An important item in collective bargaining agreement (CBA) negotiations between MLB and the Players Association (MLBPA) is the competitive balance tax (CBT), which serves as a soft cap for teams in the league.
There is, as of today, no salary cap in MLB, but teams that surpass a certain amount of money in payroll need to pay a specific amount of money depending on how many consecutive years they have exceeded it and by how much.
In the 2017-21 CBA that just expired, teams had to pay a 20 percent tax rate if they surpassed the CBT threshold the first season, 30 percent for the second, and 50 percent for the third.
If a club spent any amount below the tax, the penalty level was reset.
Surtaxes were also applied to teams that exceeded the CBT by $20 million (12 percent) and $40 million (42.5 percent).
Teams Are Afraid Of The Tax
Since the beginning of the CBT era, the team that has spent the most (since 2003) are the New York Yankees, at $348 million.
The Los Angeles Dodgers are second at $150 million.
Six additional teams have surpassed the tax threshold at least once.
In free agent negotiations, and with the penalties being severe, teams usually maneuver to stay under the tax threshold.
Even the Yankees, especially after “The Boss” George Steinbrenner gave away control of the team and, subsequently, passed away, are among the teams that try to stay under the threshold, or at least try not to get the highest penalties.
It’s evident that owners instruct their presidents of baseball operations and general managers to stay under that number.
The Dodgers, and the New York Mets, are probably the two teams that care little about the tax penalties.
Everybody else will think twice before exceeding the threshold.
Players not only want to see the luxury tax threshold increase, but they also want penalties to be less severe, in order for teams to be more eager to spend a bit more in player contracts.
The League Isn’t Helping Matters
“As part of MLB’s CBT proposal, thresholds go to: $214m, $214m, $216m, $218m, $222m (previously: 214, 214, 214, 216, 220),” he said, before tweeting that “tax rates are still 50, 75, 100 for the 3 tiers of the CBT. MLB had previously proposed that if you go over 1st tier, you give up a 3rd round pick: 2nd tier, 2nd round pick; 3rd tier, 1st round.”
Tax rates are still 50, 75, 100 for the 3 tiers of the CBT. MLB had previously proposed that if you go over 1st tier, you give up a 3rd round pick: 2nd tier, 2nd round pick; 3rd tier, 1st round
Now: no pick surrrendered for going over tier 1. Same picks given up for tier 2 and 3
— Evan Drellich (@EvanDrellich) February 12, 2022
Players didn’t like the marginal increase of the CBT: they want a much higher number.
While the league’s decision to eliminate draft pick penalties after surpassing the first tier is beneficial for players, they want to increase the monetary penalties.
Players don’t like this, and it’s an obstacle that will probably be difficult to overcome.
San Francisco Giants’ pitcher Alex Wood said that If penalties increase under the CBT, the threshold won’t matter: “Teams already don’t spend because they use the current penalties as an excuse not to. Imagine if the penalties got worse,” he tweeted.
If penalties increase under the CBT/Luxury tax IT DOES NOT MATTER WHAT THE THRESHOLD IS MY GOD. Make the threshold a billion dollars it doesn’t matter. Teams already don’t spend bc they use the current penalties as an excuse not to. Imagine if the penalties got worse. SMH.
— Alex Wood (@Awood45) February 12, 2022
At this point, it’s unlikely that spring training, and the regular season, start on time.
There are too many hurdles to overcome and precious little time.