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The New Luxury Tax Threshold Means The Top 11 Salaried Clubs Will All Be Affected In The Present + Future

The Dodgers have spent over $300 MIL in back to back years, and are the clubhouse leaders in Luxury Tax penalties paid. At a 50% penalty, the Los Angeles forked out $40 MIL in Luxury Taxes in 2016. With an estimated $193 MIL payroll - considering there are several roster holes now created by departing players, the team will need to spend around $235 MIL in 2017 total payroll. With a 50% penalty - and an additional 40$ hit for going $40 MIL over the new $195 MIL limit in 2017, I highly expect the organization will be less willing to spend 90 cents extra for every dollar spent beyond that.

The Dodgers have spent over $300 MIL on salary in back to back years, and are the clubhouse leaders in Luxury Tax penalties paid in that time frame. At a 50% penalty currently until falling under the limit for a year, the Los Angeles forked out $40 MIL in Luxury Taxes in 2016. With an estimated $193 MIL payroll already is signed and team controlled players – considering there are several roster holes now created by departing guys, the team will need to spend around $235 MIL in 2017 total payroll in order to be competitive.. With a 50% penalty – and an additional 45% hit for going $40 MIL over the new $195 MIL limit in 2017, I highly expect the organization will be less willing to spend 90 cents extra for every dollar spent beyond that.

Hunter Stokes (Chief Writer/Part Owner) 

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With the new CBA being tentatively signed yesterday through 2021 – the lower payroll teams will finally see some steeper enforcement of higher payroll squads.

With several penalties that range up to a 90% max penalty for spending over the limit, the dollars finally make sense for the MLB to curtail a team going rogue on their payroll spending.

Under the new deal, the format will jump from a team’s AAV (Average Annual Value) limit of $189 MIL to $195 MIL in 2017, $197 MIL in 2018, $206 MIL in 2019,  $208 MIL in 2020 and $210 MIL on 2021.

The penalty for a 1st year abuser went from 12.5% to 20%, The 2nd year Still remains at 30%, the 3rd season escalates from 40% previously to 50% already.  Each campaign the team is over following 3 years, the team is nailed for 50% of money spent over the limit.

Additionally, the franchise will pay a fee of 12% for spending between $20 MIL to $40 MIL over the Threshold. 

If a organization goes $40 MIL over, they are faced with a surcharge of 42%.

3rd time abusers will pay 45% for every dollar doled out past $40 MIL over.

This means a 1st time penalty would still spank a team to the tune of 60% if a club spends more than $40 MIL over the limit.

This has immediate ramifications for several clubs. The Los Angeles Dodgers and New York Yankees are at the 50% barrier for spending each dollar over the limit (until such a time they can fall under the total for one given year to reset.) Boston also would see their tax as a 3rd straight year abuser to join the Bronx Bombers and Dodgers Blue. if they exceed $195 for team payroll in 2017. the Red Sox will pay a fine of 50% for every dollar afterwards at a minimum as well. There is also a valid reason why the Tigers might be in sell mode for right now. Detroit just barely paid a few Million for their 1st time of the Luxury Tax Threshold last year. however they would pole vault to 30% of a penalty for every dollar doled out on contracts beyond $195. Brian Sabean and the Giants should thank their lucky stars that they fell under the Luxury Tax number last year - after being just a few million dollars over in 2015 to reset their roster.

This has immediate ramifications for several clubs in the MLB Hot Stove. The Los Angeles Dodgers and New York Yankees are at the 50% barrier for spending each dollar over the limit (until such a time they can fall under the total for one given year to reset.) Boston also would see their tax as a 3rd straight year abuser to join the Bronx Bombers and Dodgers Blue. if they exceed $195 for team payroll in 2017. the Red Sox will pay a fine of 50% for every dollar afterwards at a minimum as well. There is also a valid reason why the Tigers might be in sell mode for right now. Detroit just barely paid a few Million for their 1st time of the Luxury Tax Threshold last year. however they would pole vault to 30% of a penalty for every dollar doled out on contracts beyond $195.  Brian Sabean and the Giants should thank their lucky stars that they fell under the Luxury Tax number last year – after being just a few million dollars over in 2015 to reset their roster.

Coming off a World Series win – the Cubs were also fortunate to just drop under the limit  in 2016 – toting a $188 MIL Team Salary in 2016.  I still think the new rules are bad news for the Cubs.

All of a sudden that Jason Heyward contract will prevent several of their younger players have to leave the nest once they are due for Free Agency – with his albatross of a contract that will run for $23 MIL AAV for the next seasons.  At least they cashed in on a title.

Highest Projected Payrolls For 2017 As Of Now.

(Players that are already signed in 2017 + Projected Arbitration $, Does not include anything past that)

(1) Detroit Tigers – $197.3 MIL

Simply put, the Tigers are looking to deal players like j.D. Martinez and possibly Ian Kinsler – in order to free up enough money to get under the $195 MIL total. 

They are also not against trading many other superstars like Miguel Cabrera, Justin Verlander, Justin Upton and Victor Martinez.

