Luxury Tax Threshold Could Impact Dodgers’ Activity In Free Agency

Luxury Tax Threshold Could Impact Dodgers’ Activity In Free Agency

Andrew Friedman, Los Angeles Dodgers, Winter Meetings
Geoff Burke-USA TODAY Sports

For as long as the new ownership took over, the Los Angeles Dodgers’ strategy has (seemingly) been simple: spend, spend, and spend some more.

Last winter, the Dodgers topped the league in free agency spending — shelling out nearly $200 million on six players. The offseason prior? Much of the same — $193 million on the likes of Scott Kazmir, Kenta Maeda, Howie Kendrick and others.

So what’s on tap for this offseason? Something most fans probably won’t want to hear coming off a Game 7 loss in the World Series loss: likely not much in terms of free agency. And the reason stems from the luxury tax threshold that was imposed in the new Collective Bargaining Agreement.

The way the luxury tax works is that your tax rate increases for every year your total salaries exceed the threshold. But if a team can get below the threshold for just one year, everything resets.

For some context, the Dodgers have paid over $100 million in luxury taxes in the last three years alone. That’s despite trimming their overall salary this past season. It sat at $227.8 million heading into 2017.

The good news for the Dodgers is that plenty of dead money paid to players not on the roster is coming off the books. Specifically, Carl Crawford, who was released in 2016; and Andre Ethier, who had his $17.5 million club option for next season declined.

Heading into the offseason began, the Dodgers’ projected payroll for 2018 was at $177.7 million in guaranteed contracts. Keep in mind the luxury tax threshold is set at $197 million.

So the team, in theory, had $20 million to spend while simultaneously being able to reset themselves. Sounds easy, right? Not quite…

Logan Forsythe’s $9 million option for next season was picked up. Moreover, the Dodgers still have several players eligible for salary arbitration.

The group consists of Luis Avilan, Pedro Baez, Tony Cingrani, Josh Fields, Yimi Garcia, Yasmani Grandal, Kiké Hernandez, Joc Pederson and Alex Wood.

Like Forsythe, these players all no-brainers simply because of relative low-dollar amount that likely will be needed to avoid arbitration. Nonetheless, the grand total could run upwards of $30 million. That would send the Dodgers over the luxury tax threshold.

Now, some might be wondering why the team wouldn’t just take one more year of luxury taxes and get under in 2019. That’s when Adrian Gonzalez, Scott Kazmir Brandon McCarthy, Yasiel Puig and Hyun-Jin Ryu are all off the books.

The answer is simple: the 2019 free agent class is going to be arguably the most tantalizing in MLB history.

Bryce Harper, Manny Machado, Matt Harvey, Craig Kimbrel, Zach Britton, A.J. Pollock, Josh Donaldson, Andrew McCutchen, Adam Jones and Andrew Miller headline the group — which could also include Clayton Kershaw and David Price if they are to opt out of their contracts.

What can the Dodgers reasonably do this winter to remain among the best teams in baseball and get under the salary cap? The answer would have to come in the form of trades.

Can the Dodgers unload some of Gonzalez’s salary ($22.4 million) to a team interested in a veteran presence? Could they look to move Grandal thanks to the emergence of Austin Barnes?

What about eating some of Kazmir’s remaining salary ($17.7 million) in order to dump him? Could the same be done for McCarthy ($11.5 million)? Or, is this winter finally when the Dodgers part with Yasiel Puig ($9.2 million)?

It certainly would not be a popular move, but it would mean parting with a sizable salary and perhaps add future assets to the organization.

While all of this might sound bleak, keep in mind that even without any offseason additions, the Dodgers are in fantastic shape roster-wise.

Even without signing anyone from outside the organization, the Dodgers’ Opening Day roster would be some combination of:

Catchers: Austin Barnes, Kyle Farmer, Yasmani Grandal

Infield: Cody Bellinger, Charlie Culberson, Logan Forsythe, Adrian Gonzalez, Corey Seager, Justin Turner

Outfield: Kiké Hernandez, Joc Pederson, Yasiel Puig, Chris Taylor, Trayce Thompson, Andrew Toles, Alex Verdugo

Starting pitchers: Rich Hill, Scott Kazmir, Clayton Kershaw, Kenta Maeda, Brandon McCarthy, Hyun-Jin Ryu, Brock Stewart, Ross Stripling, Alex Wood

Relief pitchers: Luis Avilan, Pedro Baez, Tony Cingrani, Josh Fields, Yimi Garcia, Kenley Jansen, Adam Liberatore

The only pieces really missing from the World Series run would be Brandon Morrow (who might be re-signed), Yu Darvish and Watson.

The truth is, this is all a lot to take in and the possibilities here are truly endless — not to mention often unpredictable.

Dodgers president of baseball operations Andrew Friedman and general manager Farhan Zaidi have done a tremendous job to this point in rebuilding the organization from the bottom-up without sacrificing a single year of competitiveness.

And 2018 shouldn’t break from that. This winter it might just look a bit different…