Will Dodgers Exceed 2021 Luxury Tax Threshold?

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Undeniably, the biggest question surrounding the Los Angeles Dodgers a few weeks before spring training is how the team will decide to handle the third base spot, at least to begin the season.

Along those same lines, there’s no doubt that veteran Justin Turner fits the bill perfectly on so many different levels. From the clubhouse to the community to his performance on the field, there are few MLB players who rival Turner’s true value.

However, while the 36-year-old veteran is seemingly still on top of his offensive and defensive games, his desired four-year contract might be scaring some potential suitors away, being that he’ll soon be in decline. It’s been frequently reported that both Turner and the Dodgers would like a reunion, but Los Angeles is apparently willing to offer just a two-year deal, which may be a bit outside of Turner’s personal parameters.

Furthermore, there is the imposing Luxury Tax Threshold, which some pundits believe the team will not surpass at all costs, especially when considering the financial hit the organization took last year because of COVID-19.

Let’s take a look at some of the implications and theories surrounding a prospective Turner return.

Both Sides Are Waiting for a Trade

In the middle of January, media outlets were buzzing with the news that both sides were close to signing a deal, but two whole weeks have since passed, and there’s still nothing solidified. At that time, we speculated that the team might be attempting to orchestrate a trade to somehow clear salary cap space to sign Turner while staying under the threshold.

Currently, the Dodgers’ estimated luxury tax payroll for the upcoming season is just over $206 million, according to a detailed worksheet at Fangraphs. The chart shows all pertinent information related to the payroll, including the most recent arbitration-related settlements. This is about $4 million shy of the $210 million cap—the point where the team would get hit with the initial round of penalties should it go over.

Obviously, if the Dodgers can deal away a sizable contract or two to another club, it would give the team the chance to sign Turner without going over the threshold.

In particular, we talked about the Dodgers potentially moving some of their most burdensome salaries to clear space, specifically in the form of the $20 million owed to Kenley Jansen and the $8.3 million owed to Joe Kelly, although it’s tough to imagine another team absorbing these salaries, especially when considering the inconsistencies of both players in recent years.

Sure, if Los Angeles is willing to attach a Top 5 prospect to a Jansen or Kelly deal, a trade could work, but is losing a potential franchise player worth two or so years of a productive Turner?

What Happens If Dodgers Go Over the Threshold?

For as bad as incurring a tax penalty may seem, it’s really not as bad as it sounds, at least in the eyes of a team with more financial resources than most. What’s more, the penalty wouldn’t be anywhere near the record-setting amount paid after the 2015 season, when the team was subjected to a ridiculous $43.7 million competitive balance tax. That year was the third consecutive year the Dodgers incurred such a penalty, placing them in the highest possible bracket.

Regardless, the team is on fresh ground, as their numbers have been reset to the minimum a few years ago, if indeed they happen to go over.

Let’s consider some numbers.

To use a roundabout figure, we’ll assume the Dodgers sign Turner to whatever length contract with an annual average value of $20 million. That figure might seem high, but for the sake of discussion, it works much better.

With the new contract—and if that is indeed the team’s final move of the offseason—it would put the club approximately $15 million over the threshold. Because Los Angeles was knocked back down to the lowest bracket after resetting, they would only need to pay 20 percent on the extra $15 million, which would work out to be about $3 million, a monetary sacrifice that might be worth paying for Turner’s return. And, with all the money coming off the books at the end of 2021, the team would be in a good spot to stay under the threshold for 2022, essentially resetting any penalties for future years.

Still, It Might Be Considered Bad Public Relations to Exceed the Threshold

Considering the financial hits that many clubs—not just the Dodgers—took after the 2020 season due to the consequences of the pandemic, it might be considered terrible PR if the team decides to unnecessarily spend money.

In November, Bill Plunkett of the OC Register wrote that the Dodgers made significant personnel cuts because of the losses suffered at the hands of the coronavirus, believing that “the job cuts were at least 40 to 50 in all, from virtually every department.” At the time, the team had already declined to renew the contracts of a handful of scouts when they expired last September.

stan-kasten

“While the Dodgers had a championship season, the organization has not been immune to the widespread economic devastation caused by the coronavirus,” the Dodgers said in a statement acknowledging the layoffs. “Since March, we have worked hard to minimize the impact on our employees. The ongoing economic crisis, however, forces us to make difficult personnel decisions throughout the organization, going forward for the 2021 season. This is a heartbreaking decision. This year, more than ever, we are truly grateful for the role each member of our Dodgers family plays in our success.”

