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How MLB’s Luxury Tax Is Reining In the Yankees PDF Print E-mail
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Written by Maury Brown   
Monday, 04 June 2012 09:58

YankeesAs one economist described it, MLB’s Competitive Balance Tax, otherwise known as the Luxury Tax, was designed to target really one club, the Yankees. And yet, in every year that there has been the soft cap in baseball, the Bronx Bombers have blown through the thresholds like a 100-MPH fastball.

But, it appears that the penalties are finally wearing on the club, and stiffer penalties in the CBT are likely a large part of the reason why.

I detail changes to the Luxury Tax as part of MLB’s new labor agreement today in my second installment for Baseball Prospectus (see Bizball: Inside the 2012-16 MLB CBA: Minimum Salaries, the Luxury Tax). Within the article, I touch on how the system could (finally) be weighing on the Yankees:

The Competitive Balance Tax (CBT), otherwise known as the luxury tax, continues in the latest agreement (the prior agreement had a provision by which it could potentially be retired), and with it, the league got a bump at the top for those clubs that could be best described as habitual offenders of breaking the tax thresholds (read: New York Yankees).

[…]

But when you think about this from a practicality standpoint, the ceiling is really targeted at no more than five clubs, and in reality, only two (the Red Sox and Yankees) have really had to contend with it repeatedly, with the Yankees doing so in every year that there has been a CBT in place. Here are the top five clubs by end-of-year player payroll, which is used to measure clubs against the CBT thresholds:

Rank

Club

Division

2011 EOY Payroll

1

Yankees

AL East

$216,044,956

2

Red Sox

AL East

*$174,116,280

3

Phillies

NL East

$165,313,989

4

Angels

AL West

$143,099,729

5

Mets

NL East

$142,244,744

* After final adjustments, the Red Sox broke the threshold thus paying $3,430,810. The Yankees saw a $13,896,069 CBT bill for the 2011 season

All told, from 2003 to 2011, just four clubs have broken the CBT threshold. The following numbers show the total amounts paid in tax over that time with the number of times that the club has broken the CBT threshold in brackets (see the yearly breakdown here):

  • Yankees (9) - $206,109,142
  • Red Sox (6) - $18,777,738
  • Tigers (1) - $1,305,220
  • Angels (1) - $927,057

Going back to those numbers above, all told, the Yankees account for a whopping 95 percent of the total. Here’s a key provision within the CBA that hits NYY.

(b) For a Club that has an Actual Club Payroll above the Tax Threshold in the 2013, 2014, 2015, or 2016 Contract Year, the applicable Competitive Balance Tax rate shall be:

(i) 17.5% if the Club did not exceed the Tax Threshold in the preceding Contract Year;

(ii) 30% if the Club’s Competitive Balance Tax rate in the preceding Contract Year was 17.5% or 20%;

(iii) 40% if the Club’s Competitive Balance Tax rate in the preceding Contract Year was 30%; and

(iv) 50% if the Club’s Competitive Balance Tax rate in the preceding Contract Year was 40, 42.5%, or 50%.

That 50 percent rate is an up-tick from the rates in the prior labor agreement and something that the Yankees are surely aware of. What’s the target for the Bronx Bombers? That $189 million threshold number that tops out at the end of the labor agreement.

"I'm looking at is as a goal,'' Steinbrenner said to ESPNNewYork.com, "and my goals are normally considered a requirement.''

See the rest of the details at Baseball Prospectus. Also, see Part 1 of the series on the CBA, here


Maury BrownMaury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey. He writes for Baseball Prospectus and is a contributor to Forbes SportsMoney blog.. He is available as a freelance writer. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network (select his name in the dropdown provided).

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