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Will Dodgers Exceed 2021 Luxury Tax Threshold?


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.

“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?

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