“I know all teams have plenty of money.”

—Giancarlo Stanton

This season’s National League MVP, Giancarlo Stanton, recently addressed rumors that Miami might trade him, noting that the club could immediately become a postseason contender with the addition of pitching. His suggestion that all teams have plenty of money certainly appears to be a response to speculation that the Marlins intend to slash payroll a few months after having been purchased for more than a billion dollars.

It also stands to reason that he was commenting upon the fact any club could theoretically afford to acquire Stanton and the $295 million remaining on his contract. In one sense, he’s probably right. Revenues in baseball are at an all-time high. For a number of reasons, however, there’s not a direct correlation in baseball between revenues and spending.

One main reason is the competitive-balance tax, formerly known as the luxury tax. The cap for the tax has increased at only about half the rate of MLB payrolls. Accordingly, more teams find themselves up against a tax that was made more painful in the last CBA. Those taxes have pretty drastic effects on the trade market for Giancarlo Stanton, putting some teams out of the bidding and making the cost for others high enough that a competitive offer might be unreasonable.

Two years ago, Nathaniel Grow wrote an excellent piece about the implications of the luxury tax this century, showing how many teams used the tax as a cap, which has driven down spending relative to revenue over the last decade. In the last few years, the tax threshold has grown at a very slow rate, such that, by the end of the current CBA, teams with an average payroll will find themselves just a single major free-agent signing away from transcending it. The graph below depicts both average team payrolls and the tax threshold since 2003.

Over the last 15 years, payroll has grown at a pace 50% faster than that of the competitive-balance tax amount. However, the chart above actually overstates the rate at which the competitive-balance threshold has grown. From 2003 until the beginning of the previous CBA in 2011, the luxury tax grew at a rate pretty close to MLB payrolls, even if it did depress salaries compared to revenue. Beginning with the CBA that started in 2011 and the new CBA, which goes through 2021, the competitive-balance tax has seen barely any growth, especially when it comes to payroll.

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As the only league among the four major North American sports to operate without some form of a salary cap, Major League Baseball has always been in somewhat of a unique position. Without the traditional ceilings on team salary, the sport has always left itself open to financial disparity and all the articles and opinions that go along with it.

For 20 years, baseball has tried to curb big spenders through the use of luxury taxes. Six teams paid a total of $70 million in taxes this past year, and baseball decided to continue hammering away on high-payroll teams in the new CBA approved last December. While the financial penalties maybe caused teams to think twice before spending on the free-agent market, the luxury tax never directly affected a team’s ability to access one key pipeline of talent: the Rule 4 (or, June amateur) draft.

This all changed last December. As noted by Baseball America’s J.J. Cooper, exceeding the luxury-tax threshold will result in draft-related penalties beginning in 2018. The full list of sanctions is described on page 110 of the 2017-2021 Basic Agreement, but for those who don’t have that kind of time, they can be summarized in two points:

• If a team’s actual payroll exceeds $237 million in the 2018 season (increasing to $250 million in 2021), their highest draft pick will be moved back 10 places.
• If the offending team’s highest draft pick falls in the first six picks of the draft, their second-highest draft pick will be moved back 10 places instead.

For the first time, Major League Baseball has tried to affect a team’s ability to acquire amateur talent after spending large amounts of money. If a team wants to devote an outsized quantity of money (compared to the rest of the league) to acquiring established players, they have to risk the potential of their future by seeing a major source of young talent dry up slightly. However, if you look closely at the new penalties, you see less of a leash on high-payroll teams and more of an inadequate deterrent that will fail to provide any checks at all.

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