LUXURY DOESN'T COME CHEAP
The more a team spends the more it hurts.
MLB.com writes on the subject of the Cap as follows (my comments in red):
Competitive Balance Tax -Definition
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 (AAV) 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. 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.
The following thresholds were put in place per the 2022-26 collective bargaining agreement:
2022: $230 million
2023: $233 million
2024: $237 million
2025: $241 million
2026: $244 million
As salaries continue to skyrocket each year, the cap goes up by roughly just 1.25% per year. That is some progressively tightening squeeze for the heavy spenders. But for teams like Pittsburgh, it's like, "Yeah...whatever."
Excesses over the annual threshold are subject to an increasing tax rate depending on how many consecutive years a team has done so.
First year: 20 percent tax on all overages
Second consecutive year: 30 percent
Third consecutive year or more: 50 percent
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 percent 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 percent surcharge
$40 million to $60 million: 42.5 percent surcharge for first year; 45 percent for each consecutive year after that
$60 million or more: 60 percent surcharge
So, since the Mets exceed the base threshold by $20 million or more, and are in their 3rd consecutive year or more of exceeding the cap, their penalty rate for 2024 will be 110% (50% plus 60%). For 2023, the rate was "just" 90%.
If they manage to drop 2024 spending under $297 million, the rate would lower from 110% to 95%. If this year's spending got below $277 million, the penalty becomes "just" 62%.
So, if this season flounders, the Mets will have every financial incentive to try to substantially reduce payroll mid-season, in hopes of escaping the 110% threshold and perhaps trying to drive it down to 62%.
62% of $40 million spending above the cap (if spending is held to $277 million) is $24.8 million.
The current estimate of the excess spending for 2024, though, is $314MM. (Spotrac shows roughly $307 million).
The $314MM (if accurate) current lux tax salary estimate minus $237MM annual cap = $77MM. $77MM X 110% is $84.7 million, or $60 million more than if they could lower taxable salary for 2024 to $277 million, which is quite an incentive to reduce salary, even for a billionaire.
Except Cohen still may not care much about that differential.
Also:
"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."
The Mets would have another big incentive, to get spending for 2024 below $277 million, to not be subject to the First Round 10 Slot Draft Penalty. Ten slots can make the difference between a star and a "meh" being drafted.
Below is the URL for a more in-depth article on the cap, if you are interested in deeper-diving on the subject:
https://pitcherlist.com/part-iv-competitive-balance-tax-implications-in-mlb-spending-optimization/
Feel free to draft up and share your thoughts.
Please stay within the unofficial 237 word response cap - I don't want to have to penalize you.
Freddy Patek agrees and said "Thank you for keeping it short."
But...I have to stay a bit longer...a Fan Nation article suggested:
"The (Tampa Bay) Rays, according to sources, also have been shopping designated hitter Harold Ramírez, whose OPS-plus the past two seasons is 21% above league average," The Athletic's Ken Rosenthal wrote Monday. "Ramírez hit .313 with 33 extra-base hits including 12 home runs, 68 RBIs, and a .813 OPS in 122 games for the Rays last season..."
"The 29-year-old has two more seasons of team control and will likely be traded now that the Rays are shopping him.The Rays could trade Ramírez to New York in exchange for expendable talents, prospect capital and could even include cash as the Mets have plenty of it. The cost of trading for the Tampa Bay slugger would be next to nothing for the big-market club. Will the Mets make a move to bolster their lineup by trading for Ramírez?"
Sounds worth looking into, to me.
17 comments:
No on Ramirez or anymore 2 yr deals
Vientos should be given the opportunity to DH in 2024
A tip of my luxury cap to you all this fine morning.
We have survived News 12's dangerous storm warnings. It rained, and was a bit windy is all. Unless you live in Lindenhurst or Mastic Beach where it flooded. But they always flood.
Mack, Harold Ramirez is not a FA until 2026. His last two seasons, averaged 435 plate appearances and .307/.350/.460.
An impressive .323 lifetime hitter vs. lefties.
He is a so-so outfielder and DH.
