MLB wants to dramatically lower the luxury tax threshold

In the last week Shohei Ohtani hit his 40th home run while also throwing 100 innings to the tune of a 2.79 ERA. The Field of Dreams game had a Hollywood ending that was almost better than anything MLB could script as the Yankees came from behind to take the lead in the top of the ninth before Tim Anderson hit a moonshot into the corn to walk off the game for the White Sox. Fernando Tatis Jr. is putting together one of the best seasons in recent memory while dealing with repetitive subluxation of his left shoulder. He’s reinvented his swing, moved from shortstop to the outfield, and is still tied for the NL batting lead in fWAR despite playing 12 fewer games than the Dodgers’ Max Muncy.

With stories like these MLB should be booming and taking a victory lap as they discuss how the league has bounced back from the pandemic-shortened season. But MLB can never stay out of its own way for long and the current Collective Bargaining Agreement runs out on December 1. Any hope that the players and owners could come to a quick agreement for the good of the game and fans was dashed yesterday when it was leaked to reporters that at their first in-person meeting on the next agreement MLB proposed lowering the first luxury tax threshold to $180 million along with a salary floor for all teams of $100 million.

I’ll get into the reasons this proposal is dead on arrival and ominous for any hopes of a quick negotiation below, but before I do that I want to highlight the strategy behind this leak and the questions MLB is surely hoping you are not asking yourself as a fan today. Because make no mistake, this is an offer designed to frame the negotiations in favor of the owners and they need you on their side to do that.

A salary floor is one of many possible options fans of the game have proposed over the years to combat the trend of teams tanking. It is generally perceived to be a player-friendly mechanism that would increase player pay across the board as Sheryl Ring explained for Beyond the Box Score in 2019:

What’s the impact of the salary floor? In monopsonistic labor markets like professional sports, raising minimum wages increases both salaries and employment rates. A Bureau of Labor Statistics study from 2003 found that a salary floor “unambiguously” improved welfare in a monopsonistic market, and other studies agree.

How about the NBA? Since the salary floor was implemented, player pay has increased dramatically. In 2016, NBA players earned more, on average, than any other professional sport. Nor was this pay concentrated at the high end of the market; NBA players also had the highest median player salaries in the world. Since then, the average NBA salary has increased to $7.7 million for this season. Over the same period, average MLB salaries have actually decreased, from $4.38 million in 2016 to $4.36 million today. Now, one might think that the NBA salary floor would have a deleterious effect on team finances. Nor have increasing salaries caused financial problems for NBA teams, with every team now worth more than $1 billion, and an average team worth of $1.65 billion.

A salary floor is certainly on the MLBPA’s wish list for the next CBA (although I’d propose a higher one, like the $120 million Ring proposed in the above article). The Athletic article I linked above leads with this development, because it is ostensibly big news that MLB would force teams at the bottom end of payroll to pay all of their players more. But the real news here is the lowering of the luxury tax threshold. If you made it to the middle of the same Athletic article you saw this list of previous year’s luxury tax thresholds:

2012: $178 million
2013: $178 million
2014: $189 million
2015: $189 million
2016 $189 million
2017: $195 million
2018: $197 million
2019: $206 million
2020: $208 million
2021: $210 million

That’s right. MLB is proposing moving the luxury tax back to 2012/13 levels for 2022. To give you an idea of how that impacts teams I took this opening day payroll data from Cots compiled by Baseball Prospectus. All of the teams above and including the Padres were over the new proposed luxury tax on opening day. All of the teams from Milwaukee down were under the proposed salary floor as of opening day.

Now, clearly there has been some movement here. Trades and 40-man moves have shifted where teams will wind up at the end of the year. But proposing an economic system that forces nine teams to slash their opening day payroll at the outset is absurd on its face. Also buried in the detail is that the teams over the cap would pay for the poorer teams to hit the $100 million, as if owners of major league baseball teams couldn’t possibly just reach into their pockets and pay players more to hit that number on their own.

This isn’t a serious proposal. It’s a bargaining tactic, and leaking it to the press is designed to set off another round of “these greedy players make too much money to play a game” while ignoring the fact that with the possible exception of the pandemic shortened season owners have been raking in a larger percentage of the profits for years:

Maury Brown - Forbes

MLB owners will undoubtedly dispute this. Subsequent reporting at Forbes indicates that many owners have plowed their profits back into stadium improvement or dual-use projects that may result in a crisis of liquidity even as profits increase hand over fist for the owners.

But that liquidity crisis isn’t the players’ problem. It’s a set of decisions the owners have made to increase the value of their assets in the long-term while not paying their players a fair share of the pie in the short-term. Those same owners would love nothing more than to frame this particular debate in terms that make their financial situation look as dire as possible in the hopes that you will forget about graphs like the one above.

Incidentally, that is why baseball fans like union lawyer Eugene Freedman were quick to point out that only one side is leaking here: the side that cares more about controlling the narrative and stoking age-old millionaire v. billionaire debates than actually getting a deal done that benefits players:

His thread continues:

And therein lies the rub. This is about posturing so MLB can claim they offered a salary floor that the MLBPA rejected at some point in the future. They are hoping you don’t do the actual math to realize this would cap and cut salaries overall as the always astute Craig Calcaterra pointed out in his newsletter today:

Which is way, way lower than the current Competitive Balance Tax (CBT) threshold of $210 million. A $210 million threshold that teams now uniformly treat as a hard salary cap and bend over backwards to avoid spending more than that. If they were to install a $180 million threshold teams would absolutely treat that as the new hard cap. So, yes, you may very well get all the teams that are currently tanking their brains out to up their payrolls a bit, but it would cause the currently higher-spending teams to slash payrolls. Taken all together you’d get a flatter payroll landscape, sure, but there would be less paid in salaries overall. If you want to put hard numbers on it: Per Cot’s Contracts, Opening Day payrolls showed seven teams under $100 million by a collective $145.7 million. The teams over $180 were over by a collective $259 million. This proposal, if enacted for 2021, would suck around $114 million out of overall payrolls, assuming everyone was acting rationally to optimize their tax burdens. Which they would do, because the people who run baseball teams are hardwired to do just that.

It’s about to be silly season as MLB leaks ostensibly reasonable proposals to their favorite reporters so they can vilify players for not accepting a slash in overall payroll. Fans who would love to see what Ohtani can do for an encore in a full 2022 season would do well to read between the lines and not fall for it because this is only the beginning of baseball’s latest public relations war.