Dodgers set to pay competitive balance tax in 2020

In adding Mookie Betts and David Price, the Dodgers find themselves in a position to pay the competitive balance tax for the first time in three years.

Payroll has been a prevalent topic in every year of the Dodgers’ current ownership, though the most noteworthy transactions of the last two offseasons involved the Dodgers maneuvering to get under the competitive balance tax threshold.

This year the CBT threshold is $208 million, and just after the new year Dodgers CEO Stan Kasten told Bill Plaschke of the LA Times that despite LA’s relatively quiet offseason to date that more spending was afoot:

“The team we have now is not going to be the team we have to start the postseason,” Kasten said. “I expect that team, this year, it looks like it’s going to be well over the CBT, or somewhat over.”

With nearly all of the big-ticket free agents off the board in early January, there weren’t many avenues for Andrew Friedman to add enough payroll to reach or exceed $208 million. We talked about it on the podcast at least two episodes in a row. The Dodgers found the only transaction that included both price and Price.

Amid the flurry of moves with the Red Sox and Twins, the Dodgers also had a reported deal that would have sent Joc Pederson and Ross Stripling to the Angels, but that move fell through. In keeping those two and their combined $9.85 million salary, the Dodgers have essentially set up camp over the tax threshold, and made their team better, which is the point of it all.

As it stands, the Dodgers have a competitive balance tax payroll of roughly $220 million.

The Dodgers paid Maeda his $1 million trade bonus, which counts against the 2020 CBT payroll. In addition the Dodgers are sending $3 million to cover Maeda’s base salary, split $2,436,500 this year and $563,500 in 2021 per the Associated Press. Regardless of how it’s actually paid out, for purposes of the competitive balance tax that $3 million is split evenly over the four remaining guaranteed years on Maeda’s contract, $750,000 per year.

David Price gets paid $32 million in each of the final three years of his contract, but his CBT number is $31 million, the annual average of his seven-year contract. The Red Sox are sending $48 million to Los Angeles in installments from 2020-22, which lowers the Dodgers’ portion of Price’s CBT payroll to $15 million each year.

Twenty-one Dodgers are under contract for 2020, and I filled in the remaining five spots on the active roster as placeholder estimates. The minimum salary this year is $563,500.

Minor league minimums are $46,000 for players on a 40-man roster for the first time (Victor Gonzalez, Zach McKinstry, Mitchell White, Luke Raley, and D.J. Peters this year), and $91,800 for minor leaguers with any sort of previous 40-man experience. For now, I estimated $2.5 million to cover the 14 players on the 40-man roster who currently aren’t active.

The $15 million in player benefit costs is also an estimate. That amount is a league-wide figure, split equally among all 30 major league teams.

All this detail is a reminder that I will no longer be updating the payroll worksheet. It’s simply too much work to keep current during the season. But I’ll still post occasional payroll updates as they are relevant — opening day payroll, end-of-season CBT update, or perhaps the financial impact of a significant in-season trade — only as a new post rather than a constantly refreshed worksheet, going forward.

RIP payroll worksheet. We had a good run.

Attainable bonuses

Maeda can make up to $10.15 million annually in bonuses, based almost entirely on starts and innings. The Dodgers are responsible for up to $7 million in bonuses for 2020 only (and nothing for the final three years of the deal), all of which would count against the Dodgers’ CBT payroll this season. Maeda in his four years in Los Angeles averaged $5.59 million in bonuses in addition to his $3 million base salary.

Clayton Kershaw can earn up to $4 million based on games started, $1 million each for 24, 26, 28, and 30 starts (he made 28 starts in 2019, earning $3 million). In addition, Kershaw gets $1.5 million for winning the Cy Young, or $500,000 for finishing second or third.

Alex Wood can earn up to $6 million in bonuses. Here’s the breakdown from the Associated Press:

He gets one point for each start, or any relief appearance in which he gets 10 outs or more, and he will receive $250,000 each for earning 10, 12, 14, 16, 18 and 20 points. After that, he would get $500,000 apiece for earning 22, 24, 26 and 28 points.

He also could earn $2.5 million in innings incentives. He will get $500,000 apiece for pitching 110, 120, 130, 140 and 150 innings.

Jimmy Nelson can earn up to $3.5 million in bonuses for 2020 — $1 million for making the opening day roster and $500,000 for each of 45 and 90 days on the active roster; and $250,000 for each of 90, 110, 130, 150, 170, and 190 innings pitched.

Tax time

Should those bonuses start to add up, and if the Dodgers make any significant additions at the trade deadline, they could conceivably reach a higher tax bracket. For exceeding $208 million, any overage would be taxed at 20 percent. The rates get higher for teams topping the threshold in consecutive years (30 percent for a second-year offender, and 50 percent for a third-year spender), but the Dodgers by virtue of staying under the tax threshold in 2019 (and 2018) reset their tax rate.

There are three tiers of competitive balance tax. Here’s how it applies to the Dodgers in 2020:

• 20 percent for the first $20 million over $208 million
• 32 percent for the first $20 million over $228 million
• 62.5 percent for anything over $248 million

That last bracket comes with an additional penalty of having the highest-available 2021 draft pick moved back 10 spots.

If the Dodgers’ CBT payroll was $235 million this year, for instance, their total tax would be $6.24 million ($4 million tax for $208-228 million, plus $2.24 million tax for $228-235 million).

In 2017, the last time the Dodgers exceeded the competitive balance tax threshold, they were in that highest tier of spending. That was also the first year of the new collective bargaining agreement, and the draft pick penalty didn’t take effect until 2018. The Dodgers paid $36.2 million in tax in 2017, capping a run that saw the team pay $149.7 million with an average $264 million payroll during the first five full seasons of this ownership group.

Now, after two seasons of relative austerity — relative is the key word, since they averaged $200 million in payroll for 2018-19 — it appears the tax will be back in 2020, and all my very professional artwork will go to waste.

Oh well.

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I buried the lede here. I’m back.

I’m going to be covering the Dodgers again for True Blue LA.

I’m technically now a Producer for the California Communities for SB Nation, but all that really means is I’ll be writing a lot more about local baseball again. That means plenty of Dodgers content again, bringing you focused and compelling stories about the team.

The path to get here was definitely different, and not something I expected. One of my main priorities was to make sure the community here, which was my life for a decade, is well served. I think I can help do that, all while doing something I love.

I’m glad to be back, to keep that going. Let’s go.