Major League Baseball does not have a hard salary cap, but it does have a competitive balance tax (competitive balance tax) to prevent larger-market teams from continuing to spend too much money while also benefiting smaller-market clubs. CBT) has been introduced.
Commonly referred to as the luxury tax, teams pay penalties for gross payroll that exceeds standards set by MLB and the Players Association as part of the Collective Bargaining Agreement (CBA).
This number is set at $237 million for the 2024 season, and any salary above that number will be subject to tax. The tax is determined by the number of consecutive seasons a club exceeds the threshold and by how much.
Teams that exceed in the first year pay 20% tax on all excess amounts, increasing to 30% in the second year and 50% the following year.
Clubs making between $20 million and more than $40 million will pay a 12% premium; clubs making $40 million and more than $60 million will pay a premium of 42.5% in the first year and 45% in each subsequent year; Clubs making more than $60 million will pay an additional fee. A 60% surcharge will be applied.
In addition, clubs that spend more than $40 million over the threshold will have their highest pick in the next draft moved 10 spots lower, unless the pick falls within the top six. In this case, the team would move its second-highest selection down 10 spots.
This all pertains to the Los Angeles Dodgers because they had a hefty luxury tax on top of their top MLB salaries, according to Bill Plunkett of the Southern California News Group.
The World Series champion led Major League Baseball with an annual salary of $353 million and a bill for exceeding the competitive balance tax threshold of $103 million.
This is the fourth consecutive season the Dodgers have exceeded the luxury tax threshold and the ninth time since Guggenheim Baseball Management Group took control of the club.
The Dodgers’ payroll was $116 million above the luxury tax threshold, and because he had been with him for more than three seasons, he was taxed at the highest base level of 50%.
However, since they too exceeded the threshold by more than $60 million, they ended up paying additional fees, resulting in a 50% penalty for the first $20 million above the threshold and a 50% penalty for the next $20 million. is subject to a tax rate of 62%. 95% for amounts between $277 million and $297 million, and 110% for amounts exceeding $297 million.
This brings their total tax bill to $103 million and their total salary for the 2024 season to $456 million. Additionally, the $103 million penalty is an MLB record, surpassing the previous record of approximately $101 million set by the New York Mets.
Had it not been for the unprecedented delay, the Dodgers’ total would have been much higher. That saved the Dodgers a significant amount of money and allowed them to continue spending.
Additionally, in addition to the Dodgers, eight other teams also paid luxury taxes, setting a new record with nine teams paying penalties.
The New York Mets, New York Yankees, Atlanta Braves, Texas Rangers, Houston Astros, Philadelphia Phillies, San Francisco Giants, and Chicago Cubs were all taxed on a total of just over $311.3 million. Six of the nine teams advanced to the 2024 postseason.
Where will MLB’s luxury taxes go?
Luxury tax funds will be distributed under the CBA agreement.
The first $3.5 million in funding will be given to players. The other half will be used to fund contributions to the players association’s personal retirement account.
The other half will be distributed by the Commissioner to recipient clubs that have increased non-media regional net revenue over multiple years.
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