No wonder why the Ilitch family, while wanting to win, have to be realistic about balancing the business side of baseball operations.  I highly doubt the team will be over the Luxury Tax limit by the end of the year. 

(2) LA Dodgers – $193.1 MIL

The Dodgers are still on the hook for $50 MIL towards players that are not even playing for them anymore such as Carl Crawford, Alex Guerrero, Arisbel Arruebarrena, Matt Kemp, Yasiel Sierra and Hector Olivera.

With only about $22 MIL more spent of Free Agents this year. the Dodgers would climb from a 50% penalty to 62%.  Maybe they would go that far, however don’t look for them to spend past $235 MIL on team payroll in 2017.

The outlook looks a little better for 2018. where the team is only on the hook for $22 MIL on dead cash, and they also could Buyout Andre Ethier for more relief.  I would expect this would mean the Dodgers may just pick a Starting Pitcher, a late inning Closer, and someone to replace the departing players of  Justin Turner/Howie Kendrick/Chase Utley for at least 1 – 2 spots.

The Dodgers may potentially trade for a player like Ryan Braun, (and could compensate for that by adding Yasiel Puig in the deal, plus potentially eating some money on the contract of Andre Ethier in order to deal him to another club.)

Each dollar that the Dodgers spend past $235 MIL in 2017 – will cost them 95 cents more. 

I can’t see the brass bringing in too many long term deals this winter. Their chances of resigning Kenley Jansen just got worse.

(3) Boston Red Sox – $191.7 MIL

The Boston Red Sox are probably not in on Edwin Encarnacion for a reason. They are already at around the Luxury Tax Threshold Limit already, and they man

The Boston Red Sox are probably not in on Edwin Encarnacion for a reason. They are already at around the Luxury Tax Threshold Limit already, and they might add several players to the Pitching Staff.  If they go over the limit, they will be 3rd year in a row abusers. and this would cause them to pay 50% for a penalty for each buck past $195 MIL.  I think they would rather play some of the younger talent on their squad.  They could very well stay at around their $215 MIL, like they had in 2016, but that will cost them an additional $10 MIL this year.  Look for them to go with more youth in the coming years to potentially drop under the Tax one year to reset it.

 

(4) NY Yankees – $166.7 MIL

It looks even better now that Brian Cashman started the rebuild on the fly move for the Yankees. The Bronx Bombers should just run with the majority of the younger players this year. and maybe add up to $50 MIL in player salaries. at a 50 % penalty up to the $215 MIL mark, I have to think that is around where they will end up.

It looks even better now that Brian Cashman started the rebuild on the fly move for the Yankees. The Bronx Bombers should just run with the majority of the younger players this year. and maybe add up to $50 MIL in player salaries. at a 50 % penalty up to the $215 MIL mark, I have to think that is around where they will end up.

The Yankees should definitely sign a few players this offseason. and still may be able to fall under the Luxury Tax Threshold for 2018.  If that is the case, they may be amping up to pay Bryce Harper for 2019.

Unfortunately for the Pinstripers; is that they are paying CC Sabathia $25 MIL as a back end Starter, and Alex Rodriguez $21 MIL to stay at home (His AAV hit is still $27.5 MIL though  based on the 10 YR/$275 MIL deal from 2008 – 2017). 

The club only has Masahiro Tanaka, Jacoby Ellsbury and Starlin Castro on the books for 2019, and hold a Team Option for Brett Gardner.

With this news of these new penalties, it may take them out of the Edwin Encarnacion sweepstakes.  Carlos Beltran on a 1 – 2 year deal may not be such a bad idea anymore.

I still feel the Yankees will ink Aroldis Chapman, and give every opportunity to some of their young players like Aaron Judge/Greg Bird and Tyler Austin to land roster spots for RF and 1B. 

Adding a pitcher like Rich Hill for 2 Year Deal worth $32 – $35 MIL may be a smart idea, with a 3rd year Option to chuck for them as well.

I wouldn’t put it past the Yankees to pull the trigger on an elite Starting Pitcher in the next 1 – 2 years – although they are better served to wait until at least 2018 to do that.

(6) Chicago Cubs – $160.2 MIL

The reigning champs have some flexibility to pick up some pieces for a few years here.  Even as 1st time abusers, Chicago could spend up to $215 MIL, with only $4 MIL being added to the fold for the 1st year. 

The roster is still of Entry Level contracts for their young talent.  The team does stand to lose Jake Arrieta and John Lackey beyond 2017, so they may still want to focus on the Free Agent Starting Pitchers.

With a surplus of young talent like Javier Baez and Jorge Soler to dangle as trade bait. it is not that far fetched to think they could bring back a quality Starting Pitcher such as Chris Archer to help with pitching past the next campaign.

Resigning a guy like Jake Arrieta for 2018 will be a tall order, and one the team may walk away from.

(6) SF Giants – $160.2 MIL

The Giants will probably need to allocate the majority of their funds to sign Bullpen help this winter. 

