Big-spending Major League Baseball teams accustomed to paying a competitive balance tax may not be assessed the penalty or have to pay the tax this year because of expected financial losses in the sport, an official told Sportico. The source was granted anonymity because MLB has not yet made an announcement.
The matter is “still under the discussion” between the owners and the players’ union as part of an agreement to expand this coming postseason from 10 to 16 teams.
Before the coronavirus truncated the current season from 162 to 60 games, the tax threshold was $208 million, which includes player payroll, taxes and benefits.
A first-time offender has to pay a 20-percent penalty on anything spent above the threshold. Two-time abusers pay 30-percent and teams that do it three years in a row or more have to pay a 50-percent rate, with additional draft pick and financial penalties if the expenditures are higher than $45 million above the threshold.
For example, a team that goes $10 million over the threshold for the first time has to pay a $2 million tax, a second-time offender $3 million, a three-timer $5 million.
Commissioner Rob Manfred has speculated publicly that the sport could lose as much as $4 billion this season, and suspending the measure would protect teams from additional losses.
Teams can dip below the threshold for a year to reset the penalties, as the New York Yankees, Los Angeles Dodgers, San Francisco Giants and Boston Red Sox have done in recent years.
The question is how that would be applied to this season’s prorated salaries for 60 games.
“I don’t know the answer to that in any detail,” Farhan Zaidi, the Giants president of baseball operations, said Thursday. “My understanding is that there’s still going to be some proration. But as our payroll stands right now we’re not that close to that vicinity so we haven’t done a lot of work on that.”
The Giants are usually one of MLB’s top-spending teams, but in this season’s prorated structure, they’re eighth overall at $73 million.
The 60-game season prorated against the $208 million cap would result in a threshold of $77 million: 37-perecent of the cap based on playing 37-percent of the full season.
Only five teams would be above that adjusted threshold, with the Yankees leading at $110.9 million, the Dodgers second at $105.5 million, and the Red Sox third at $84.5 million- followed by the Houston Astros at $81.4 million and the New York Mets’ $80 million.
Farhan also said there is support for an extended playoff format.
“From a business standpoint, given our shorter season it makes sense to have a longer playoffs and generate more fan interest and excitement,” Farhan said. “Right now, from a standpoint of what’s good for the game we support anything that promotes more fan engagement and excitement.”
