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Newest CBA Could Diminish Biggest Spender’s Draft Picks
July 28, 2017 By J.J. Cooper
The new collective bargaining agreement has added a new wrinkle to keep teams
such as the Dodgers from outspending the rest of the league by large margins.
As it did in the previous CBA, the new CBA has a luxury tax to charge teams
that go over a certain threshold in spending on major league payroll.
But that’s just money. This time the CBA for the first time includes draft
pick penalties for teams that spend big.
The new CBA adds two surcharge thresholds on top of the competitive balance tax
that was included in the previous CBA. Spend more than $217 million in 2018 and
a team will be hit with an additional 12 percent tax on top of the 20 percent,
30 percent or 50 percent tax they will be hit with (depending on how many
consecutive years they have exceeded the tax threshold).
But the penalties really kick in for a team that spends more than $237 million
in 2018. Not only will the franchise be hit with a 42.5 percent or 45 percent
surcharge tax on top of the competitive balance tax, but the team will also see
its first draft pick dropped 10 spots. That pick is protected, but that
protection is relatively meaningless, as the penalty is applied to the team’s
second draft pick only if it’s one of the top six picks in the draft. It would
be hard to envision a team finishing with a top-six pick (meaning it had one of
the six worst records in baseball) with a $237-plus million payroll.
The penalty kicks in in 2018. The amount for the second surcharge threshold
will increase to $246 million in 2019, $248 million in 2020 and $250 million in
2021.
Considering how reluctant teams are to part with draft picks, the new penalties
put a pretty significant brake on big league spending at the highest levels.
The Dodgers have consistently had the highest payroll in baseball in recent
years and have exceeded the luxury tax threshold in each of the past four
seasons, often with a payroll that would exceed the highest surcharge threshold
under the new system.
In the past, that’s meant that the team has paid between $11.4 million and
$43.7 million in luxury tax. Under the new system, that bill could get much
larger. As the CBA explains, if the Dodgers (or any other team that has
exceeded the luxury tax threshold for three consecutive seasons) had a $260
million payroll in 2018, they would have to pay a total luxury tax of $54.25
million and also see their first-round pick moved back 10 spots in the draft.
Any payroll beyond $237 million would be taxed at 95 percent of that amount
beyond $237 million; so a $300 million payroll would carry a $92.25 million
luxury tax and the draft pick penalties. The Dodgers payroll peaked at $298.3
million in 2015 and has dropped since as some large contracts have been
cleared from the books. Last year, the Dodgers payroll was $252 million.