Running the Break: MLB needs to follow the lead of other pro sports leagues and implement a hard salary cap
Major League Baseball has a glaring problem that needs to be addressed: its competitive balance. The Los Angeles Dodgers appear to be approaching an era of domination much like those that plagued baseball throughout its long history.
From 1936 to 1964, the New York Yankees won 16 championships, including five in a row in the early ‘50s, and appeared in 22 of those 29 World Series. In the late ‘90s, they rattled off four titles in five years.
While it would be ridiculous to expect the Dodgers to replicate this level of excellency, it’s likely they will continue to be prohibitive favorites for at least the next several years. In any case, the problem extends past the construction of one talented team in particular.
What needs to be addressed is the lack of a hard salary cap. MLB attempts to level the playing field with its “Competitive Balance Tax,” more commonly known as the luxury tax. However, this tax has failed to promote a competitive balance.
The reason the Yankees have 27 banners, 16 more than the next team, the St. Louis Cardinals, is that they’ve always been able to shell out the big bucks. New York had been the biggest market; the Yankees had the richest owners and they were willing to spend. Now, the biggest media market is Los Angeles.
The luxury tax was implemented in 1997. Afterwards, the Yankees promptly won three consecutive titles, which might have been an early indication that the tax wasn’t doing its job. Since 2003, New York has exceeded the luxury tax threshold in every season but one.
This isn’t an indictment of the Yankees or the Dodgers, and I don’t intend to discredit the accomplishment of great teams that accomplished great feats. The point is that the structure of the luxury tax doesn’t deter big-market teams from spending over the threshold.
Under the current collective bargaining agreement, teams pay a 20% tax on the money exceeding the threshold. So, if a team goes $10 million over the threshold, it pays $2 million in tax to MLB. This number jumps to 30% if a team exceeds the cap in two consecutive seasons and 50% for three or more seasons in a row.
If a team exceeds the threshold by $20 to $40 million, it incurs an additional 12% in tax. For going over the tax by more than $40 million, a team must pay an additional 42.5% for its first offense and 45% the second time.
In theory, a team could pay a maximum of 95 percent on the part of its payroll that extends past $40 million over the luxury tax threshold. A team might pay 20% on it’s first $20 million over the luxury tax, 32% on the $20 to $40 million range and 62.5% on everything past $40 million. All of this is under the assumption that it is the team’s first season over the cap.
These taxes pilling up to 95% is pretty rare, and it really isn’t significant compared to the amount a team would have to spend to reach this number.
Let me provide an example. The luxury tax threshold is $210 million this year. As of now, the Dodgers’ payroll comes out to just over $254 million.
I’ll spare you the calculations, but the Dodgers were not over the soft cap in 2020, so they will pay roughly just $13 million in luxury tax. Owners willing to spend $254 million won’t hesitate to pay the additional $13 million.
The gap between the Dodgers and the lowest-spending team, the Pittsburgh Pirates, is pretty eye-opening. The Pirates’ luxury tax payroll for 2021 is just over $58 million. For context, the Angels will pay sluggers Mike Trout and Albert Pujols a combined $67 million this season.
The Dodgers payroll before the tax is about $50 million larger than the next team, the Boston Red Sox, who are not even exceeding the luxury tax threshold. It’s almost $200 million higher than the Pirates’ spending.
This results in the Dodgers having three former MVPs on their roster and two former Cy Young award winners in Clayton Kershaw and Trevor Bauer. Oh, and they just signed Bauer to a contract that will generously exceed the largest annual contract value in MLB history, just one season after dominating the National League and winning the World Series.
The Dodgers seemed untouchable last season, and with the addition of Bauer, who just won the NL Cy Young award with the Cincinnati Reds, they should prove to be even better this season. L.A. also has Mookie Betts locked up on a 12-year deal, and they managed to keep stars Cody Bellinger and Walker Buehler for cheap in the short run.
When the time comes for Bellenger and Buehler to get their paydays, I’m sure the Dodgers’ ownership group won’t let them walk to save a few million in luxury tax.
While this isn’t the first time a team has paid its way to the top of the league, the Dodgers are spending more than three other teams combined. It’s obvious that teams like Pittsburgh and the Baltimore Orioles simply cannot compete.
While the Dodgers have done a great job of building a roster and developing young talent, not every team has the luxury of signing Mookie Betts to a $365 million contract. A hard salary cap wouldn’t make teams like Pittsburgh spend an extra hundred million on its payroll, but it would prevent teams like the Dodgers from looking like the old Yankees.
Wyatt Allsup is a junior writing about Los Angeles sports. His column, “Running the Break,” runs every other Tuesday.