Dodgers’ $300 Million Payroll Not That Crazy

Back before the 2012 season, Frank McCourt owned the Los Angeles Dodgers. He had purchased the team in 2004, inheriting a club that featured a $105 million payroll in 2003. Nearly ten years later, he sold the team to the deep-pocketed Guggenheim-led group — handing over a club that also featured a $105 million payroll. Major League Baseball revenues had doubled during McCourt’s tenure as team owner — and salaries for players increased at something close to the same rate — but the Dodgers, sitting in one of the biggest media markets in the country, stuck to the status quo after fielding one of the bigger payrolls in baseball at the beginning of the century. The Dodgers have finally caught up with the times (some would say surpassed) in terms of payroll, but while their $300-plus million payroll might seem enormous, the team would still be right in line with the New York Yankees and Boston Red Sox if those two teams had not slowed their spending in recent years.

Prior to the arrival of the Dodgers’ new ownership and $8 billion cable deal, the Yankees were the only team to exceed a $200 million payroll. The Yankees crossed that threshold in 2005, but kept their spending fairly static over the following decade, only getting above $225 million once (in 2013) and falling below that mark last season. Their total outlay on players was often somewhat higher, given the luxury-tax payments the team was forced to make every season. Given the Yankees’ spending over the last decade and the Dodgers’ spending over the last few seasons, it might appear that the luxury tax is not much of a deterrent towards spending, but as Nathaniel Grow detailed back in May, the luxury tax has kept spending down at upper levels.

As the data in Grow’s piece reveal, the luxury tax was close to the average team revenue total more than a decade ago, but in recent years, the average revenue per team is nearly double that of the luxury-tax level. As Grow notes:

As soon as the Yankees faced a 40% penalty as a three-time violator under the new luxury-tax framework adopted in 2006, however, the team’s payroll effectively flatlined. This has remained true up to today, even though the Yankees’ estimated annual revenues almost doubled from 2005 to 2014.

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Overall, however, it appears that the luxury-tax threshold has effectively become a de facto salary cap for many of MLB’s larger market teams, and thus represents an important contributing factor to the players’ declining share of MLB’s overall league revenues.

As revenues and salaries in the game have changed significantly over the last 15 years, looking strictly at dollar amounts for payrolls skews the data toward recent teams. Taking payroll as a percentage of overall salaries or MLB revenue, we can get a more accurate picture of how big the current Dodgers’ payroll is compared to those of the past. Entering this season, here are the top-10 payrolls as a percentage of player salary, including luxury-tax money paid by teams.

Payroll data from Cots Contracts. Luxury Tax (Called the Competitive Balance Tax in the current CBA) information from various sources.

Only last season’s Dodgers, at just above 8%, crack a list dominated by the Yankees. From 2003 to 2008, the Yankees accounted for nearly 10% of the total amount paid to all players, with the 2009 and 2010 teams not too far behind. The Yankees make up 13 of the top-15 teams over the past 15 years. For reference, here are the top-10 non-Yankees teams during that time period, topped by last year’s Dodgers.

As Grow mentioned in his piece, the Red Sox tended to stay right around the luxury-tax amount. Given that salaries have increased quite a bit in relation to the luxury-tax amount, although not as much as overall revenue, Red Sox salaries have not shown the same spending power in recent years compared to what they could do a decade ago. The Dodgers appear on this list in multiple decades with a McCourt-era-sized gap. While other franchises slowed down — perhaps, in part, due to the luxury tax — the Dodgers simply slowed down due to ownership.

Even the Yankees have felt their spending power shrink as they have chosen not to keep pace with spending like they did a decade ago. Despite paying out more than $236 million last season, the ninth-largest mark of all time, the Yankees were just 12th out of 15 Yankees’ teams in terms of spending compared to MLB as a whole. When taken as a percentage of MLB revenue as a whole — which has grown at a much faster rate than payrolls — the Yankees’ 2014 payroll was just 30th, as multiple teams in the early 2000s were spending more comparatively.

Inserting the Dodgers into the above chart does involve some speculation, as we do not yet know the final amount for salaries this season, neither for the Dodgers nor players as a whole. For these purposes, I am assuming a $309 million salary for the Dodgers, which means a $48 million luxury-tax payment, and salaries at $3.85 billion, which would be a 10% increase over last season after an 8% increase the season before. This is where this season’s Dodgers fit in on the chart above.

The Dodgers’ spending $350 million to field a team this season certainly seems like an enormous figure when $100 million less than that amount sent the Yankees to the top of the heap in terms of salary for more than a decade. However, spending has increased significantly overall in the past decade. The Yankees and Red Sox (like all teams) have seen their revenues soar, but as other teams have used more of their revenues in player salaries, the Red Sox and Yankees have chosen not to spend money in the same way.

If the Yankees had continued to spend anywhere near the same portion of their revenues on player salaries, the Dodgers’ spending over the past three seasons might not seem so outrageous. As it stands, the Dodgers’ pure dollar figures have grown a considerable amount, but they have not achieved the spending power of the Yankees teams of ten years ago. It might look crazy, but it is just a part of the soaring revenues MLB has seen as the game has continued to grow.