"LUXURY CAN BE BOTH TAXING - AND LUXURIOUS."
So, if someone said to you a few weeks ago that Gerrit Cole would sign for 9 years, $324 million (an average of $36 million per year), who would you have thought would be the team signing him?
Pick one:
A. Mets
B. Yankees
I know you all guessed A, but sorry, the shocking answer is B, the Yankees.
I know, you're as surprised as I am that the Mets let Cole slip through their clutches.
As in HARDLY SURPRISED.
As in NEVER IN IT.
That's a lot of cabbage being paid by the Yankees.
Actually, they will pay a WHOLE lot more cabbage due to the luxury tax.
MLB's website notes this about the Luxury Tax:
Each year, clubs that exceed a predetermined payroll threshold are subject to a Competitive Balance Tax (CBT) -- which is commonly referred to as a "luxury tax." Those who carry payrolls above that threshold are taxed on each dollar above the threshold, with the tax rate increasing based on the number of consecutive years a club has exceeded the threshold.
The thresholds per the 2017-21 Collective Bargaining Agreement:
2017: $195 million*
2018: $197 million
2019: $206 million
2020: $208 million
2021: $210 million
A club exceeding the CBT threshold for the first time must pay a 20% tax on all overages.
A club exceeding the threshold for a 2nd consecutive season will see that figure rise to 30%, and 3 or more straight seasons of exceeding the threshold comes with a 50% luxury tax.
If a club dips below the luxury tax threshold for a season, the penalty level is reset. So, a club that exceeds the threshold for two straight seasons but then drops below that level would be back at 20% the next time it exceeds the threshold.
Clubs that exceed the threshold by $20 million to $40 million are also subject to a 12% surtax.
Meanwhile, those who exceed it by more than $40 million are taxed at a 42.5% rate the first time and a 45 percent rate if they exceed it by more than $40 million again the following year(s).
Beginning in 2018, clubs that are $40 million or more above the threshold shall have their highest selection in the next Rule 4 Draft moved back 10 places unless the pick falls in the top six. In that case, the team will have its second-highest selection moved back 10 places instead.
I won't try to calculate all that for you - but reading the above, it is clear as clear can be that the Yankees will be paying mega-millions in luxury taxes over the next 9 seasons due to the mammoth nature of Cole's contract, unless the next CBA, starting in 2022, gives them a major luxury tax break.
So, let's say luxury tax rates stay consistent and this contract really costs them $450 million in salary and luxury tax over 9 years - that gargantuan sum is not much more than the lowest salary teams will pay out for their entire roster.
Seems insane, right?
Except when you know the Mets' goal, and Yankees' goal:
The Mets' REAL goal, cutting away all the blarney, has been to MAYBE play meaningful September baseball each year. If they sneak into October baseball somehow, owner giddiness ensues, and they count their Lucky Charms.
The Yanks? Their goal is hyper-aggressive:
To replicate the 1950's.
First, let me spread the "1950's" a bit to 1947 thru 1962, a span of 16 seasons.
In those 16 seasons, the Yanks were World Champs in 10 seasons - 1947, 1949, 1950, 1951, 1952, 1953, 1956, 1958, 1961, and 1962.
They want that - or more - to happen again.
Not win a World Series once every 30 years, like the Queens team, expecting fans to fondly reflect back on those great times of yore.
And the Yanks are willing to spend like Mike Bloomberg in a Presidential campaign to make it happen.
According to Wikipedia, from 2003 to 2017, the Yankees have incurred $320 million in luxury taxes.
To them, large luxury taxes are an acceptable cost of excelling in the business of baseball.
The Mets over the same period?
$0 in luxury taxes.
That's zero dollars and zero cents, just to be clear.
DEAD BROKE, WE ARE!
Luxury taxes to the Mets are anathema, and if the choice presents itself to incur luxury taxes or to not win, they will choose to not win. Why win, when spending less is so much more fun?
Which team has had greater success?
Ans.: The one spending the $320 million in luxury taxes.
We'll see what happens if/when billionaire Steve Cohen takes over ownership of the Mets franchise.
But we know what has happened for the Mets over the past few decades.
And what happened this week - the Bronx team that laughs in the face of luxury taxes signed perhaps the most dominant starter in free agent history - because they just ALWAYS want not to win, but to DOMINATE.
Looking back over the relative success of each team over the past 45 years, my brother just summed it up again:
"WE PICKED THE WRONG TEAM."
Maybe Mr. Cohen can change that - I guess we'll find out.
Neither my bro' nor I want or plan to change team allegiance - we just get repeatedly sick thinking about rooting for a weaker team with wimpy, milquetoast owners.
A team that wins perhaps once every millenium.
A team that does not WIN year after year because it gets SO LITTLE out of its cheap fringe players. Because of a stupid team budget that stays well clear of the dreaded luxury tax.
How do you see it?
P.S.
P.S.
According to SNY's Andy Martino, after the Michael Wacha signing deal, Martino said, "...And part of those dots that I'm connecting is seeing that the relievers that we've been reporting on this week, the Mets are not getting close with.
"We've talked a lot about Dellin Betances. Well look, my understanding right now is that there's actually nothing really doing there anymore with the Mets and Dellin Betances, at least for now and possibly for good....I think they'll sign some relievers, but at that level and as close as they are to the luxury tax, with the Wacha deal, they're like $3 million or so from the luxury tax, because you'd have to plan on it being $10 million for the number because it's at the end of the year."
