For the Dodgers ownership group and front office, there is some good news.
Dodgers made it under the luxury tax. Let’s hope they are willing to go over if needed. https://t.co/s7TNMc4cpY
— Tim Rogers ?? (@SDDodger) November 12, 2019
Some sites had the Dodgers going over the luxury tax by about $3 million. However, we had estimated that the Dodgers would be under the luxury tax amount by $2,298,667. According to MLB Trade Rumors, the Dodgers barely got under the penalty target of $206M.
The Impact Of The Luxury Tax
Here is a quick summary of how the competitive balance tax works:
- The thresholds for being taxed for the duration of the CBA are:
- 2019: $206 million
- 2020: $208 million
- 2021: $210 million
- There are various penalties for exceeding the CBT that begin at 20%.
- The number changes based on the number of consecutive years the threshold is exceeded.
- The penalties reset when a team stays under the threshold.
- A team that exceeds the threshold by $40 million or more are penalized in the draft. A team not in the top 6 of the draft will have their first pick moved back 10 spots.
- Penalties are calculated based on the Average Annual Value (AAV) of a multi-year contract.
MLB Trade Rumors also discussed more of the “real inside baseball economic stuff”:
Inking a free agent who declined a qualifying offer will cost a bit more in compensation than it would have otherwise — specifically, $1MM in international amateur bonus pool spending capacity along with the team’s second and fifth-highest draft picks. The rules also suppress the level of compensation available to teams that lose QO’ed free agents after exceeding the luxury line, though none of these three clubs issued qualifying offers this offseason.
How It Can Impact 2020 By Staying Under In 2019
If the Dodgers decide to sign a free agent that is attached to a qualifying offer like Gerrit Cole, Anthony Rendon, or Zack Wheeler, the penalties are less severe. They would not lose the $1M in international bonus pool money and they don’t lose the extra fifth-highest draft pick.
By deciding to go into the luxury tax in 2020 by signing a Rendon-type free agent, they wouldn’t get hit with the excessive penalties for 2020. If they were to sign another qualifying offer attached free agency after 2020, only then would those penalties apply.
Looking Forward To 2020
As of November 12, 2019, the Dodgers have about $40M to spend for the 2020 season to keep under the luxury tax threshold. If the Dodgers were planning on taking on a new big contract, this off-season seems perfect. Over the next few years, the Dodgers will need to pay some of their younger players like Walker Buehler and Cody Bellinger but there are also some big contracts coming off the books over the next two years. It will be very interesting to see how the Dodgers try to take advantage of this situation.
For us fans who have been waiting a long time for a World Series championship, this off-season should be very interesting.