With Justin Turner and Trevor Bauer in the fold, Dodgers face a luxury tax bill
At a time when teams across the majors, from mammoth to tiny markets, have refused to add substantial payroll, the Dodgers zagged with their recent spending spree.
They’re not the only team to swerve off the mainstream. The San Diego Padres, located down the road in one of the smallest media markets in the majors, bucked the groupthink and added significant payroll. A few other teams were willing to spend significant money — the Toronto Blue Jays and New York Mets were aggressive all winter — but that’s now considered an anomaly.
The new market inefficiency is spending money on talent, and there isn’t an organization spending more money on players than the Dodgers.
Adding to their already substantial payroll this winter wasn’t a certainty at the beginning of the offseason, when the Dodgers joined most other franchises in announcing layoffs across the organization. The club didn’t disclose the number of people affected, but nearly 50 employees were dismissed, according to people with knowledge of the situation.
Then, over the next two months, the club’s biggest expense was re-signing reliever Blake Treinen to a two-year, $17.5-million contract. Meanwhile, key contributors Pedro Báez, Kiké Hernández and Joc Pederson signed with other teams as free agents.
That changed two days before the Super Bowl when the Dodgers and Trevor Bauer agreed on a three-year, $102-million contract, making Bauer the highest-paid player in the majors in 2021 and again in 2022 if he doesn’t opt out next winter. Eight days later, on Saturday, the Dodgers and Justin Turner came to terms on a two-year, $34-million deal to bring back the third baseman.
The Dodgers are keeping hometown hero Justin Turner for at least two more seasons, and the deal made too much sense for both sides to not happen.
The Dodgers were pushing up against the $210-million competitive balance tax threshold before the moves. While their 29 peers treated the line as a salary cap, the Dodgers rocketed past $210 million.
The team’s precise CBT payroll is unclear. The information available to the public can be incomplete. In this case, the two leading websites for this data — Roster Resource and Cot’s — have slightly different numbers.
Roster Resource estimates the Dodgers’ CBT payroll is approximately $257.4 million. The Cot’s calculation is about $254.4 million. Those estimates include the two-year, $4.3 million contract Austin Barnes agreed to sign Sunday.
The Boston Red Sox are second in the majors in CBT payroll, about $50 million behind the Dodgers, as clubs point to significant losses in revenue from a pandemic-shortened 2020 season played without fans.
The difference between the websites’ totals doesn’t change the fact that the Dodgers are projected to face the stiffest tax penalties if they don’t shed payroll.
As of Sunday, the Dodgers would be charged a 20% tax on overages up to $20 million, another 12% on overages between $20 million and $40 million, and a 42.5% tax rate on all the overages beyond that. The top tax bracket also calls for them to have their first pick in the next draft fall 10 slots.
It’s the territory nearly every other major league franchise has worked to avoid. One would think the penalties are massive. But they aren’t, at least not in relation to the money teams spend.
Based on a Roster Resource estimate, the slightly more expensive of the two, the Dodgers’ tax bill as first-time offenders would be about $13.3 million. That’s about 5% of the projected payroll.
The Dodgers announced that 2,400 people will be allowed to attend each spring training game at Camelback Ranch this year amid the COVID-19 pandemic.
The breakdown: $4 million in taxes for the first $20 million over $210 million, $6.4 million in taxes for the next $20 million, and $2.9 million in taxes for being over $250 million in payroll. In total, the Dodgers’ CBT payroll and taxes would be about $270.2 million.
The Dodgers could make moves to dip under $250 million by the end of the season and avoid the stiffest penalties. But, in reality, even the steepest taxes aren’t that harsh compared to the money already spent. One could argue the draft pick change is the costliest penalty.
And yet the Dodgers are seemingly the only club willing to venture into tax territory in 2021. They’re spending money to win. Very few other teams can say the same.
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