So, despite the fact that they've gotten all this insurance money for injured players the past few years, significantly reducing their payroll costs, and likely some more insurance $$ this year for David Wright and maybe Yoenis Cespedes, the Mets remain (it appears from Martino above) to be hyper-focused at not going over the luxury cap.
This, when a guy like Betances could help them have a truly strong pen, if he were acquired and the cap was slightly exceeded, resulting in just a slight luxury tax.
Pretty sad, I'd say. Pretty "Mets", I'd say.
17 comments:
This was written before the Mets got Porcello and Wacha, just to be clear.
A decent alternate move scenario.
Still,
When you "must" stay under the salary cap - it makes no sense to tie up $53 million in two players - Cespedes and Cano 25.4%!!!!
Think the players union needs to push up the luxury tax threshold by at least $100 million.
Nah I think the luxury tax is fine where it’s at. I think it should be taxed at a higher rate. You can’t run a league with so many differences in money making abilities and hope for it to succeed. The same teams can stay on top all the time because they have advantages that other teams don’t. It’s not sustainable, so the rich must give to the poor to keep their fans initiated with their squads. If not it all falls apart.
I really wish they had a salary cap and minimum to adhere to, it would make the league even more interesting and enjoyable.
For every Tampa rays team that makes it with dirt cheap salary cap there are 5 Pittsburgh pirate teams that stay on the bottom for ever.
Part of the problem is that if you are a major league star, the rate at which free agent salaries climb are a high annual %. Everyone else, it's a much slower climb - and the salaries to the big boys will mean a lot of vets will have to accept big cuts to keep playing, even if their play level is still decent.
Reminds me of a movie Kate Hudson and Ginnifer Goodwin were in several years ago. Goodwin had a bigger role, but she got paid "just" $400,000. The "Star", Kate Hudson, got $8 million, 20 times as much. The relatively unknown lead male actor (looked a little like Tom Cruise) that the two ladies were fighting over? He also was in the movie as much or more than Hudson, yet he got around $100,000, 80 times less. Stars get the huge bucks.
And the Yanks want the BIGGEST stars whenever they can get them.
As The Coupons are seemingly headed out the door, let’s evaluate their reign. They aren’t the Steinbrenners with a shipping fortune. Also, they aren’t anywhere near the top of Forbes list of wealthiest owners. This is their cash cow, and they milked it for as long as they could. Further, they seem to have great advisors in not only getting the clauses put into their 1% original ownership that allowed them to become 5%, then 50%, and eventually majority. Then a few years ago, Jeff buys into a virtual reality sports league for $15MM. That Franchise is now worth twenty times that and I was stunned to see it on tv the other night when my family went out to celebrate my dad’s birthday! I can’t believe people pay to watch kids play video games, but they do, and it’s exploding!
So, this was a family that lucked out, and is now getting out before the big sport bubble goes boom and it’s a mess to clean up, because I’m wondering where all the money is coming from and who and how many, will still be able to afford tickets.
That's the downside of long-term deals to high-priced FAs.
Is the taxed bases on OD numbers, end-of-season ones, or some average?
If the Mets are under the cap on OD, but add (or subtract) players in July, does that alter the penalty?
I don't think there should be a luxury tax.
I think there should be a fixed ceiling that no team could operate above, no matter how much money they have.
This would force more reseach on who you pay what for how long.
Mack, revenue sharing goes to lower salary teams, doesn't it. A hard cap would cause them to lose that, which they'd not want. Players will want overall a certain level of revenues, so the cap would have to rise with a hard cap, or the players will strike.
Bill, I think mid season salary additions and decreases do affect the lux tax calc.
Texas Gus, more good luck for Wilpons - my older attorney cousin was I think quite involved in SIPC finding many billions of Madoff funds, which investors like Wilpon would have lost. So I believe the Wilpons lost 10's of millions less than they originally were expected to - and certainly that would have helped them stay involved with the Mets longer. Ouch.
They need penalties for not being competitive. I think the bottom 4 teams should lose their draft pick or be fined or both. I think these teams tanking and "rebuilding" are really hurting the game. You could even do it differently similar to the luxury tax penalty with them increasing over multiple years. If a team is in the bottom 6 for a certain number of years have increasing penalties each year. That would get teams to spend money really quick. Anyone that cries poor, have them sell their franchise. I dont think there are a shortage of billionaires looking to buy MLB franchises that would actually care about their team not being in the bottom third every year. The discrepancy in the winners and losers is getting more stark each year with the top teams winning more and the bottom teams losing an incredible amount of games. The bottom 4 teams were an absolute disgrace.
And regarding wheter or not the Mets have increased salaries...
2019 - $139,000,000
2020 - $199,659,667
+43.64%
Cheap bastards! 😣
Funny thing, Mack, is: of the $199 million for 2020, isn't about $75 million for Wright, Cespedes, Lowrie and Can?
There would probably be a way around it, but it would be interesting to set up a free agent spending cap - spend over $25 million per year on free agents, you pay a penalty. That would hurt the carnivore Yankees - but the players turning free agent would not like it at all.
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