Right now MLB teams can spend up to $189 million in any given year before they are hit with the luxury tax (otherwise known as the competitive tax balance) and have to pay a penalty for every dollar spent above that figure. According to the latest rumors, that number may change.
The MLB and the Players Association will begin negotiating a new collective bargaining agreement this spring, as the current CBA is set to expire on Dec. 1, 2016. Los Angeles Angels owner Arte Moreno shed some light on how the negotiations might go in terms of the luxury tax.
"There's a possibility it could go down," Moreno told Bill Shaikin of the Los Angeles Times.
"The small-market teams don't believe that the penalty is high enough or that the CBT [threshold] is too high - that they have really no chance to compete with someone who is spending $300 million, or $250 [million]."
The current penalty can range between 17.5% and 50% depending on how many times in a row the $189 million threshold was exceeded by a given club. First-time offenders must pay a 17.5% penalty and that number increases to 30% for second-time offenders, 40% for third-time offenders, and 50% for fourth-time (or more) offenders.
If a team spends over $189 million one season and then less than that number the next season, their rate will reset, so they won't be subjected to a larger penalty if they exceed the threshold the season after they dipped below it.
The small market teams may want a more strict luxury tax policy, but the truth is that the MLB has the most parity of any major sport and it's the only sport without a salary cap. Over the past 16 years there have been 11 different World Series champions and smaller/mid-market teams such as the Kansas City Royals, Tampa Bay Rays, Colorado Rockies, Houston Astros, Chicago White Sox and (at the time) Florida Marlins have reached the Fall Classic and/or won it over that time period.
Commissioner Rob Manfred has been an integral figure in helping negotiate the past few CBAs, so we'll see how he applies his experience and power when the talks begin between the MLB and MLBPA in the near future.
