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The new CBA, luxury tax and the Dodgers

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A look at some details of the new collective bargaining agreement

World Series - Cleveland Indians v Chicago Cubs - Game Four
MLB commissioner Rob Manfred and the owners reached agreement on a new CBA with the players.
Photo by Elsa/Getty Images

Major League Baseball and the MLB Players Association came to terms on a new collective bargaining agreement on Wednesday night, continuing over two decades of labor peace in the spot and avoiding what could have been the first work stoppage in 21 years.

The deal is still subject to ratification by the owners and players. Here are some of the highlights of the new agreement, which runs through 2021, with relevancy to the Dodgers.

Competitive balance tax thresholds

The soft cap that is the competitive balance tax will increase its threshold to $195 million in 2017, up from $189 million in both 2015 and 2016, per Ken Rosenthal of Fox Sports. Teams will pay overage taxes on any payroll amounts over the threshold, which increases gradually to $210 million in 2021.

The 2016 luxury tax bill hasn’t been officially levied yet, but the Dodgers will likely have to pay somewhere in the $30 million neighborhood for their roughly $250 million payroll. This is the fourth straight season the Dodgers will have paid luxury tax, with rates increasing from 17.5% in 2013 to 30%, then 40%, followed by the 2016 maximum rate of 50%.

Under the new CBA, the penalties are more harsh for teams that are well over the limit, like the Dodgers were in both 2015 and 2016. That super threshold isn’t yet fully known, but Joel Sherman of the New York Post reported a tax of 60-70% for payrolls above $250 million or so.

The Dodgers have $150.4 million currently committed in 2017, though that is in money actually paid out next year and likely differs slightly from MLB’s competitive balance tax calculations.

If the Dodgers plan to get under that threshold and avoid paying the tax, it could take a year, or maybe two, with another $111 million already committed in 2018.

Free agent compensation

This new CBA is less limiting for free agents, beginning after the 2017 season.

This new system begins with next offseason. This winter, after Yoenis Cespedes returned to the Mets on a four-year contract, there are still seven free agents who declined qualifying offers on the market, including Dodgers free agents Justin Turner and Kenley Jansen.

Any new team signing those free agents this winter will have to forfeit a first round draft pick (or next highest, if protected), with the old team receiving a new sandwich pick between the first and second rounds of the 2017 draft.

Conclusion

More details will come once the deal is ratified, such as international spending limits (no draft) and the minimum salary.

But for the most part the Dodgers are in the same place they were always in. At some point in the next few years, they will likely have a payroll closer to or below the luxury tax thresholds, which will happen naturally with more young talent added to the roster.

It doesn’t mean they are limited this offseason on spending. Look at those committed salaries again, which reduce to roughly $50 million in 2019 and 2020. Yes, the Dodgers are reducing payroll, but they are reducing it from a record-high of $300 million. Eventually reducing payroll down to the $200 million area does not mean resorting to potato sack uniforms and rope belts.

The Dodgers have plenty of room to add contracts and still achieve the long-term plan.