Six teams project to have their payrolls exceed the $208 million Competitive Balance Tax (CBT) threshold in 2020, and we’ve already heard rumors about some teams that are looking to shed salary as a result.
The six teams over the tax threshold as of December 14, according to Spotrac.com are:
- New York Yankees by $51.3 million
- Boston Red Sox by $28.4 million
- Houston Astros by $19.9 million
- New York Mets by $8.67 million*
- Chicago Cubs by $6.5 million
- Philadelphia Phillies by $2.7 million
*Note: In recent days, the Mets restructured Yoenis Cespedes’ contract that was scheduled to pay him the equivalent of $29.5 million in 2020. Speculatively, that restructuring stands to reduce the Mets’ payroll substantially in 2020. Spotrac’s tracking of the Mets’ salary situation had not been updated at the time this article was posted, perhaps because they are still awaiting specifics of Cespedes’ new contract.
According to MLB.com:
The Red Sox are trying to reduce their payroll to get below the $208 million Competitive Balance Tax threshold, though a source said that ownership has not made it an absolute mandate for the front office.
None of the above-listed teams have publicly announced their intent to shed payroll, because that would give teams with which they are negotiating a bargaining advantage. However, numerous names have been floated in various recent trade rumors that indicate that most of these teams have this objective in mind. Some of the big names from these teams reportedly being discussed include Boston lefthander David Price ($32 million in 2020), Yankees lefthander J.A. Happ ($17 million in 2020), Houston shortstop Carlos Correa ($7.4 million in 2020), Mets second baseman Jed Lowrie ($11.5 million in 2020), and Cubs third baseman Kris Bryant ($18.5 million in 2020). The Phillies were under the tax threshold until they signed shortstop Didi Gregorius a few days ago.
Regarding Price, who reportedly has come up in discussions between Boston and the Reds, MLB.com reports:
One scenario that has been floated in recent weeks would have the Red Sox attaching a young player — Andrew Benintendi’s name has been mentioned often — to Price in order to dump the pitcher’s contract. The Angels made a deal of that nature on Tuesday when they shipped Zack Cozart and his $12.7 million salary, along with 2019 first-rounder Will Wilson, to the Giants in exchange for a player to be named later or cash considerations, essentially allowing Los Angeles to free up payroll by giving San Francisco a young prospect.
A source said that concept has not been considered by Boston’s front office — nor will it be, especially not with Benintendi.
“That’s not going to happen,” the source said.
Just how much of Price’s contract the Red Sox would need (or be willing) to pay down would depend on the return from the other club. The Padres have discussed a deal that would include Wil Myers — who has three years and $67.5 million remaining on his contract — going back to Boston. That would save the Red Sox roughly $10 million per year, which means they would still need to shed at least one more player — Jackie Bradley Jr., for example — to get below the CBT threshold.
Despite MLB.com’s source saying Boston wouldn’t consider a Cozart-like trade scenario with Price, that strategy is used with great regularity in the NBA, often in trades between teams that are highly competitive and non-competitive. The typical scenario is that a contending team acquires a starting caliber player from the non-contending team. In exchange, the non-contending team takes on “expiring contracts” of non-star-caliber players AND a draft choice or draft choices. The “expiring contracts” (meaning that they expire at the end of the season) open up payroll room for the non-contending teams to hopefully use on free agents who might help them improve. And the draft choices have obvious benefits for a team that is trying to build.
Like the other 29 major league teams, the Cincinnati Reds have an opportunity to be creative in acquiring a potential difference-making player such as Correa or Bryant. They may be able to give up somewhat less in return because the other team may be motivated to not pay the CBT, the terms of which are (according to MLB.com):
A club exceeding the Competitive Balance Tax threshold for the first time must pay a 20 percent tax on all overages. A club exceeding the threshold for a second consecutive season will see that figure rise to 30 percent, and three or more straight seasons of exceeding the threshold comes with a 50 percent luxury tax. 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.
Clubs that exceed the threshold by $20 million to $40 million are also subject to a 12 percent surtax. Meanwhile, those who exceed it by more than $40 million are taxed at a 42.5 percent rate the first time and a 45 percent rate if they exceed it by more than $40 million again the following year(s).
If Boston exceeds the tax threshold again, it will be their third consecutive year, so in very round numbers, the Red Sox would pay approximately a $15 million CBT, based on current figures. Essentially the question for Red Sox ownership is whether keeping David Price and his $32 million in 2020 salary on the roster is worth paying an additional $15 million tax. The Cubs and Yankees will be in their second consecutive year over the CBT threshold if they remain there.
Whether what we will refer to as the Cozart/NBA-like trade will be used by other teams in major league baseball is one of the compelling questions of the 2019-2020 offseason. And we here at Redleg Nation, of course, are particularly interested in whether Dick Williams and Nick Krall can use this opportunity via a creative solution. This was the case last year in which the swap of bad contracts (Homer Bailey and Matt Kemp) produced financial benefits for both teams, as part of the swapping of other key players (Yasiel Puig, Kyle Farmer, Alex Wood, Josiah Gray and Jeter Downs).