MLB Teams Pay Luxury Tax, with Dodgers Owing Record $103 Million
The Los Angeles Dodgers topped a record nine teams owing Major League Baseball’s luxury tax this year with a $103 million penalty, and the $97.1 million bill for the New York Mets raises their tax total under high-spending owner Steve Cohen to nearly $229 million.
Dodgers and Mets Lead the Way
The World Series champion Dodgers will pay a tax for the fourth year in a row. The Dodgers’ tax payroll of $353 million included $1,032,454 in non-cash compensation for Shohei Ohtani, whose contract calls for use of a suite for games at Dodger Stadium and an interpreter.
Others in the Luxury Tax Bracket
The Yankees owe $62.5 million, according to figures finalized Friday by Major League Baseball and the players’ association and obtained by The Associated Press. They were followed by Philadelphia ($14.4 million), Atlanta ($14 million), Texas ($10.8 million), Houston ($6.5 million), San Francisco ($2.4 million), and the Chicago Cubs ($570,000).
Total Tax and Threshold
The total tax of $311.3 million topped the previous high of $209.8 million last year, when eight teams paid. Tax money is due to MLB by Jan. 21. The threshold for the 2024 season is $241 million.
Teams Below the Threshold
Toronto, with a series of summer trades, cut its tax payroll to $233.9 million, under the $237 million threshold. The Blue Jays started the season projected at $244.3 million. Chicago went just over the threshold at $239.85 million.
Tax Payroll Calculation
Tax payrolls are calculated by average annual values, including earned bonuses, for players on 40-man rosters along with just over $17 million per team for benefits and $1.67 million for each club’s share of the $50 million pool for pre-arbitration players that started in 2022. Deferred salaries and deferred bonus payments are discounted to present-day values.
Tax Rates and Thresholds
Because they owe tax for three straight years, the Mets, Dodgers, Yankees, and Phillies pay at a 50% rate on the first $20 million above the $237 million threshold, a 62% rate on the next $20 million, a 95% rate on the amount from $277 million to $297 million, and a 110% amount above that. The Braves and Rangers owe tax for the second year in a row and pay 30% on the first $20 million over and 42% on the next $20 million.
Use of Tax Money
The first $3.5 million of tax money is used to fund player benefits, and 50% of the remainder is used to fund player Individual Retirement Accounts. The other 50% of what’s left is dedicated to a supplemental commissioner’s discretionary fund that is distributed among teams that are eligible to receive revenue-sharing money and have grown their non-media local revenue.
Conclusion
The luxury tax penalties paid by MLB teams reflect the significant investments made by teams to build strong rosters and compete at the highest level. The Dodgers’ record-breaking tax bill highlights the team’s commitment to winning, while the Mets’ reduced tax liability shows the impact of cost-cutting measures. As teams look to the future, they will need to balance their spending with the need to stay below the threshold and avoid even higher penalties.
FAQs
Q: What is the luxury tax?
A: The luxury tax is a penalty paid by MLB teams that exceed a certain threshold in their payroll. The tax is designed to encourage teams to be more frugal in their spending and to promote competitive balance throughout the league.
Q: Who owes the most in luxury tax penalties?
A: The Los Angeles Dodgers owe a record $103 million in luxury tax penalties, followed by the New York Mets at $97.1 million.
Q: How is the luxury tax calculated?
A: The luxury tax is calculated by taking the average annual values of players on a team’s 40-man roster, including earned bonuses, and adding a certain amount for benefits and pre-arbitration players. Deferred salaries and bonus payments are discounted to present-day values.
Q: What is the purpose of the luxury tax?
A: The purpose of the luxury tax is to encourage teams to be more responsible in their spending and to promote competitive balance throughout the league. By imposing penalties on teams that exceed the threshold, the tax is designed to slow down the spending of high-revenue teams and to give lower-revenue teams a chance to compete.
