A closer look at MLB’s chicanery while negotiating the CBT threshold

When I was a kid one of my uncles tricked my little brother into trading him a dime for a nickel. To be clear, at the wizened old age of five I would have made the same deal my brother did, I just didn’t have a dime. Both of us looked at the deal on the metaphorical table, made some assumptions about the evidence in front of us (nickels are bigger) and were wrong about key facts and context. It was an unfair trick, although, to my uncle’s credit he used it as a lesson and we both wound up pocketing a quarter out of the deal.

I’ve been thinking about that old trick a lot this week as the CBA negotiations have continued because as fans we are often missing some important context that colors these conversations. My piece earlier this week looking at MLB’s attempt to condition limiting options on the size of the minor leagues is a great case in point. That’s an appalling idea for any number of reasons, but the key to understanding it required a lot of of information that wasn’t readily available.

We’re all frustrated that Spring Training isn’t going to start on time, so it can be tempting to just want MLB and the MLBPA to get in a room, hash it out and get baseball back. However, the systemic issues in the game that privilege owners relative to players at the moment shouldn’t be allowed to worsen so that we can grab a cold beer (or hot chocolate) in the bleachers at Wrigley Field in April. With that in mind, today I want to take a look at some of the sets of conditions that have been suggested in recent offers relative to the Competitive Balance Tax (CBT) and why, for every move that MLB makes towards the players’ union, they simultaneously double down on another issue that actually pulls the two sides further apart.

The CBT has barely increased in years

The CBT grew out of the old Luxury Tax system. It was ostensibly a compromise position since the owners wanted a salary cap and the players did not, however, over the last 19 years it has pretty much functioned as a cap as Marc Normandin wrote for Deadspin in 2019 (emphasis mine):

More important than pointing out the insignificant punishment, though, is that jump from $117 million to $206 million over the course of 16 years. MLB’s revenues grew from $3.58 billion in 2003 to 2018’s record $10.3 billion, a 188 percent jump during that period. The luxury tax ceiling, however, grew by just 68 percent in that stretch. If teams are avoiding going over the luxury tax and luxury tax growth is well below revenue growth, then your luxury cap is, at best, a soft salary cap.

And teams are avoiding going over the tax: just eight clubs have ever even paid the competitive balance tax since it changed to the 2003 model; in 2018, only the Red Sox and Nationals did. There was still incentive to spend heavily, even if it was below the tax, during most of that period, but that’s because teams like the Yankees and Dodgers (and the Red Sox) were, if not ignoring the tax outright, not overly concerned with paying it. Now, though, with the Yankees publicly saying they don’t want to go over the luxury tax for obviously bullshit reasons they hope you’re not smart enough to understand, and the Dodgers putting together a five-year “let’s avoid the luxury tax” PowerPoint for investors, there’s less incentive for other clubs to go big on free agency. If teams know that they aren’t competing against the heavyweights, they can compete with each other at a lower level. The three biggest spenders in the game are already essentially out on Bryce Harper and Manny Machado, two of them because they’ve told you with their actions (and sometimes their words), and the Red Sox because they already crossed the brand new penalty marker once and are less than a Bryce Harper contract away from doing so again.

Since 2019 the Padres have joined the list of teams who have been willing to exceed the luxury tax, but a list of nine total teams over 19 seasons is a fraction of a pittance. Some quick math reveals that with 30 teams in the league there were 570 opportunities for teams to exceed the luxury tax. I tallied the number of times each of those nine teams went over the tax — it amounted to a whopping 37 total seasons. That’s it. The CBT has been exceeded 6.5 percent of the time since 2003 and less than one third of the league has gone over the CBT threshold in even a single season.

Meanwhile, total player revenues in 2021 declined over a full season to the lowest tally since 2015, which signals pretty clearly that players’ salaries stagnated under the most recent CBA as you can see in this graphic from the Associated Press:

AP News

As a reminder, revenues have grown as wages have stagnated. You can see it plainly in this chart from The Athletic that draws on MLB revenue data from Forbes and the AP payroll data above:

The Athletic

That chart has been all over the place lately to demonstrate that payroll has been flat as revenue soared. It is equally as important that the CBT threshold has also risen substantially slower than MLB revenues. As Jay Jaffe noted for FanGraphs earlier this week (emphasis mine):

While there’s certainly interplay between the various economic facets under discussion, no single issue illustrates the distance between the two sides, and MLB’s unwillingness to yield, more than the Competitive Balance Tax structure. Over the past decade, the tax threshold has not kept pace with revenue (or, for that matter, inflation), and it has functioned as a soft salary cap that even the wealthiest teams have been willing to approach but very rarely go over; per The Athletic, the Phillies, Yankees, Mets, Red Sox, and Astros all finished with payrolls less than $4 million below the first CBT threshold in 2021.

