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How Will Big Market Teams Respond To MLB's Luxury Tax Changes Under The New CBA?

How Will Big Market Teams Respond To MLB's Luxury Tax Changes Under The New CBA?

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Red Sox face 40% luxury tax next year if team goes over limit again
The Red Sox paid MLB's luxury tax in '10 and '11, but "suddenly exceeding the luxury tax in future years is a luxury the Sox can’t afford," according to Christopher Gasper of the BOSTON GLOBE. The more "cash-conscious approach has been reinforced by the Sox’ splash moves this off-season being the acquisition of could-be closer Mark Melancon and itinerant utility man Nick Punto." The Red Sox in '10 "were taxed at 22.5 percent," which required Owner John Henry "to shell out $1.5 million" in luxury tax fees. Gasper noted the bill from '11 "is sure to be higher because the Sox were taxed at 30 percent." It "jumps to a 40 percent tariff if they're over the tax this season, which they're likely to be even without any major additions." It would "increase to 50 percent in 2013." But the "real reason the luxury tax matters ... is because under major league baseball's new collective bargaining agreement it pays to stay under the luxury tax." The rate that a team "is taxed on the dollars it goes over the luxury tax can be reset to 17 percent if it is below the luxury tax for one season, but the real savings come in revenue sharing reimbursement." The new CBA "decrees that 15 large-market teams, including the Sox, are prohibited from receiving initial revenue sharing dollars." Beginning in '13 the large-market clubs "that don’t exceed the luxury tax threshold will be 'rebated' some percentage of their revenue sharing contribution, with the percentage rising to a 100 percent in 2016" (BOSTON GLOBE, 12/17).

YANKEES ALSO LOOKING AT THEIR WALLETS: On Long Island, Ken Davidoff noted the new CBA has also given the Yankees "strong incentive to be more careful with their dollars, and the expectation within the Yankees is that they will try hard to get the payroll down to about $180 million by the 2014 season." The threshold of the "competitive balance tax" remains at $178M for '12 and '13. While there is "no chance of the Yankees avoiding a bill through 2013," the threshold "rises to $189 million for 2014 through 2016, and that provides the timeline." If the Yankees "can drop below $189 million in 2014, they'd very likely still have the game's highest payroll, plus avoid the tax" (NEWSDAY, 12/18).