Dodgers reportedly aim to reduce payroll to ~$200 million by 2018

The Dodgers will aim to reduce payroll to around $200 million by 2018, according to Bill Shaikin of the Los Angeles Times, but why they’re doing so might be the most interesting part.

The club is expected to reduce payroll for a second consecutive season, with the goal of cutting from about $300 million in 2015 to closer to $200 million in 2018.

That should come as no surprise, as it’s consistent with what Stan Kasten has been preaching for years now, and what Dustin wrote about the topic just a few weeks back. Of course, there are always those who have gotten spoiled by the extravagant spending of late and just assume the Dodgers will continue to buy everybody they want, but most reasonable people knew they operated under some kind of payroll restrictions like everybody else.

What’s interesting though is that part of the reason for the reduction in payroll might be an MLB mandate relating to rules regarding debt.

The rule, designed to ensure teams have the resources to meet their financial obligations, generally limits debt to no more than 12 times annual revenue, minus expenses. The Dodgers were not profitable in any of the first three full seasons under new ownership, co-owner Todd Boehly said last year. Their debt is believed to be in the hundreds of millions.

“We’re not talking about, ‘Let’s reduce our payroll by $40 million and we’ll be compliant,’ ” said a person familiar with the team’s finances but not authorized to discuss them publicly. “They have hundreds of millions in debt.”

Manfred said the Dodgers’ five-year waiver from the debt service requirements was authorized by the collective bargaining agreement in place at the time of the sale.

Likely not by coincidence, 2018 is five years after the Dodgers were bought by Guggenheim Partners and when the waiver period ends.

That said, any concerns that the Dodgers would be in violation of rules seems to be downplayed by all those involved, at least for now. From Commissioner Rob Manfred…

“I think the Dodgers will be in a position that they can comply with our expectations in terms of the debt service rule, without any dramatic alteration in the kind of product they have been putting on the field,” Manfred said.

“I firmly believe that, over the long haul, they will be a club that will routinely be in compliance with the debt service rule,” he said. “I also believe it’s important for the game not to have major dislocations in terms of people trying to get in compliance. We will continue to work with them.”

…to competitors like Ron Fowler of the San Diego Padres…

“They’re doing what they can to set the team up for the future,” Fowler said. “Do I like it as a competitor? No. Do they have the right to do it? Absolutely, yes.

“They’re expected to be in compliance. They have said, very publicly, that they will be. They have done a very effective job, and I say this with nothing but admiration, of setting themselves up to have a very strong team at the end of the five-year period.”

…to Tucker Kain of the Dodgers themselves.

Tucker Kain, the Dodgers’ chief financial officer and the managing director of Guggenheim Baseball Management, said the team’s strategy is not driven by the need to reduce debt.

“You have to have a pipeline of players coming up,” Kain said. “You have to be able to plug in a Corey Seager and a Joc Pederson and have a rotation of young talent, and you’re not relying on the down years of free agents to sustain success.

“Financial dynamics totally aside, that is the right way — in our opinion — to build a long-term successful baseball team.”

Kain declined to discuss the Dodgers’ debt level or how they would reduce it, but he emphasized the team would comply with the debt service rule.

“We understand all of our obligations and work closely with baseball,” he said. “We’ll be in great shape with baseball.”

So there doesn’t appear to be anything to panic about at this stage, but the debt rule was an interesting wrinkle to the Dodgers spending that I hadn’t thought about at all because I didn’t know it existed. Just something to think about as the Dodgers move forward and the payroll inches closer to resetting the luxury tax than it does half a billion dollars.