The new collective bargaining agreement has added a new wrinkle to keep teams such as the Dodgers from outspending the rest of the league by large margins.
As it did in the previous CBA, the new CBA has a luxury tax to charge teams that go over a certain threshold in spending on major league payroll.
But that’s just money. This time the CBA for the first time includes draft pick penalties for teams that spend big.
The new CBA adds two surcharge thresholds on top of the competitive balance tax that was included in the previous CBA. Spend more than $217 million in 2018 and a team will be hit with an additional 12 percent tax on top of the 20 percent, 30 percent or 50 percent tax they will be hit with (depending on how many consecutive years they have exceeded the tax threshold).
But the penalties really kick in for a team that spends more than $237 million in 2018. Not only will the franchise be hit with a 42.5 percent or 45 percent surcharge tax on top of the competitive balance tax, but the team will also see its first draft pick dropped 10 spots. That pick is protected, but that protection is relatively meaningless, as the penalty is applied to the team’s second draft pick only if it’s one of the top six picks in the draft. It would be hard to envision a team finishing with a top-six pick (meaning it had one of the six worst records in baseball) with a $237-plus million payroll.
The penalty kicks in in 2018. The amount for the second surcharge threshold will increase to $246 million in 2019, $248 million in 2020 and $250 million in 2021.
Considering how reluctant teams are to part with draft picks, the new penalties put a pretty significant brake on big league spending at the highest levels. The Dodgers have consistently had the highest payroll in baseball in recent years and have exceeded the luxury tax threshold in each of the past four seasons, often with a payroll that would exceed the highest surcharge threshold under the new system.
In the past, that’s meant that the team has paid between $11.4 million and $43.7 million in luxury tax. Under the new system, that bill could get much larger. As the CBA explains, if the Dodgers (or any other team that has exceeded the luxury tax threshold for three consecutive seasons) had a $260 million payroll in 2018, they would have to pay a total luxury tax of $54.25 million and also see their first-round pick moved back 10 spots in the draft.
Any payroll beyond $237 million would be taxed at 95 percent of that amount beyond $237 million; so a $300 million payroll would carry a $92.25 million luxury tax and the draft pick penalties. The Dodgers payroll peaked at $298.3 million in 2015 and has dropped since as some large contracts have been cleared from the books. Last year, the Dodgers payroll was $252 million.