MLB Lockout Day 21: Payrolls Are Down to 2015 Levels, and the Luxury Tax is Completely Out of Whack

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MLB Lockout Day 21: Payrolls Are Down to 2015 Levels, and the Luxury Tax is Completely Out of Whack

Chicago Cubs

With final payrolls for 2021 out in the open, the AP calculated how things have changed over the years, annnnnnnd payrolls are down about 4% from the last full season in 2019. Indeed, payrolls this past year were down to their lowest point since 2015. Compare that, as many have, to the continuously escalating revenues in the sport, and it’s not at all difficult to see why the players have firmly planted themselves in these talks.

The counter, of course, will be that the pandemic created a weird one-off situation for revenues in 2021, and we’ll see what we see when those numbers come out for teams in early 2022. Still, the early signals from the Braves (their information is public) showed revenue was still increasing in 2021 (even before their playoff run). Moreover, we know that TV contracts were climbing in 2021, even as attendance was impacted in many geographic areas, particularly in the first half of the season. Like I said, we’ll see. But I’ll bet you a shiny nickel that revenues weren’t down to 2015 levels.

A major reason overall payrolls haven’t climbed over the last several years? The luxury tax, and its progressively increasing penalties.

These final 2021 payroll numbers are instructive on this issue. Although there were two teams over the luxury tax in 2021 (the Dodgers and Padres), there were FIVE teams within $3.4 million of the $210 million luxury tax threshold (i.e., less than 2% away from the tax!). That isn’t just a flukey thing that happens by chance, and we know it isn’t – teams have become pretty open about managing their payrolls, both inside and outside the season, to make sure they don’t go over the luxury tax. It has become a near salary cap, particularly when multiple seasons in a row over the tax are at issue, and it has put a significant check on payroll growth over the five years of the last Collective Bargaining Agreement.

The owners reportedly offered to increase the luxury tax for 2022 to $214 million from $210 million, which strikes me as pretty … unserious. (And don’t get me started on the earlier offer, which would have LOWERED the luxury tax level to $180 million, and INCREASED penalties in exchange for a $100 million salary floor.)

Consider this MLBTR piece, which notes that if the luxury tax number had increased annually by 5% since 2012 – that’s less than the growth rate in MLB revenues, by the way – then the luxury tax number for 2021 would’ve been $290(!) million. Instead, it was just $210 million. Things have gotten completely out of whack.

Either the luxury tax number needs to be massively higher, or the penalties that make teams so averse to topping the tax multiple years in a row need to be changed. Without either item fixed, you’re talking about not only a de facto salary cap, but a stagnating de facto salary cap!

Note, by the way: even on the teams that do not ever approach the luxury tax level, having a de facto salary cap registers an impact. If the market for player services is artificially limited – for example, a few teams sitting out a player because they decide he’s not worth the risk that it could take them over the luxury tax – it means his price tag is going to go down from wherever he signs. I have no doubt that teams across the board dig it – that’s why even small-market teams would want a strict and low luxury tax, even aside from competitiveness considerations – but it certainly isn’t player-friendly.

I just get so frustrated about this issue. You don’t even have to be “pro player” or “anti owner” to see what has happened over the last five years and know that it probably isn’t good for the sport as a whole. When the players – the guys on the field doing the things that we like to watch – are not seeing their share of the pie keep pace, there are institutional risks in the long-term. Status quo in the next CBA would be a terrible idea, without regard to any questions of “fairness.”

I’m not saying that fixing the luxury tax issue – again, either you fix the number or you fix the penalties or both – will, alone, address the apparent inequity that has developed in the game. There are other major issues with how money is distributed among the players, with how teams treat the competitive spirit of each season, etc. That’s all a part of this CBA conversation. But I’m just saying, the luxury tax issue is a major, major component.



Author: Brett Taylor

Brett Taylor is the Editor and Lead Cubs Writer at Bleacher Nation, and you can find him on Twitter at @BleacherNation and @Brett_A_Taylor.