Plunkett also noted that Dodgers team president and CEO Stan Kasten estimated the team’s financial losses in 2020 at “north of $100 million,” pointing out that the Dodgers’ revenues are among the highest in baseball, so their losses were among the highest as well.

While some fans might consider a $3 million tax penalty to re-sign Turner a wise investment, it still doesn’t look good on the books when employees within the organization have lost jobs, specifically from an ethical point of view.

Nonetheless, any tax penalty paid back to the MLB is not wasted money. The luxury tax is separate from revenue sharing, which is a system to balance out the income distribution between large and small market teams by dividing money from merchandise sales and media contracts. The money generated from the luxury tax is not distributed to the rest of the league—as is the case with the NBA—but rather is used for other purposes. The first $2,375,400 and 50% of the remaining total are used to fund player benefits, 25% goes to the Industry Growth Fund, and the remaining 25% is used to defray teams’ funding obligations from player benefits.

In the end, for some followers of the team, the dilemma can be laid out in much simpler terms—do the Dodgers really need to go over the cap in 2021 since they finally secured their long-awaited World Championship last season?

26 thoughts on “Will Dodgers Exceed 2021 Luxury Tax Threshold?

  1. I don’t think it would take a top 5 prospect to move Kelly’s contract. A team like Toronto or SF which isn’t counting every penny could probably absorb that contract without too much problem and it might only take a prospect in the 15-20 range on top of that. I still think that paying a little penalty and going over the threshold isn’t going to be a problem and that’s probably the way it will play out.

    Liked by 1 person

  2. I would consider that a smart move simply because I think I trust Morrow more than I do Kelly. I also think Morrow is going to come back with a vengeance. On the Turner item, time is running out. Spring has almost sprung.

    Liked by 1 person

    1. I agree, Bear, that Morrow will be a big contributor. His problem has never been skill level, it’s always been health and he seems to be healthy now

      You say Spring has almost sprung, but that’s on the player’s calendar. The calendar submitted by MLB today pushes ST back by a month.

      Question: Will MLB and the players’ union agree on the new plan submitted by MLB first or will the Dems and Republicans agree on a stimulus package?
      Answer: Neither will ever happen.

      Liked by 1 person

      1. Hit the nail on the head Jeff. I also think that Turner is the only player they will go over the CBT for. But the door is slowly closing, and now the Braves have an interest. All sorts of rumors out there.

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      2. Hey guys, Morrow was great when he was with us, he was healthy! But now he has another problem to contend with, it’s called 36 soon to be 37.

        My money is on 32 soon to be 33 yrs old Kelly for 2021, during the 2020 regular season Kelly was inactive for more games than he was active, first missing 28 games on the injured list with right shoulder inflammation, then serving a five-game suspension for throwing a ball near Alex Bregman’s head. When he was on the mound, Kelly pitched in 17 games, counting both the regular season and postseason, and allowed no runs in 15 of them, for a combined 1.98 ERA. That’s good.

        And who can forget, Game 2 of the NLDS against the Padres, Kenley Jansen was lifted after allowing two runs, trimming the Dodgers’ lead to 6-5. Kelly entered with the tying run on first base and two outs. By Baseball-Reference’s average leverage index, anything above 1.0 is considered high leverage. Kelly’s leverage when entering this game was 5.83, the highest by any Dodgers pitcher all postseason.

        Kelly was very deliberate, and walked both Fernando Tatis Jr. and Manny Machado after running the count full to each hitter. With the bases loaded, Kelly induced a game-ending ground out by Eric Hosmer, preserving the Dodgers’ win and, after a nail-biting, 19-pitch outing by Kelly, a long exhale. And a save.

        “Never in doubt, we had it in our hands. That’s how Joe Kelly rolls,” Clayton Kershaw said with a smile after the Game 2 win. “You know, Joe likes to make it interesting for us.”

        Kelly will make $8.5M in 2021 and he has a $12M option or $4M buyout for 2022, how much is he overpaid?

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      3. From my vantage point, Morrow is barely out of the cradle (I’m 74). I could see him going on another 10-12 years.
        Looks like we have a difference of opinion here on who will contribute more between Kelly and Morrow this year, assuming both are still with us. It will be interesting to see how that plays out. Wouldn’t it be beautiful if they both pitched to their ceiling, admittedly a longshot, but we can always dream.

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      4. @Boxout7 as someone whose 2nd favorite team is the Red Sox I can assure you that Joe Kelly is not the answer. He is an enigma and his stuff is a mirage. He can look like a closer one minute and make you pull your hair out the next. This whole 10 breaking pitches in a row and “just a bit outside” fastball yips he produces are indicative of what you will get from Kelly the more you use him. That 100 mph fastball has only produced a 7.5 strikeout rate per 9 innings and add that to the 3.7 walks per 9 and you get a 2 to 1 ratio, hardly anything resembling a reliable late inning high leverage relief pitcher. I continue to root for Kelly, but I think at this point you have to pick your spots and pray.

