this summer to video calls, until now.
The current CBA is set to expire on Dec. 1. If no deal is reached, the owners could institute a lockout, interrupting the offseason. But a lockout wouldn’t necessarily interfere with spring training or the regular season in 2022, if a deal can be reached quickly enough.