Made $2.2 million last year, might make $6.4 million this year per Spotrac. That is a lot of $$ for Tampa.
Tampa would want prospects (which, I dunno), or maybe Vientos, I'd guess, because he's cheaper. He probably would be a positive addition to their hitting.
Of course, Vientos back in his home state of Florida would probably blossom into Alonso II.
Another 75 win season? Then if the Baby Mets and next wave of kids don’t come through its rebuild time. So much for Cohens $s.
Woodrow, how much talent penalty in draft and international bonus losses do you need to see before you accept that it has nothing to do with Cohen’s money? Why is what he spends of so much interest to you?
I came here to write exactly what Mack wrote as the first comment. Amen Mack, tired of looking for sure things. Rays are looking for a sucker to cash-in a guy with little power and a high BABIP for two years in a row, .350 and .359 respectively. He was a .250 hitter with less power than McNeil, he had two impressive years and it’s time to sell. Call the Dodgers.
100% agree, Mack. If we’re going to do this thing, let’s do it. Keep the path clear for the kids and let this (brand new) FO make a real evaluation of what the org has, what it has coming, and what it will need. I’m so tired of regimes making short sighted moves chasing this week’s headlines or next week’s ticket sales. It may take a year or two, but 38 years past our last ring, the rinse repeat has to end.
I wonder what Vientos would hit this year playing for Tampa? Vs. NY? How much of a Queens Penalty is there for hitters, between the hitters' park and the omnipresent media and impatient fans??
Tom thanks for this article. I wasn’t clear on the Salary Tax number for the 10 pick drop in the Draft money threshold. So we have to be under $277 M at Season’s end to not be hit with this penalty? Does this also apply for the loss of Int’l Signing Pool money? I think those two things matter more to the Mets and Cohen more than the money penalties.
Agree Mack. If we’re not spending big this year the young guys need to play. Vientos should be the main DH (110-140 games at DH). Baty should at least get to the All Star Break to be the everyday 3rd Baseman. Lavender should be in the Pen the entire year. When Gilbert comes up he plays everyday. If Vasil comes up he goes into the Rotation.
They can’t say we’re not spending on top FA and playing the young guys and then not play the young guys. If they aren’t doing this they are BS’ing the fans.
The first thing we need to understand is that right now the payroll is way high for the talent this team has. In other words, the Mets are the worse team money can buy.
Cohen can continue to throw money at the payroll in 2024 but the Mets would still be a mediocre team that wouldn't be able to compete with the Braves let alone the Mighty Dodgers.
The best plan right now is to save money, give the prospects (Vientos, Baty) a proper tryout in 2024 while waiting for the our youngsters to come up to speed and start to replace overpriced veterans.
The worse thing the Mets can do right now is panic and start trading our top prospects in order to build a marginal team. That would be a step backwards and signify that there is still no concrete plan or direction for the future.
Like it or not, don't expect these Mets to be a WS contender until 2025/2026 at the earliest.
In the meantime, lets see what Vientos/Baty/Megill and others can do.
Amazin Z, I had looked a bit at that international drop in money thing, and I wasn't finding whether it still applies. Anyone else that knows can weigh in.
But, since the signings for 2024 start in a few days, perhaps the writers then will spell it out.
Viper, all we need to do is get into the Wild Card - you gotta be in it to win it - so, if signing 3 more pen arms for $15MM to $18MM would greatly increase the Mets' chances of getting a WC slot, I'd be game for that.
My guess, though, is April and May's tough schedule will result in an early TKO.
Tom, that applies if you are over the fourth tier of Luxury Tax penalty and you sign a QO free agent. Like say a certain 26 year old outfielder next year. Then, you lose the first round pick and $1MM in international signing monies.
Gus, thanks on that clarification.
May we sign that person, regardless.
100% agree Vientos must play this year & show what he can do. Only one more option so if they exercise it before he shows he can hit, his becomes a very finished asset. Would be another wasted draft pick. Doesn’t seem to be Stearns’ playbook
Anon, very good point on Vientos.
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