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      5. Agree ohioscott, but Kelly is our enigma already. We have him, he is somewhat overpaid, but rather than paying someone to take him, I hope he will be a valuable member of the pen and earn most of his salary. Yes, Roberts will be picking his spots and we will be praying for him, but I pray harder when Jansen comes in at $20M.

        Liked by 1 person

      6. Yes, Jeff D. it would be wonderful if both Morrow and Kelly are lights out this year for the DODGERS.

        Had to laugh though, just watched “Cobb” for the first time the other night. When Cobb was asked what he would hit against modern pitching, “I’d only hit .300, You’ve got to remember – I’m seventy-three.”

        Liked by 1 person

    2. I agree with you on Turner and I believe the Dodgers have a probability of signing him at around 90%. However, I am not a fan of Bauer signing with the Dodgers. The Dodger need is not in the starting rotation. Dodgers need a right-handed bat which Turner fills and their weakest offensive position was 2nd base. The Dodgers must believe Lux is the answer with Taylor as a backup. The Dodgers have players on the Farm such as Mann, Busch, and others that can play 2nd.
      I know many do not agree but I predict Spring Training will be pushed back at least 30 days. MLB just made the initial proposal for that to happen.
      The Competitive Balance Tax, thanks Bear I had forgotten its true title, will not survive the labor negotiations in 2022. The owners got those very tough penalties through the last contract. No way does it get through into the next contract. The Players Union will strike over it. So the penalties will be just a year and then everything will be different.

      Liked by 1 person

  3. With so many relievers going at bargain prices who would want Kelly or his contract or Jansen for that matter. Lots of teams worse off financially than lA. Very few will take a big contract on, and that would include Toronto. Not sure about San Fran. If they did they would definitely want a top 5 Togo along. Think dodgers are stuck. Also a lot of teams probably sit back and see what they can get for nothing. Probably 5/6 teams on verge of bankruptcy or fire sales to tew owners. If they have to operate without fans for the full season.

    Liked by 1 person

  4. I think the dodgers can afford to go over the cap a little, but I bet they’re getting pressure from the other owners/ the commissioner to stay under the cap. It doesn’t look good for mlb, when all of the owners are crying broke, and the Dodgers go over the cap.

    I personally don’t think any of them are losing money, it’s all in creative accounting. MLB owners are the best propagandists ( is that a word?) in the world.

    Liked by 1 person

    1. I think all the teams lost money. But broke? No way. You are talking about billionaires. And believe me, they had their accountants working overtime to get tax write offs for the lack of butts in the seats. They still made money from souvenir sales. And the guy who owns the Mets now, he is willing to spend to make them a contender. And there is no hard cap in baseball. The Competitive Balance Tax is what it is called, and it was installed because they did not want the big market teams like the Yanks, Sox and Dodgers to go out and just buy titles like Steinbrenner tried to do back in the day. That being said, I read where the Pirates total payroll is going to be something like 60 million. Dodgers are paying that to Mookie and Kersh.

      Liked by 1 person

      1. Mets payroll today including benefits, per Spotrac, is $182M. Additionally, the Reddit boys and girls shorting of GameStop stock just cost billionaire Steve Cohen an estimated $3 billion. Yeah, he’s still a billionaire but you know what they say, “a billion here and a billion there, after awhile it starts to add up to real money”.

        Cohen also dropped his Twitter account, calling it “a break for now,” suggesting that once things die down with the stock market turmoil, he might return to once again banter with Mets fans about bringing back black alternate jerseys, and hear from vast segments of the fanbase about why they don’t want the toxic Cy Young winner Trevor Bauer in New York.

        Interesting times, lots of changes coming. I wonder if anyone here on the board has adjusted their spending/lifestyle recently. I have.

