Eight Teams combine for a Record-Breaking $209.8 million in Luxury Tax Bills, that of the Braves is Shocking

According to Ronald Blum of the Associated Press, Major League Baseball has finished the luxury tax calculations for the 2023 season, and the eight teams above the Competitive Balance Tax threshold will pay a total of $209.8MM. Both the total number of tax-paying teams and the total amount set new highs, exceeding the previous highs of six teams (in 2016 and 2022) and $78.5MM (in 2022).

Here is what each of the eight teams owes for surpassing at least the $233MM base CBT threshold….

• Mets: $100,781,932
• Padres: $39.7MM
• Yankees: $32.4MM
• Dodgers: $19.4MM
• Phillies: $6.98MM
• Blue Jays: $5.5MM
• Braves: $3.2MM
• Rangers: $1.8MM

The CBT values are generated by the average yearly worth of salaries for players on the 40-man roster, as a reminder of how the luxury tax works. A player earning $20MM over two seasons, for example, has a CBT number of $10MM, even if the player earns $8MM in the first year and $12MM in the second year of the contract. Deferred money in a contract can reduce a luxury tax amount to some level – most notably, Shohei Ohtani’s $700MM deal with the Dodgers includes $680MM in deferred money, reducing his CBT hit to around $46MM per season rather than $70MM.

A team is designated a “first-time payor” if they did not spend more than the CBT threshold the previous season. A first-time payor would be charged a 20% surcharge on any dollar spent between $233MM and $253MM, a 32% surcharge on anything between $253MM and $273MM, a 62.5% surcharge on anything between $273MM and $293MM, and an 80% surcharge on anything beyond $293MM. These percentages increase if a team pays taxes for two consecutive seasons, and much more if a team pays taxes for three or more consecutive seasons. The CBT class of this year included three first-time payors (Texas, Atlanta, and Toronto), three two-time payors (Philadelphia and both New York clubs), and two three-time payors (San Diego and Los Angeles).

The $293MM level was added as a fourth penalty tier in the most recent Collective Bargaining Agreement, and it is colloquially known as the “Steve Cohen Tax” in reference to the Mets owner’s predilection for large spending. Even if higher York only topped the CBT in 2022 and 2023, it’s not surprise that Cohen’s team set higher tax payout thresholds. The Mets’ tax payroll of $374.7MM and estimated tax bill of $100.78MM greatly eclipsed the Dodgers’ previous records of $291.1MM and $43.6MM in 2015.

This price would have been even greater if the Mets hadn’t unexpectedly faltered and unloaded some expensive contracts at the trade deadline in order to save some money and reload with a likely return to contention in 2025. Blum also mentions that the Mets obtained a $2,126,471 tax credit as a result of a CBA provision, which cut their expense even further.

As is customary, the actual financial impact of exceeding the tax is likely to be the least important aspect of the penalties, particularly for teams who barely cross the first barrier. Teams that exceed the CBT line would suffer additional penalties for free agents who reject qualifying offers, whether that means paying more to sign a QO-rejecting player or receiving less money if a team’s own qualified free agent moves elsewhere. For example, signing Ohtani cost the Dodgers not just $700MM, but also $1MM in international draft pool money and the Dodgers’ second and fifth-highest selection picks in 2024. Should Blake Snell or Josh Hader sign elsewhere, the Padres’ compensation draft pick would not arrive until after the fourth round.

Spending on talent is frequently a prescription for success on the field, though it is by no means a certainty. The Mets had a losing record, but the Padres and Yankees were both 82-80, just above.500. The other five tax payers made the playoffs, although the Phillies and World Series winner Rangers were the only ones to win at least one postseason series.

The league will distribute the $209.8 million in tax revenues in three ways. The first $3.5 million will be used to fund player benefits, $103.15 million will be used to fund individual player retirement accounts, and the remaining $103.15 million will be placed in a supplemental commissioner’s discretionary fund and distributed to revenue-sharing recipient teams that have increased their (non-media) local revenue over a predetermined number of years.