Jan 15, 2019

Baseball's luxury tax has become a salary cap

Illustration: Lazaro Gamio/Axios

Major League Baseball is the only major U.S. professional sport without a salary cap. But with free agency moving at a glacial pace for the second straight offseason, there is growing concern among players that the league's "luxury tax" has morphed into one.

Be smart: Each season, clubs that exceed a predetermined threshold ($197 million last year, $206 million this year) must pay a "luxury tax" on each dollar spent above that threshold.

What's happening: Last winter, an increasing number of front offices made it a priority to stay below the tax, and it's been more of the same this year.

By the numbers: Just two teams — the Boston Red Sox and the Washington Nationals — paid the luxury tax in 2018, down from five in 2017 and six in 2016.

  • Those two teams paid a combined $14.4 million in taxes, the lowest amount ever paid under the current system (put in place in 2002).
  • After paying the tax for 15 straight years, the New York Yankees avoided it last season. Same with the Los Angeles Dodgers, who had paid it five straight times.

The big picture: Some players believe the owners are using the luxury tax as a convenient excuse to keep payrolls down, with front offices going out of their way to talk about the tax publicly like it's this horrible thing when, in reality, it's peanuts.

  • Proof: For going nearly $50 million over last year's $197 million limit, the Red Sox were taxed just under $12 million. That's nothing.
  • The other side: Repeat luxury tax "offenders" see their tax rates increase exponentially. Therefore, it does make financial sense for teams to dip under the threshold and reset their tax rates like the Yankees and Dodgers just did.

The bottom line, via Sports Illustrated's Jon Tayler:

  • "When MLB instituted the luxury tax ... the idea was simple: keep teams from spending too much. Ostensibly, that helps the little fish keep up with the big ones, but in reality, it was an owner-approved plan to lower spending across the game."
  • "[So] let's call this what it really is. ... It's not a luxury tax. It's a salary cap. And with teams cutting spending by over $100 million in 2018, it's a cap that's getting harder and harder with every passing year."

Go deeper: MLB's "riches of free agency" no longer exist

Go deeper

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 3 a.m. ET: 786,291 — Total deaths: 37,820 — Total recoveries: 166,088.
  2. U.S.: Leads the world in confirmed cases. Total confirmed cases as of 3 a.m. ET: 164,620 — Total deaths: 3,170— Total recoveries: 5,943.
  3. Federal government latest: The White House will extend its social distancing guidelines until April 30.
  4. State updates: Rural-state governors say testing is still inadequate, contradicting Trump — Virginia, Maryland and D.C. issue stay-at-home orders to residents, joining 28 other states.
  5. Business latest: Ford and General Electric aim to make 50,000 ventilators in 100 days.
  6. In photos: Navy hospital ship arrives in Manhattan.
  7. What should I do? Answers about the virus from Axios expertsWhat to know about social distancingQ&A: Minimizing your coronavirus risk.
  8. Other resources: CDC on how to avoid the virus, what to do if you get it.

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World coronavirus updates: World Bank warns economic pain unavoidable

Data: The Center for Systems Science and Engineering at Johns Hopkins, the CDC, and China's Health Ministry. Note: China numbers are for the mainland only and U.S. numbers include repatriated citizens and confirmed plus presumptive cases from the CDC

The novel coronavirus has caused a "global shock" and significant economic pain "seems unavoidable in all countries," the World Bank said in an economic update for
East Asia and the Pacific on Monday.

The big picture: COVID-19 cases surged past 786,000 and the death toll exceeded 37,800 early Tuesday, per Johns Hopkins data. Italy reported more than 11,500 total deaths.

Go deeperArrowUpdated 1 hour ago - Health

U.S. coronavirus updates: Death toll tops 3,000

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Andrew Witherspoon/Axios

The U.S. death toll from the novel coronavirus has now surpassed 3,000, per Johns Hopkins data.

The state of play: The U.S. had by Monday night recorded more than 163,000 positive cases — more than any other country in the world, per Johns Hopkins. The COVID-19 death toll stood at 3,008. The number of recoveries had risen to more than 5,800.

Go deeperArrowUpdated 5 hours ago - Health