MLB’s lacking luxury tax increase a reminder of the limitations of bargained thresholds

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Just a few weeks back, in reaction to one of the few economic proposals Major League Baseball actually bothered to submit while the now-expired collective bargaining agreement was still active, I wrote about how MLB’s pay-for-WAR, algorithmic plan to replace arbitration could not work without revenue scaling. Two days into the lockout, it’s time to give another example as to why any of these plans that rely on bargaining financial thresholds have the same inherent problem, and that’s because of how MLB has treated the raising of the luxury tax threshold during talks so far.

As was reported by Evan Drellich, MLB proposed raising the luxury tax threshold from the 2021 figure of $210 million to $214 million, with it eventually reaching $220 million by the final year of the new CBA. That’s clearly just a starter offer in terms of raising the luxury tax threshold — the numbers would almost surely be at least a little bit bigger if the two sides were finished negotiating by now — but what sticks out to me is that it’s presented as a concession at all. Not by Drellich, who is one of the few writers at a major outlet who is actually nailing the framing and depth of their coverage, but by MLB. Inflation exists. Revenues climb. The value of money changes over time. The luxury tax threshold increasing should just be a thing that is expected to happen, not something that is considered a concession, especially not with the minuscule bumps the league is proposing.

Consider this: the luxury tax threshold, under the current-ish form of the structure put into place in the early aughts after the more experimental iteration of the late-90s, was introduced at $117 million in 2003. MLB’s revenues in 2003 were $3.88 billion. In 2019, the last full season that we already have revenue data for thanks to the pandemic-shortened 2020, MLB pulled in a record $10.7 billion. That’s a jump of 276 percent: the luxury tax threshold increased by just $89 million in the same stretch of time, or an increase of 176 percent. As the luxury tax has effectively begun to act like a salary cap, the percentage of revenues that players take home continues to drop, even as superstars sign larger and larger deals each winter. Those stars only account for a small percentage of the players, and an inordinate percentage of the pay, and the CBA signed in 2016 only made those two-tier system — three-tier system, really, since there are multiple classes of free agents and then all the poor pre-free agency saps, too, leaned on by MLB to fill out more and more of a roster — even worse.

If the luxury tax threshold scaled with league revenue between 2003 and 2019, it would have been closer to $325 million. Since no one is forcing teams to spend that much, there really shouldn’t be an issue with that, unless the goal of the luxury tax is actually to stand in for a salary cap, which, guess what? The point to take away from this, though, rather than litigating luxury-tax-as-salary-cap again, is that the luxury tax threshold being at $210 million at this point is itself offensive, considering how MLB’s revenues have exponentially exploded since the system was first introduced. And yet, the slight increases to the threshold are still clinging to the initial precedent from a very different time for the game financially. I wonder who that kind of system benefits the most?

And we’re just talking about the kinds of revenue that MLB actually admits to taking home, too, the kind Forbes can cobble together, not the stuff that’s actually in the books the teams refuse to open up even as an entire season is in jeopardy. Even leaving aside all of that, as labor lawyer Eugene Freedman pointed out on Twitter earlier on Friday, “If we told you that one of your employer’s largest revenue sources was going to increase its contract by 30% next year, but your employer said that pay tables/bands would go up 1.9% and 4.7% total over 4 or 5 years would you be happy? That’s basically what MLB proposed.” That 30 percent jump is in reference to the shared television revenue that all of the teams get: this isn’t just a jump that, say, only the Dodgers and Yankees and such are going to benefit from. Between the shared television money — Craig Goldstein estimated about $60 million per year per team from the three national deals — and the local television revenue, which sees clubs like the Rangers receiving an average of $80 million per year as part of a 20-year contract, teams already have a significant part of their bills paid for, before we even get into literally any other kind of revenue. And the clubs without the kind of local deals the Rangers have still have revenue-sharing dollars to lean on. Which too many of them are just pocketing instead, to the point the MLBPA has a grievance out against four of them: the Rays, Pirates, A’s, and Marlins.

So, you not only have an insultingly low increase to the luxury tax threshold considering MLB’s great fortune in the nearly 20 years since the system’s inception, but you also have very clear further increases to MLB’s revenue that they simply have no interest in sharing with the players. They proposed yet another form of bargained compensation that would simply be treated like the league-minimum salary bargaining and that of the luxury tax threshold, because the lag that is inherent to these systems, the lag that relies heavily on precedent baked into the CBA, benefits the owners more than the players.

And to make matters worse, as Drellich reported, MLB expected that, in exchange for raising the luxury tax threshold even the paltry amount that they did, harsher punishments for teams going over the threshold needed to be introduced. That’s not really movement, no matter how many letters Rob Manfred writes saying otherwise: that’s simply attempting to strengthen the kind of loopholes that MLB loves to put into the CBA, the kind that got the union so fired up in the first place as they were exploited relentlessly over the life of the previous agreement. We might be in for a very long winter.

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