How might another luxury tax bill affect the Dodgers’ future?
One of the biggest questions of the Dodgers’ offseason finally has a definitive answer.
Will the team stay below Major League Baseball’s luxury tax threshold in 2023?
No, club president of baseball operations Andrew Friedman confirmed Wednesday, probably not.
The news didn’t come as much of a surprise. While there appeared to be an opportunity at the start of the winter for the Dodgers to keep their payroll next season below MLB’s $233-million tax threshold, that possibility all but vanished in late December with the reduction of Trevor Bauer’s suspension for violating the league’s domestic violence and sexual assault policy.
Because the pitcher was reinstated for the 2023 campaign — albeit with a reduced salary of $22.5 million after having 50 games’ worth of pay docked as part of the arbitrator’s ruling — his money went back on the Dodgers’ books.
Even though the team released him, Bauer will still count against its payroll, which is currently believed to be around $245 million for tax calculation purposes.
“With Bauer, we were clearly over,” Friedman said, adding that the team will not try to dump salary at some point this season to get back below the line.
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“We’re doing all we can to win a championship this year while keeping our future outlook bright,” Friedman added.
That latter goal could be more of a challenge now.
Before learning of Bauer’s reduced suspension — his original ban was supposed to cover all of 2023, the last year of his contract with the team — the Dodgers had seemingly been on track to stay under the tax line.
They freed up more than $100 million from last year’s team, thanks to the expiration of expensive contracts for David Price, Craig Kimbrel, Trea Turner and others, as well as their decision to part ways with Justin Turner and Cody Bellinger.
They had missed on some of their more aggressive free-agent pursuits — most notably Justin Verlander — and shifted their attention to such lower-cost additions as Noah Syndergaard, J.D. Martinez and Miguel Rojas, who could bolster the roster without breaking the bank.
And while the strategy wasn’t driven solely by the front office’s desire to get below the tax line, Friedman reiterated that it factored into its calculus.
“We want as much of the money as we’re spending to go to on-field talent,” Friedman said. “The more years you’re over [the tax line], the higher you are over, the more of that money is going to MLB.”
Complete coverage from the Los Angeles Times on the Dodgers’ decision to cut ties with embattled pitcher Trevor Bauer.
There were clear advantages to staying below the luxury tax line.
The club could have avoided tax penalties for the first time in three years, after reportedly being hit with roughly $32 million in fees each of the last two seasons.
Because repeat offenders are assessed a higher tax rate under MLB rules, the Dodgers’ potential penalties for surpassing the tax line in future seasons would have been reduced, as well.
It’s why, prior to Bauer’s reinstatement, the assumption around much of the industry was that the Dodgers would attempt to stay below the tax line this year in order to position themselves for a major expenditure next winter — such as signing pitcher Julio Urías to a long-term extension or making a run at two-way star Shohei Ohtani in free agency.
Now that they’re set to pay a tax again (taxes aren’t assessed until the end of the season, so the Dodgers’ exact penalty for 2023 is still unclear), it could hinder their future financial options, though Friedman tried to downplay such concerns .
“There’s always going to be that push-pull between pressing to be as good as we can be and figuring out when we can strategically get under without sacrificing where we are to be able to spend more on our on-field players,” Friedman said. “Is it critical [to reset the tax]? No. But it is advantageous.”
For this season, it puts an onus on the Dodgers’ budding crop of talent.
Justin Turner is excited to be part of the Boston Red Sox, but the former Dodgers third baseman always will cherish what he accomplished in L.A.
They are hoping Gavin Lux can solidify himself as their everyday shortstop. They are planning to integrate such prospects as Miguel Vargas and James Outman more prominently into the lineup. They are expecting Tony Gonsolin and Dustin May to continue to blossom, while also counting on Gavin Stone, Ryan Pepiot and Bobby Miller to bolster their starting pitching depth.
The more the Dodgers can trust that younger (and significantly cheaper) portion of their roster, the more money they might be able to allocate on bigger-ticket purchases. And since any lucrative acquisitions would likely come with a de facto surcharge thanks to the luxury tax, every dollar will matter that much more to the team’s long-term plans.
For most of Friedman’s tenure, it’s a needle they’ve deftly threaded.
“We have a history over the last seven, eight years of maintaining a very high level of play, and a team with legitimate championship aspirations, while fluctuating our payroll up and down,” Friedman noted.
The question is whether they‘ll continue to do so, even after having to eat the remainder of Bauer’s contract and likely pay the luxury tax again this year.
Friedman seems to think so. But really, only time will tell.
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