They are in on Kenley Jansen – and could dole out the price tag it will take to get the man.  The club will likely spend right up the limit.

That total doesn’t have the Matt Moore contract added to it that the club just exercised for $7 MIL in 2017, so that means they are only projected to be around $28 MIL under the Tax Limit righ now.

(7) Washington – $153.6 MIL

The good news is that the new restrictions on salaries has furthered their potential cause to sign Bryce Harper in 2019, the bad news is that he still wants north of $425 MIL over 12 years. 

The Nats are in need of a Closer and should really go out all for the next 2 seasons while Harper has 2 years left of Arbitration.  His slower offensive 2016 may actually give them more cash to spend in 2017.

(8) Baltimore – $153.4 MIL

The O;s have 10 players that are Arbitration Eligible, and have 8 other guys that are raking in $98 MIL between them. 

For a team that hasn’t spent that much money on Free Agents in the past, don’t look for them to start now. 

I would expect player signings from the bargain bins again for the Orioles.

(9) LA Angels – $152.7 MIL

The Halos are still affected by paying out an incredible amount of $26.41 MIL to Josh Hamilton this year for his Buyout. 

It has definitely hindered the teams ability to pursue strong Free Agency, and you have to wonder how many years in the next 4 of Mike Trout being signed for – that they will be competitive.

2018 will see Cameron Maybin. Yunel Escobar, Cliff Pennington all come off the books. with Huston Street and Andrew Bailey also having he ability to be bought out. 

The Angels are only slated to have $73.2 MIL on the books for 2018, but they only have Albert Pujols, Trout and Andrelton Simmons under guaranteed deals, with Street and Bailey being on Team Options. 

With a less than average Minor League depth chart of good prospects, the Angels may need to hit the open market to remain competitive, just don’t look for the 1st tier Free Agents to be inked to deals.

(19) NY Mets – $149.7 MIL

New York is not in danger of hitting the Luxury Tax Threshold, however you have to think the club will try to trade Jay Bruce – so they can free up some money to shore up the Bullpen

(11) KC Royals – $144.6 MIL.

An absolute surprise to see that the Royals are this high for now.  I would also think the compensation placed on rejected Qualifying Offers – 3rd RD Draft Picks) would exponentially increase how quick the Kansas City management may be willing to start trading the likes of Lorenzo Cain, Eric Hosmer and Mike Moustakas forthcoming.

Final Analysis

This is a much better job by baseball in throwing down enough penalties on the high salary clubs.  The bottom 15 revenue clubs stand to gain a lot more competitive balance in this deal.

The Luxury Tax Threshold will only jump $21 MIL from the end of 2016 – 2021.  This was probably not something the elite clubs wanted to agree too, however this at least brings forth the idea of parity.

Under the old format, the MLB was fortunate that only the Los Angeles Dodgers ever hit the $300 MIL salary mark.  They certainly could have seen the Yankees fall under the limit one year. and the obliterate it the following season with a $300 MIL payroll. 

The consequence for a 1st time abuser in the old CBA was just 12.5% of a penalty, which would only see a team pay $13.87 MIL in a penalty for that year. 

With a floating scale of an additional 12 ($20 – $40 MIL past the limit, or 40% beyond $40 MIL), and a 1st time enforcement now standing at 20%, that little maneuver would cost $80 MIL  in penalties for someone $111 MIL over the Threshold for one season. 

All teams over the limit will also pay further compensation to signing other club’s departing Free Agents as a further deterrent.

Major League Baseball has more parity now.

I believe that the Royals and Athletics were the biggest losers in the new CBA deal yesterday. KC will not be able to keep their last year contract guys like Eric Hosmer, Lorenzo Cain and Mike Moustakas when they are up for Free Agency in the next 1 - 2 years - because of a decreased compensation pick for a rejected Qualifying Offer player under a new deal. The KC Royals are

I believe that the Royals and Athletics (with loss of Revenue Sharing within 4 years) were the biggest losers in the new CBA deal yesterday. KC will not be able to keep their last year contract guys like Eric Hosmer, Lorenzo Cain and Mike Moustakas when they are up for Free Agency in the next 1 – 2 years – because of a decreased compensation pick for a rejected Qualifying Offer player under the new CBA. The KC Royals are in 11th right now for projected payroll based on signed players and team controlled players.  I expect them to be in the bottom half by years end.

*** The views and opinions expressed in this report are those of the author and do not necessarily reflect the views of mlbreports.com and their other partners.***

A big thanks goes out to our ‘Chief Writer/Part Owner’ Hunter Stokes for preparing today’s featured post.

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About hunterstokes21

I Played NCAA Baseball at Liberty University in the 90's with Sid Bream's kid Sheldon. Once Hit a Home Run by hitting a hot air balloon that was coming over 2nd base (It was agreed that if a balloon was hit before game by the umpires and coaches - even though they were setting up in LF/CF Bleachers). I believe in the "Church Of Baseball". Come in for worship anytime.

Posted on December 1, 2016, in MLB Payroll and Contracts and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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