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MLB Free Agency: Four Ways the Competitive Credit Tax Has Impacted Baseball

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Major League Baseball’s holiday season is almost halfway through. The 23 biggest free agents this winter have already found homes, which means that the most prominent post-holiday transactions are likely to include deals. Before we get to that point in hot stove season, we wanted to take a look back and shed light on how the competitive credit tax so far has affected our winter events.

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First, let’s restate the concept of the competitive credit tax for the uninitiated: CBT is MLB’s version of the luxury tax. The tax line is set at $233 million next season, with penalties escalating based on how far (and how often) clubs spend over the threshold. It should be noted that MLB does not calculate payroll taxes based on salaries from year to year, but instead, average annual values. In other words, a player’s salary can be higher or lower than the tax fee, depending on his contract.

There are a few other subtleties we could go into, but we’ll save you the boredom. Just know that the stated goal of CBT is to curb runaway spending while in recent years its actual purpose has been to act as a salary cap—one that few teams have shown a willingness to exceed, no matter how useful it may be. It was their championship odds.

With this crash course in the books, let’s go over four ways CBT seems to change the off-season.

1. The rise of the long-term super deal

As noted above, tax payrolls are based on AAV, not single year values. This has proven to be an important distinction this winter, as teams have easily signed top players on longer-than-usual terms to reduce the burden of CBT.

According to MLB.com researchThere have been 22 contracts in MLB history of 10 or more years. Of those 22, 12 have been signed since 2019. That includes contracts signed this winter by Trea Turner and Xander Bogaerts (11 each) and Carlos Correa (13). New York Yankees Aaron Judge was unable to include him in those charges by virtue of his signature Just nine years.

How much difference can a few extra years make? Let’s use Korea nodes with San Francisco Giants as an example. He signed for 13 years and $350 million, which would give him a CBT of $26.9 million. If they had given him the same amount over 10 years, his CBT would have been $35 million. What if they give him this contract over eight years? Try $43.75 million.

Now, it would be reasonable to ask whether flattening the amount of CBT on a longer team is better than the opposite strategy: reducing the term in exchange for inflated CBT fees. . the Los Angeles Dodgersfor example, has been more interested in making the second choice in the recent past.

Whatever the case, it is an eternal truth in baseball that if you make the rules the teams will try to find a way around them. With that in mind….

2. Potential MLB tackle

It seems inevitable that over the coming years a team will become very passionate with the term as a means of weakening CBT’s influence in the decade. How, specifically, will MLB respond? though, For precedent, consider how the NHL once punished the New Jersey Devils for signing Ilya Kovalchuk to a 17-year contract..

Earlier this winter, it was San Diego Padres Considered offering Aaron Judge a 14-year contract, According to John Heyman of New York Post. It is unclear if he would have allowed such a deal to go through had the Padres offered and the judge had accepted. As Ken Rosenthal of The Athletic has since reportedMLB doesn’t have hard and fast rules about where they can draw the line on a term that only existed to circumvent CBT:

There is no answer, at least not yet. MLB, according to a spokesperson, reviews contracts on a case-by-case basis. Turner, Bogaerts, and Correa agreements, which expire after the age of 40 seasons, fall within the current line of reason. If teams start pushing trades into the mid-40s for players, it could be a different story. Or maybe not.

Again, though, given how often teams push things to their limits, it should come as no surprise when some clubs go too far for the league’s satisfaction.

3. metsaggression

The new collective bargaining agreement included several modifications to CBT, including the implementation of a fourth excess penalty for violators who exceeded the tax limit by $60 million. (Previously, there were penalty levels for trespassing, first exceeding $20 million, then exceeding $40 million.) This level was created to discourage one specific person: New York Mets owner Steve Cohen, who is believed to be the sport’s wealthiest franchise.

Suffice it to say, Cohen seems unconcerned with the new penalty.

Indeed, the Mets have been busy in the winter. They have signed or re-signed starting pitchers Justin Verlander, Koday Singha, and Jose Quintana; tranquilizers Edwin Diaz and David Robertson; Outfielder Brandon Nimmo. And hunter Omar Narvaez. All this moving and shaking made the Mets expected to exceed the tax threshold by approx $120 millionAnd the As estimated by Cot’s Contracts. This gives them an expected tax bill of more than $80 million; That’s a higher number than the salaries of nine teams, According to Spottrack accounts.

It may be an exaggeration to write that the creation of Cohen’s tax inspired him to spend whatever he needed to build a first-rate list. But you have to admit it’s a power move, no matter the intent.

4. Dodgers Province

We’ve covered the state of the Los Angeles Dodgers in more detail recently. They’ve since signed releasing pitcher Noah Syndergaard and designated hitter JD Martinez to one-year deals, giving them some much-needed life.

Prior to these additions, the Dodgers had apparently been in a holding pattern until an umpire ruled on Trevor Bauer’s suspension appeal. (Bauer has been suspended for several seasons by MLB for violating the league’s sexual assault and domestic violence policy.) If an arbitrator were to reverse Bauer’s suspension, it would have ramifications for the Dodgers’ CBT salaries, this year and past.

This is notable because the Dodgers’ inactivity at the top of the market — they let Turner walk away without making an offer on another star shortstop — has hinted they may strive to stay below the tax line in 2023 in order to reset the penalty rate. The Dodgers are expected to do everything they can for Shohei Ohtani, whether it’s at the trade deadline or next winter, so don’t expect Los Angeles to hibernate for another season, no matter what happens with the CBT number.

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