Dodgers on track to exceed luxury tax threshold again in 2023

LOS ANGELES — It has been the price of doing business for the Dodgers over the past decade.

According to an Associated Press report, the Dodgers were one of six teams to pay MLB’s luxury tax for the 2022 season. The New York Mets, Philadelphia Phillies, New York Yankees, San Diego Padres and the Boston Red Sox also paid the tax. Of that group, only the Red Sox missed the playoffs.

The Dodgers’ latest penalty for exceeding MLB’s Competitive Balance Tax threshold was $32.4 million on a 2022 payroll of $293.3 million, according to AP. The Dodgers were penalized at a higher rate because it was their second consecutive season exceeding the CBT threshold and they exceeded the highest tier – the so-called “Cohen Tax.”

The Mets had the highest payroll in baseball last season, a record $299.8 million (surpassing the Dodgers’ $297.9 million in 2015), and paid an additional $30.8 million. In the first year with owner Steve Cohen, the Mets surpassed the CBT threshold for the first time since the system was instituted 20 years ago.

Tax payments were due to MLB on Friday.

The Dodgers have exceeded the CBT threshold and paid the luxury tax each of the past two years and seven of the past 10 years since the Guggenheim Group took over ownership of the team (with the pandemic-shortened season of 2020 one of the three seasons they didn’t). They have paid a total of $215 million in luxury taxes over those years, second only to the Yankees who have paid approximately $358 million since the CBT began in 2003.

“Obviously we’ve been at extremely high levels the last two years and we’ll see when we get to Opening Day where we’re at,” Dodgers president of baseball operations Andrew Friedman said early in the offseason when asked about the team’s payroll considerations this winter.

“Going over it (the CBT threshold) is something that we’ve done with regularity, and it adds costs. All of that gets factored in. It has never been, ‘Hey, we have to get under.’ It’s been about putting the most talented team together. Now, again, obviously we have been aggressive the last two years, not just in terms of payroll, but in terms of taxes paid as well. And all of that just gets factored in.

“So as you’re nearing the threshold, just as we’ve done every other year, that’s just a factor in the decision on an acquisition, because as you’re approaching that or going over it, it’s not just the money on the contract, it’s additional money (in luxury tax paid).”

The Dodgers’ actions this winter spoke more loudly than Friedman’s words.

The team was largely idle as MLB teams committed more than $3 billion to free agents this winter. Of their 12 major-league free agents, the Dodgers re-signed just one – left-hander Clayton Kershaw – shedding more than $100 million in 2022 salaries with the departure of players like Trea Turner, Justin Turner and Cody Bellinger. They signed just three free agents to modest major-league contracts (Noah Syndergaard, J.D. Martinez and Shelby Miller) for a fraction of that.

But the Dodgers’ chances of slipping under the CBT threshold for 2023 (approximately $233 million) took a serious hit when Trevor Bauer’s suspension was reduced on appeal for 194 games, making him eligible to play in 2023. He was docked 50 games’ pay from his 2023 salary but the Dodgers are responsible for the remaining $22 million after releasing him.

The trade for veteran infielder Miguel Rojas (who will make $5 million in 2023) moves the Dodgers’ projected payroll for 2023 to approximately $237 million, putting them over the CBT threshold for a third consecutive year (although at the lowest tier this time). Getting under the CBT threshold now would require the trade of a veteran player (or players), something that seems unlikely at this point.

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The Dodgers certainly have the financial resources to absorb an additional $30 million or so in luxury tax payments each year. But exceeding the CBT threshold comes with penalties involving draft picks and the ability to sign international prospects.

For example, as punishment for exceeding the highest tier of the CBT in 2023, the Dodgers’ first pick in the 2023 draft has been moved back 10 spots to 36th overall. Additionally, their draft-pick compensation for Tyler Anderson signing with the Angels as a free agent won’t come until after the fourth round.

As a further consequence of their high payrolls, the Dodgers had an international signing bonus pool of just $4.14 million, tied with the Texas Rangers for the lowest in MLB. The Dodgers spent half of that on Dominican infielder Joendry Vargas.

Multiple times over the years when the Dodgers have exceeded the CBT threshold, Friedman has called it “not sustainable,” in large part because of the penalties that hinder player development.

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