As more and more details from the collective bargaining agreement leaks out, a prominent number for the Dodgers in 2017 is $235 million.
We went over the basic points of the competitive balance tax last night, but now the Associated Press has more details:
Tax rates increase from 17.5 percent to 20 percent for first offenders, remain at 30 percent for second offenders and rise from 40 percent to 50 percent for third offenders. There is a new surtax of 12 percent for teams $20 million to $40 million above the threshold, 42.5 percent for first offenders more than $40 million above the threshold and 45 percent for subsequent offenders more than $40 million above.
The Dodgers were already at the 50% rate in 2016, and while the final numbers haven’t been reported yet they will almost certainly be well over $40 million over the $189 million threshold, after blowing past the same threshold in 2015 with their $298 million payroll.
The luxury tax threshold in 2017 is $195 million, so the Dodgers would pay 50% on any amount over that. In addition, they would pay another 12% extra (so, 62%) from $215-235 million, and a whopping 95% (50% tax plus the 45% surcharge as a subsequent offender) of anything over $235 million.
In other words, the Dodgers would almost be paying double for anything over $235 million.
It is important to note this doesn’t necessarily prevent the Dodgers from spending money. After all, the club blew past their international spending limits in the 2015-2016 international signing period, paying roughly $45 million in penalties for signing just over $45 million worth of amateur players.
As we have noted, the club is set up pretty well long term with relatively low commitments in 2018 and 2019, and an increasing pipeline of young talent at various stages of readiness. The club still has room to take on some salary, and even if the club ventures into the 95% deep end in 2017 it might only be for one year.
That said, $235 million seems like a reasonable number for their 2017 cap anyway, even with $150 million already committed. That number includes money actually paid in 2017, while MLB uses average annual value in determining club payrolls for luxury tax purposes.
Let’s take a quick, back-of-the-napkin look to see where the Dodgers are at in that regard.
Clayton Kershaw $30.7 million (7 years, $215 million)
Adrian Gonzalez: $22 million (7-year, $154 million contract signed in 2011)
Carl Crawford: $20.3 million (7 years, $142 million)
Andre Ethier: $17 million (5 years, $85 million)
Scott Kazmir: $15 million (3 years, $48 million; deferrals lower value)
Brandon McCarthy: $12 million (4 years, $48 million)
Alex Guerrero: $7 million (4/$28m; unsure if his $1.3 million in Japan offsets)
Yasiel Puig: $6 million (7 years, $42 million)
Hyun-jin Ryu: $6 million (6 years, $36 million)
Erisbel Arruebarrena: $5 million (5 years, $25 million)
Yaisel Sierra: $5 million (6 years, $30 million)
Matt Kemp: $3.5 million (paid to Padres)
Kenta Maeda: $3.1 million (8 years, $25 million)
Dian Toscano: $1.5 million (4 years, $6 million)
That’s a total of $154.1 million for 14 players, only eight of whom are still on the 40-man roster. Let’s add in $9.9 million in bonuses for Maeda and his incentive-laden contract (the maximum he can earn in bonuses annually is $10.15 million), and we are at $164 million.
For now, let’s use the 2017 projections from Matt Swartz at MLB Trade Rumors, and assume the Dodgers keep all nine players:
Yasmani Grandal: $5.3 million
Alex Wood: $2 million
Luis Avilan: $1.5 million
Louis Coleman: $1.5 million
Chris Hatcher: $1.4 million
Scott Van Slyke: $1.3 million
Josh Fields: $1.2 million
Vidal Nuño: $1.1 million
There isn’t an estimate for Darin Ruf, who with two years, 138 days of service time will qualify as a Super Two this offseason. Let’s just pencil Ruf in at $1.2 million, bringing this group to $16.5 million.
Our rough luxury tax total for 17 active players is now at $180.5 million, and that’s before signing any free agents.
It is also before adding in the benefits for the 40-man roster, which usually comes in at somewhere near $10-12 million. We also haven’t factored in the cost of the players with 0-3 years of service time.
Also per the Associated Press report, the minimum salary will increase to $535,000 in 2017, so filling eight spots is roughly $4.3 million. Adding in the minimum salaried players and the benefits puts us at $196.8 million, but let’s round up to say $200 million.
This is likely very conservative, as there will surely be players on the disabled list with active spots to fill that aren’t free, and there will likely be additions at or near the trade deadline, too.
In other words, it won’t take much for the Dodgers to hit $235 million in short order in 2017, which means that onerous 95% tax rate.
Oh yeah, there is one other cost for being a super spender, as revealed by the AP:
For a team $40 million or more in excess of the luxury tax threshold, its highest selection in the next amateur draft will drop 10 places.
We don’t know where the Dodgers might pick in the 2018 draft; their 2017 position hasn’t been finalized yet. But just looking at the 2016 slot values, dropping from, for instance, 25th to 35th would have meant going from a slot value of $2.16 million to $1.84 million.
So yes, there is definitely a harsh cost for spending a lot of money. It’s one of the reasons the Dodgers have been stockpiling young talent in recent years, trying to build a more sustainable long-term plan.
Even if the Dodgers were to sign all three of Justin Turner, Kenley Jansen and Rich Hill, for instance, they’d pay quite dearly in 2017, but starting in 2018 there is more wiggle room to fit those contracts in, with the likes of Crawford, Ethier and Guerrero coming off the books.
But keep an eye on that $235 million figure. That is the number to watch in 2017.