As you’ve probably heard by now, there will be baseball in 2017 and for the next four years that follow, all thanks to the owners and MLBPA agreeing to a new Collective Bargaining Agreement. That’s all well and good, and you can read quality broad analysis on what it all means at FanGraphs or Baseball Prospectus or Yahoo! Sports, but how the new CBA impacts the Dodgers is what I want to tackle in this article.
Any conversation on the new CBA and the impact it will have on the Dodgers has to start with the luxury tax. I recently wrote about the Dodgers wanting to get the payroll down to $200 million and Dustin wrote about the team wanting to reset the luxury tax clock at some point even before the new CBA was agreed to. However, the Dodgers’ desire to get under the luxury tax has likely never been more true than after all the changes have been made in the new CBA.
The luxury tax threshold rises from $189 million to $195 million next year, $197 million in 2018, $206 million in 2019, $209 million in 2020 and $210 million in 2021.
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. And special transition rates will be used for 2017.
So the luxury tax increases slightly every year, which so far seems quite good for the Dodgers’ plans to get under it within the next few seasons. However, the other paragraph about the penalties for exceeding the luxury tax hits like a bag of bricks.
As the team currently stands, it is of course in the third offenders bracket, which puts their luxury tax rate at 50 percent on anything over $195 million. Then there would be a 12 percent additional tax with the base tax from $215 million to $235 million (a 62 percent rate), and a 45 percent additional tax with the base tax for anything above $235 million (a 95 percent rate). That’s punitive enough to essentially serve as a soft cap no matter how rich a team is (at least in the long term), so the Dodgers will likely be aiming to get as close to that $235 million figure as possible.
The Dodgers are currently around $153 million in payroll, but that’s without paying out incentives, arbitration, the 40-man roster, and pre-arbitration players. Eric Stephen of True Blue LA estimated the payroll to currently be coming in about $197 million, which sounds right to me. That’s without signing any free agents or acquiring players (and their contracts) in trades, so given the amount of work still left to do, the Dodgers will either have to limit spending to around $35 million in average annual value this off-season or the ownership will have to swallow the rather bitter pill of a luxury tax of up to 95 percent. Obviously everybody’s preferred option is for the ownership to just take a hit for another year, and the good news is that they will likely do just that since they may not need to do such a thing for much longer.
After next year, the Dodgers start shedding the contracts of Carl Crawford, Andre Ethier, and Alex Guerrero, and then they lose Adrian Gonzalez, Yasiel Puig, Hyun-Jin Ryu, and Erisbel Arruebarrena the year after. As such, the Dodgers have about $110 million and $51 million committed to the payroll in 2018 and 2019, respectively, so even if they spend something like $60 million in average annual value this off-season, they could still potentially be on track to avoid the harshest luxury tax penalties in 2018 and could actually get under the luxury tax altogether in 2019.
There’s no doubt this new CBA hurts the Dodgers’ luxury tax situation, and it could end up having adverse effects on the team’s quest to get better as soon as this offseason. That said, the ownership was likely aware something like this was coming down the pipe, and given how much money they’ve spent over the years, one would hope that they wouldn’t become shortsighted now when the team is maybe one year away from getting back to a more normal state of things. Everybody wants to focus on the front office, and I get why, but things this off-season are more likely to be dictated by the ownership.
But wait! It gets worse!
Yes, the luxury tax and its penalties are the main problem, but there are other issues as well, including what happens now with the qualifying offer.
Under the new rules, a player can receive a qualifying offer only once in his career and will have 10 days to consider it instead of seven. A club signing a player who declined a qualifying offer would lose its third-highest amateur draft pick if it is a revenue-sharing receiver, its second- and fifth-highest picks (plus a loss of $1 million in its international draft pool) if it pays luxury tax for the just-ended season, and its second-highest pick (plus $500,000 in the international draft pool) if it is any other team.
A club losing a free agent who passed up a qualifying offer would receive an extra selection after the first round of the next draft if the player signed a contract for $50 million or more and after competitive balance round B if under $50 million. However, if that team pays luxury tax, the extra draft pick would drop to after the fourth round.
It won’t apply for this offseason, but going forward if the Dodgers sign a free agent that got a qualifying offer for $50 million or more, they’ll be docked a second-round pick and a fifth-round pick, as well as $1 million in the international draft pool (over 20%), just because they pay the luxury tax.
Understandably, the players wanted to get rid of the penalty of the first-round draft pick for signing players with qualifying offers, but the cumulative effect of these new penalties are almost as bad for luxury-tax paying teams.
Oh but the poo news is not even over yet, because violating the upper bands of the luxury tax also penalizes the violating team (Dodgers) in the draft.
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 starting in 2018.
That will almost assuredly be the Dodgers this year, who essentially lose a late first-round pick for an early second-round pick.
There’s also the matter of spending on international free agents. While this doesn’t necessarily just impact the Dodgers, it does have more of an impact on the type of teams that splurge in the market, which is definitely the Dodgers.
Every team will start with $4.75 million to spend from July 2 to June 15 the next year on amateurs under 25 years old. Teams in the bottom 10 of local revenues or market size will receive extra money depending on the year. One year, they’ll get a Competitive-Balance Round A pick in the U.S. amateur draft, after the first round, plus an additional $500,000 in international bonus money, and the next year, they’ll get a Competitive-Balance Round B pick, following the second round, with a million-dollar international bonus allotment. In addition, teams can trade all of their international-spending space, and teams can trade for up to 75 percent of theirs, meaning the teams with $5.75 million can acquire an additional $4.3 million to spend internationally.
This basically prevents teams like the Dodgers from going on crazy spending sprees, which only ends up hurting them in the end.
Perhaps just as important, though, is the increase in the age of players (23 to 25) who will be subjected to the new rules. On the surface this doesn’t seem to have a lot to do with the Dodgers, specifically. However, given the Dodgers’ previous interest in Shohei Otani and that the potential of him becoming a Dodger was possible enough that Brim wrote about it this offseason, it’s a shame that because of these new rules he likely won’t be headed to the MLB for at least three years.
On a lighter note, the 15-day disabled list is no more in exchange for a 10-day disabled list.
The disabled list will go from a 15-day requirement if a player is placed on it to a 10-day requirement. This is probably for the best as it frees up roster spots rather than forcing a team to decide between playing short for 7-10 days or losing the player for longer than they had to.
Well, at least this should help the Dodgers, amirite guys? Amirite?
Hey, maybe at least that DL record the Dodgers earned last season will go away quicker.
If you’ve been reading this and saying to yourself “boy, this all sounds bad for the Dodgers” then you win the prize, except the prize is you owe me money for trying to win the prize, which about sums up what this new CBA does. The new CBA is worse for the Dodgers in almost every way imaginable, and I don’t think there’s much argument over that since the negatives range from the luxury tax penalties to free-agent signing penalties to draft penalties to international free agent restrictions. Much like life, everything is bad.
In the end, the Dodgers just have to adjust to these new rules and there’s nothing the ownership or front office has shown thus far to make us think they aren’t willing to do what it takes to put a winner on the field. Still, it’s telling that the Dodgers being in good shape moving forward regardless of the new CBA is about the only positive thing I can think of.