        Liked by 1 person

  5. No way the Dodgers can unload KJ or Kelly unless they eat half of their contracts. And no way do I use a Top 5 prospect to make it happen. We could use those prospects to bring in younger talent if we need too, Suarez from the Reds comes to mind. I’m not thrilled with the optics of going over the cap, and I’m also concerned with the laying off of internal personnel, especially scouts, which I believe is one of the things that has made the Dodgers stand out as a great organization. BUT, as someone who hated watching the Yankees dynasty of the late 90s and then having to endure the three WS wins by the Giants a few years ago, I’m not happy with just one Championship. We need to lock in the best chance we can to go back-to-back and with what the Padres have done and now the Mets, AF needs to make a big splash of some sort before this season starts. Not to mention the window is closing fast on guys like Kershaw, Price, Turner (should we resign him), Kenley, and Pollock for another title run. So I say luxury tax be damned, besides it’s not my money 🙂

    Liked by 1 person

    1. Agreed, I’m not using ANY legit prospects to dump Kenley or Kelly.

      Agree, Top notch scouting and player development have been excellent and a huge reason for the Dodgers recent success. However, who can they scout these days? Scouting opportunities have to be down. Every team has probably been laying off scouts. Hopefully, and I bet he is, Friedman has been in touch with other team’s top scouts who have also been laid off. I’m thinking he is ready to pounce as soon as it makes sense and be better than ever in this department.

      I’m excited about the young guys we might be seeing this year, out with the old, in with the young! However, Turner needs to be resigned if he will agree to a “reasonable” salary and two years (maybe with some kind of 3rd year vesting clause). He needs to think long-term. He stands to make lots of money in the LA area after he retires as a Dodger. His last contract was for $16M/yr, how much per year on this contract?

      Additionally, lets make a splash if a BARGAIN presents itself. I believe the Bauer situation could become that situation. I hope so, 4 or 5 yrs, $20M-25M per yr, the stars could be aligning in the Dodgers favor.

      Hope is a good thing.

      Liked by 1 person

  6. Dustin Pedroia announced his retirement today. Loved watching that guy play. He was always dirty. Angels discussing an Alex Cobb trade with the Orioles. Absolute crickets from the Dodgers….not even a murmur.

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  7. Trade for Indians Ramirez … Lux and Ruiz and White if need be. Ramirez is a star player only
    Gonna get better guarantee his option years and try to extend him cheap .. The price is right.
    We have lots of catching talent and plenty of infield prospects ready to play. Save money and
    Pick whoever you want for shortstop next year….God Bless the Dodgers

    Liked by 1 person

  8. Rumors are the Indians are willing to trade for Ramirez. He is a switch-hitting 3rd baseman with a couple of controllable years left and is only 28. Could the Dodgers get him for a top Minor League pitcher and an outfielder? I know how much we all want Turner to re-sign but Ramirez if available is a very good 3rd baseman and just entering his prime. Ramirez has some power and his strikeout numbers are reasonable.
    It all depends on how they rate the in-house players I imagine. Hoese, Vargas, and others are all rated high but Ramirez has performed at the MLB level.

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    1. I’m all in on Ramirez Tmax, but I think you are way underestimating what it would take to get him. He’s a two-time All Star, 3 time Silver Slugger and has received MVP votes 4 times (2nd in the voting last year). He’s a switch hitter with three years of control remaining (3rd year is a team option for only $13MM) and is only 28 years old. And he can play both third and second base.

      If AF makes that call (and I’m guessing he already has), they start by asking for May, Ruiz and Lux and maybe Vargas as well. Just my opinion. I don’t know any more than you do, but as I said, I think his price would be crazy high.

      Liked by 2 people

      1. Jeff I am sure you are right. I saw a rumor the Indians might be willing to trade Ramirez. He would answer the long-term 3rd base position. What about Gray, White, and a couple of others and/or Ruiz? Dodgers have catchers in the system especially with the signing of the very highly rated Venezuelan 16 year-old Galiz. Right now the Dodgers have a hole at 3rd and a weak spot at 2nd. Maybe Lux steps up or maybe Taylor fills it? Prospects are made to trade and the Dodgers have a lot of young arms that are potentially blocked for several years. It is interesting! I think the Dodgers should keep with the 2 year deal with Turner he is 36…Love the line-up with Ramirez it would be a powerhouse.

        Liked by 1 person

      2. You’re right that at the moment we have a hole at 3rd (I’m not ready to make Rios the everyday guy yet) and an unknown situation at second, and Ramirez can play both of those positions (although not at the same time 🙂 ).

        There are a couple of roadblocks to getting him, as I see it:
        1) I think, because of their spectacular pitching, the Indians intend to compete this year so would have to be overwhelmed in order to trade Ramirez (and that would probably mean they would want MLB-ready players). Gray and Ruiz might be ready, but that leads to my second roadblock.
        2) We can’t just assume we’d be negotiating with them in a vacuum. Other teams would be trying to elbow us out of the way to make a better offer.

        I’m not saying we couldn’t get him, but a lot of things would have to fall into place for it to happen. If it does, we can both celebrate.

        Liked by 1 person

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