NEWSLETTER
Over the weekend, the Dodgers and Braves got together on a trade with big 2014 names, and big 2019 implications.
Understandably, guys like Matt Kemp, Adrian Gonzalez, and Brandon McCarthy got the headlines when the trade went down, but the real star of the deal was the luxury tax cap. Specifically, the new penalties imposed by being over that cap, and the strong incentives they created for teams to get under that level – at least every once in a while.
As the free agent market lumbers along like Albert Pujols trying to beat out a double play, it’s quite clear that the Dodgers’ and Yankees’ efforts to get under the $197 million luxury tax cap for 2018 is playing a major role. Stripping the competitive free agent marketplace of two of the traditional biggest spenders creates something of a bottleneck at the top of the market, which trickles down to the point that we’re here on December 18, and the two biggest signings are Carlos Santana for three years and $60 million, and Tyler Chatwood for three years and $38 million. Unbelievable.
But totally believable.
Consider the value to the Dodgers and Yankees of getting under the luxury tax cap this year. Not only will they avoid paying the massive luxury tax penalties that, on a percentage basis, rise every consecutive year you’re over the limit, they will also reset that tax rate to its lowest point, just 20% on the overage. Moreover, if the teams know they’re going to spend aggressively on potentially-qualified free agents next offseason, they can avoid the draft-related consequences of signing such players when you’re already over the luxury tax cap. It’s the nexus of several reasons to get under the cap right now, and it happens to align with next year’s bonkers free agent class.
It also demonstrates the profound impact the last collective bargaining agreement has had on the way rich teams treat the luxury tax cap as a periodic de facto salary cap. The Dodgers and Yankees probably won’t be alone in this get-under-the-tax-cap-every-few-years approach, which doesn’t mean it’s exactly a salary cap, but it’s going to feel like one to the players. It was not difficult to predict this kind of problem for free agents when the last CBA was announced, and unfortunately for them, those fears are being realized.
In the medium term, though, free agents in next offseason’s monster class – at least at the very high end – may be a little more protected by the fact that they could see several of the biggest market spenders willing to exceed the luxury tax cap heading into 2019 in order to reel in some of those big names. It also helps that the tax cap level jumps from $197 million this coming season to $206 million in 2019. At least the players’ reps had the foresight to get that bump in there for the big free agent class.
For the Cubs, the implication of this past weekend’s Dodgers trade (and the Yankees’ austerity) is pretty clear: if the Cubs want to be big spenders next offseason and go after – for one example – Bryce Harper, they’re going to have the biggest competition possible.
