Tom Brennan: Cohen Tsunami of Spending Engulfs Division Rivals

LUXURY LIVING CAN PUT YOU IN A HIGHER TAX BRACKET - BUT YOU ONLY LIVE ONCE, BABY!

"Incremental Costs and Incremental Benefits."

I wrote this article yesterday afternoon…by yesterday evening, we got our answer. Please read on.

Rod Serling might say it this way: 

"You're living in a recently built $500,000 home and see an older, palatial $1.5 million home.  For you it has incremental benefits, but at great (and to some degree open-ended) incremental cost.  Taxes can be hefty in the Luxury Tax Not Light Zone."

Likewise in the wild, whacky, wonderful world of baseball.

The Competitive Balance Tax CBT) thresholds for the 2023-26 seasons are:

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% 

(In 2023, the Mets will be in this 2nd penalty year)

Third consecutive year or more: 50% (Ouch, like to avoid that!)

If a club dips below the CBT threshold for a season, the penalty level is reset. 

But wait - there's more.

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 (this is the level the Mets find themselves in, but barely, as of December 8, 2022).

$60 million or more: it jumps to a 60% surcharge

Also, clubs $40MM or more above the threshold shall have their highest selection in the next MLB 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. 

(This is the Mets' current position i.e., their 2023 draft level gets impacted, and definitely, their 2024 draft pick will be impacted too).

I am not going to try to calculate the amount of the 2023 penalty, in case I misinterpret the rules and hence miscalculate.  However, the penalty is big bucks, and above the $293 million threshold, it gets to be very large.   It seems that every dollar above $293 million gets a 30% threshold tax and 60% added surcharge.  Hefty, hefty, hefty.  

So, if a Nimmo gets signed and his incremental salary falls entirely above the $293 million threshold, I believe the cost to the Mets for his 2023 salary would essentially double. $25 million a year becomes $50 million a year.

So, the incremental CBT costs from here on out are huge.

But the incremental benefits could be huge, too.  

If getting Nimmo back would hypothetically turn the Mets from 25% likely to win the division to 75%, and the Mets would have a 50% chance of missing the playoffs without Nimmo, but only 10% if he is signed, that is a huge inducement to incur the incremental cost to attain the likely immense incremental benefit (knowing, however, that all investments are risky and past performance is no guarantee of future results).

And team revenues go up the more successful you as a team are.

It should therefore be interesting to see how Messrs. Cohen and Eppler address this conundrum.  

Most fans are far more interested in incremental benefits than incremental costs, while it is the owners who incur and pay the incremental costs.  Heck, most voters vote for the pols who give away the most stuff, except in the government's case, the funds for ALL such giveaways are funded through incremental borrowing.  Then taxes eventually go up incrementally.

Living at the top end of the luxury CBT threshold tax mountain is hellaciously expensive.  But, given competitive balances in the NL East and NL overall, sometimes pain is unavoidable.  The Mets are feeling the incremental pain of luxury spending.

But …. That was all written yesterday afternoon, shortly before we saw it: 

Steve Cohen is proving he is simply TOO RICH AND COMMITTED TO LOSE!

By signing Nimmo, one of my favorites, to a huge 8 years, $160 million deal, he is recognizing all the positive attributes Brandon brings to the table and the team. David Robertson for one year, $10 million keeps the Mets further away from having an ineffective bullpen.

And…if he busted the cap with these deals, why should he be done? There are other players to acquire, to make this team invincible.

All it took was his determination and Cohen Cash.

I wonder who’s next? 

I wonder what our departed rodeo boy is thinking? 

How about you?