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Wednesday, December 12, 2012

Forget The Yankees, It's The Dodgers Who Must Fear The New, Bitier Luxury Tax

As always, Baseball Prospectus' Maury Brown is worth reading. Today's piece is about the Yankees and their focus on getting team payroll below the $189M mark (all emboldening is mine):
It works like this: for each year of the labor agreement, the top 15 clubs by market size are disqualified from receiving a growing percentage of net revenue-sharing proceeds they otherwise would have been entitled to. However (and here’s where the Yankees fit in), the CBA provides a clause by which these revenue-sharing funds are rebated for clubs that don’t break the luxury tax ceiling. The percentage of the revenue-sharing rebate that gets penalized if a team breaks the luxury tax ceiling escalates for each consecutive year: 25 percent for the first offense, then 50 percent, 75 percent, and eventually none of it comes back depending on how many years in a row the team blows through the luxury tax ceiling. It’s this escalating tax rate in two locations (the tax you get hit with for going over the luxury tax ceiling on top of the percentage of revenue-sharing held for being a top 15 market club) that can add extra pain to the Yankees’ wallet.
The Yankees seem committed to restraining their expenditures somewhat, a matter complicated by injuries to Mariano Rivera, Alex Rodriguez, and Derek Jeter; Jeter and Rivera will be off the books at the end of 2013, but A-Rod goes through 2017. Meantime, the Dodgers are adding years and dollars in an environment entirely hostile to that. As Brown notes in his closing graf, "the league may be setting its sights a coast away on the Dodgers, who will almost certainly break the luxury tax threshold next season and likely a few more to come." There are pluses and minuses to be had with being the league's biggest spender for the foreseeable future, especially with the Wilpons hamstrung — whether they want to admit it or not — by the outcome of the Maddoff fraud case. This is certainly a considerable minus.

Update: FB pal Johnny Patterson PM'd me to remind me that only the first $84M of local TV revenue would be subject to revenue sharing. However, and that said, this appears to be only about local TV revenue sharing, and not payroll luxury tax.

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