Tom Brennan - Cohen's Dollars and Sense

AHH, SWEET LUXURY (TAX???)

"HEY, HEY...UNCLE STEVE, UNCLE STEVE", cries the fan.

“Why didn’t we get this guy? Why didn’t we get that guy?”  

Every Mets’ fan’s frantic plea: 

SPEND MORE, UNCLE STEVE!!

So why didn't the Mets get 4 more great guys at the deadline? 

As I see it, even with wheelbarrows full of "Cohen Cash", there is a $$ bottom line which, if crossed, goes from “seriously aggressive” to "just too danged expensive.” 

If there was no luxury tax, Steve would probably have a $500 million payroll. But there are close restrictions of the financial kind that he is up against.  

Competitive Balance Tax (per MLB website):

Each year, clubs that exceed a predetermined payroll threshold are subject to a Competitive Balance Tax (CBT) -- 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.

A team's CBT figure is determined using the average annual value of each player's contract on the 40-man roster, plus any additional player benefits. Every team's final CBT figure is calculated at the end of each season. 

(Note: If a player signs a contract extension that doesn't kick in until a later season, his AAV for the purposes of the CBT doesn't change until the new deal begins.)

Thresholds put in place per the 2022-26 collective bargaining agreement: 

(Brennan Comment: the year-to-year increases in the cap are less than 2%).

2022: $230 million

2023: $233 million

2024: $237 million

2025: $241 million

2026: $244 million

A club that exceeds the CBT threshold is subject to an increasing tax rate depending on how many consecutive years it has done so.

First year: 20% tax on all overages

Second consecutive year: 30%

Third consecutive year or more: 50%

If a club dips below luxury tax threshold for a season, penalty level is reset. 

(Brennan Comment: A Luxury Tax Reset is financial heaven, potentially with the Cohen-istas saving many millions).

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.

There’s also a surcharge threshold for clubs that exceed the base threshold by $20 million or more.

$20 million to $40 million: 12% surcharge

$40 million to $60 million: 42.5% surcharge for first year; 45% for each consecutive year after that

$60 million or more: 60% surcharge

DRAFT POSITION IMPACT:

Clubs $40MM 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.

(Brennan Comment: It is my understanding there are other draft-related trip wires to fret about, but that is perhaps a subject for another day).

OK, Brennan back with final comments...

The Mets as I understand it presently are perilously close to that 60% surcharge, and that is one heck of a surcharge.  Preference would be to stay just under it so that the surcharge is "only" a still onerous 42.5%.  Hence their desire to not go to $295MM or $300MM in payroll - the increase would be far greater due to the surcharge.  That seems to be how much pain Cohen is willing to take right now.

Also, as I understand it, the Mets are in the 20% level for normal, non-surcharge penalty this year, having just stayed under the threshold last season.  Otherwise, they'd be at a 30% penalty for the excess, plus the surcharge.

CONCLUSION:

I am not going to try to calculate the amount of the 2022 and certainly not the 2023 penalty, in case I misinterpret the rules and hence miscalculate.  However, even in this, the first year of exceeding the threshold, the 20% penalty plus 42.5% surcharge are enormous.  

One article I saw from a few months ago, though, noted the following: 

"The Dodgers were the only team to "exceed the new fourth threshold.” 

The Mets were second at $289.3MM -- “$667,278 below the "Cohen Tax.” That left them “on track for a tax payment” of just under $22.5 million.

If Mr. Cohen busts the bank next year, he will be at a 30% luxury tax rate, with a 60% surcharge.  Huge.  

My assumption is that could result in a luxury tax of $40 million or more.

At some point, he and his financial gurus have to hope that Messrs. Alvarez, Baty, Vientos, Mauricio, Ramirez, Hamel, etc. arrive on the scene with star caliber, starting to phase in during 2023 and 2024, to allow him to switch out hyper-expensive veteran contracts with cheaper ones for young players.  Maybe by 2026, be able to reset the cap  -  if ever.  

My guess?  It will be very difficult, absent a major rebuild around youth.  I think they have burst across the luxury threshold and will remain above it for years into the future, although I would also imagine that if the team heavily falters in future years due to injuries and bad contracts, scenarios on how to beat a financial retreat are also gamed out, just in case.  Nothing worse than paying an exorbitant luxury tax while winning just 70 games.

What all of that means as far as re-signing Jake, Edwin, Nimmo, etc. is a subject best discussed not now, but after the Mets win the 2022 World Series.   

But briefly, for instance, Escobar's financial obligation would be gone by the end of 2023 and McCann's by the end of 2024, replaced by Baty and Alvarez contracts totaling $2 million.

That's all for me - any more words are a luxury I cannot afford.

EXCEPT: THE ANNOUNCEMENT OF THE 1ST CAMERON MAYBIN AWARD…

Cameron went a scintillating 1 for 28 as Met in 2021.  So this new and coveted award is given to the top non-performer.

Looks then like the inaugural 2022 Cameron Maybin award is going to Darin Ruf. 

The Ruffian started his Mets tenure with 6 hits in his first 6 games, then the spigot dried up. Thru Sunday, he is 1 for his last 32, which is quite a (non)accomplishment.

Heck, Ruf replaced JDD, who already has 5 HRs for SFG…but just 7 RBIs. Same # as Ruf with the Mets. (BTW, Tom Szapucki in his last 2 SFG outings? 3.2 scoreless, no walks, 6 Ks.)

Of late, JDD is hitting like Ruf, who is hitting like Maybin. JDD is just 4 for 25 in Sept, with one RBI. “September Mourn”, sang Neil Diamond.

I asked my pal Rodney about it...

“Award? It’s Ruf, I tell ya…RUF…hey, it’s Ruf being me!”

ALSO...

Last night (5-2 loss) was abysmal.  

"Where have all the hitters gone, long time passing."

Mets are 5-5 in this stretch against very weak teams, squandering an unexpected chance to put the suddenly losing Braves well back in the rear view mirror.  For shame.

LASTLY...

St Lucie rallied for a 3-2 win and sweep with a 3 run inning late in the game, including a Parada RBI.  BUT...the story was not Calvin Ziegler, who was wild again and allowed bot runs over a few innings.  It was 18 year old JOEL "PEDRO MARTINEZ" DIAZ, throwing the final 6 innings with no runs, 3 hits, 1 walk, and 11 Ks...and 91 pitches.

Wherever Ziegler and Diaz were in prospect lists, they should be switched.  WOW on Diaz.

The other playoff team, Brooklyn, fell to 1-1 with a 6-1 loss.  Dom Hamel was not sharp in the loss.

How bad is Syracuse pitching.  Butto threw 5 innings of 3 hit, 1 run ball, and the relievers surrendered 11 more runs!

Binghamton won perhaps their most stirring win of the year, tying the score bottom 9 and then, after the opponent scored 3 in top 10, the Ponies plated 4 in the bottom of the 10th, with big RBIs from Luke Ritter.  Shame he is hitting .206 this year, as he has 15 HRs and 61 RBIs.