The Score’s Travis Sawchik put into graphic form exactly how flat the growth of the CBT has been over time as you can see below:

The Score

Sawchik goes on to explain how slowly the cap, I mean, the Competitive Balance Tax has raised vs. league revenues in percentage terms and well, this is jaw-dropping:

From 2003 to 2019, the last full season before the COVID-19 pandemic, league revenues grew 167%, from $3.88 billion to $10.37 billion, according to data published at Statista. The base tax threshold rose 76% in that period, from $117 million to $206 million.

The discrepancy increased most steeply in recent years. From 2011 to 2019, the tax threshold grew by just 15.7%, including four years of no increases and three with 1% increases. Meanwhile, MLB revenues grew 63%.

A cap by another name

The Luxury Tax was rebranded as the Competitive Balance Tax in the 2003 CBA. It’s a clever bit of wordsmanship designed to feed the myth that the real problem in baseball is the gap between the big market teams and their smaller market counterparts. If you’ve been paying attention to the recent negotiations you are no doubt aware that MLB Commissioner Rob Manfred leans on the bogey man of smaller market teams being unable to compete if the MLBPA were successful with their proposals at pretty much every opportunity.

It’s a nice bit of fiction from a league where one of the most successful franchises in the game in recent years consistently fields a bottom five payroll (I’m looking at you, Tampa Bay Rays) while the erstwhile largest spenders in the league, and the Rays’ divisional rival Yankees hemmed and hawed and passed on two of the biggest free agents available in 2018 in order to reset their Competitive Balance Tax.

A world where the Yankees are passing on 26-year-old superstars because they need to reset their Competitive Balance Tax is about as close to a salary cap as you can get without calling it a salary cap. And yet, it’s not close enough for MLB, who would like to not only leave the cap approximately where it is, with very little growth, but strengthen the penalties for exceeding the cap while throwing in draft picks AND getting rid of that pesky reset rule for good measure, as you can see from this table from Jay Jaffe’s piece referenced above:

FanGraphs

To be clear, the current tax rates already result in the vast majority of the league balking at exceeding the CBT in any given year, just imagine what happens if MLB doubles the tax rates and throws in multiple draft pick penalties. San Francisco Giants pitcher Alex Wood has imagined it, and is having none of it:

It’s just another day in the world where MLB moves half an inch towards the players, but conditions that half an inch on taking what is currently a soft cap and making it as hard as granite. What else would you expect from a league that gave you the “Save America’s Pastime” act to ensure they didn’t have to pay minor league players the federal minimum wage?

The MLBPA can also play this game

The most recent meeting between MLB and the MLBPA lasted about 15 minutes. You see, the players decided to let the owners know how it feels to have proposals partially accepted only to be conditioned on a return to an item they’d already moved off. Craig Goldstein, the Editor-In-Chief at Baseball Prospectus, did an exceptional job explaining the ins and outs of this strategy by MLB on Episode #1811 of FanGraphs’ Effectively Wild, and was quick to tweet the symmetry between the MLBPA’s recent proposal:

It is worth noting that the counterbalancing move from the MLBPA is not remotely similar in scale to the types of moves MLB has added at every turn. As Goldstein notes further down in that thread, adding $15 million back into the pre-arb pool isn’t worth nearly as much getting 100 percent of players to arbitration a year earlier. It was clearly more of a display that both sides can engage in these types of re-raises. Considering how quickly MLB walked out of the negotiations, I’m guessing they don’t like the taste of their own medicine very much.

That said, a potential problem for the players with this strategy is that their counter-asks are too reasonable and transparent. Reaction to the MLBPA raising their pre-arb pool back up to $115 million from $100 million included a lot of anger and confusion from fans who have generally seemed to side with the players throughout. There wasn’t nearly as much anger directed at the owners for radically changing the penalties for exceeding the CBT. That’s likely because everyone can easily comprehend a 15 percent increase in a monetary ask, while even the most savvy fans would need a few hundred words and a complicated chart like Jaffe’s above to explain exactly what it is the owners are proposing.

Those types of strategies work much better when one side is willing to exploit the fact that a lot of prior context can obfuscate the exact nature of the deal. While the negotiators for the MLBPA no doubt understand this dynamic well, fans do not. That’s not necessarily a problem in the short-term, particularly if the regular season starts on time. However, fans should be deliberate as they evaluate these proposals. Because unlike my uncle, MLB isn’t using this tactic to teach fans a lesson about American currency. The league is hoping to trade as few nickels as possible for a lot of fan and player dimes, then smile as team owners take all those profits to the bank.