Competitive Balance Tax

[Greg_SRT]

Thank you for the replies. Appreciate it.

[PowerBoater69]

An update from Talk Nats:

My source actually corrected me on the term "appeal" and said it was actually a challenge to the methodology used and he said Rizzo thought MLB agreed with the Nats on this as the Nats were only a few million apart. To his knowledge it is over and MLB has the Nats over. If there is an appeal or challenge ongoing my source is not aware.

So it appears that the Rizzo bungled the planning and unintentionally went over the cap.

http://www.talknats.com/2018/01/12/sph-hot-stove-with-rizzo-channeling-jim-acosta/

[dcpatti]

An update from Talk Nats:
So it appears that the Rizzo bungled the planning and unintentionally went over the cap.

http://www.talknats.com/2018/01/12/sph-hot-stove-with-rizzo-channeling-jim-acosta/

That  “inside source” rumor doesn’t back up your statement at all. And I would expect every team who pays the luxury tax to have someone challenge every single line item in an attempt to pay as little as possible,  just like I have my account going through my paperwork looking for every possible way to lower my tax bill.

[PowerBoater69]

That  “inside source” rumor doesn’t back up your statement at all. And I would expect every team who pays the luxury tax to have someone challenge every single line item in an attempt to pay as little as possible,  just like I have my account going through my paperwork looking for every possible way to lower my tax bill.

Not an accurate analogy. Rizzo said at Winterfest that the Nats were under the cap, that's not from an anonymous source. Going over the cap incurs draft penalties so this isn't some minor disagreement on a couple line items. The accountant who screwed this up should be fired.

[dcpatti]

Absolutely an accurate analogy in that one must navigate a complex, convoluted set of calculations to determine what financial obligation, if any, is due.

 The choice of the word “bungled” is sensationalism and implies ineptitude when in all likelihood it’s a dispute over whether clubhouse dues (or a similar line item) are considered part of the AAV or not.  Placing the quote next to the statement implies that one gives the other credence when in reality it doesn’t.

[PowerBoater69]

Absolutely an accurate analogy in that one must navigate a complex, convoluted set of calculations to determine what financial obligation, if any, is due.

 The choice of the word “bungled” is sensationalism and implies ineptitude when in all likelihood it’s a dispute over whether clubhouse dues (or a similar line item) are considered part of the AAV or not.  Placing the quote next to the statement implies that one gives the other credence when in reality it doesn’t.

Keep spinning for the team. Bungled is an understatement.

Your analogy would be accurate if the Nats were disputing whether they were $10M or $15M over, not when the small amount in dispute costs the team the chance to sign certain free agents due to lost draft picks. Rizzo made an incorrect statement about the CBT status, he's the President of Baseball Operations, is he competent to handle the salary cap or does he need help?

[dcpatti]

Not “spinning for the team,” my pal. Just see no need for sensationalism. Not everything has to be high drama.

[PowerBoater69]

Not “spinning for the team,” my pal. Just see no need for sensationalism. Not everything has to be high drama.

Oh please, you're hardly the voice of reason when it comes to defending team missteps.

[dcpatti]

Oh please, you're hardly the voice of reason when it comes to defending team missteps.

Whatevs, not everything is gross negligence.  After a while, the pitchforks become really tiresome.

[nfotiu]

Keep spinning for the team. Bungled is an understatement.

Your analogy would be accurate if the Nats were disputing whether they were $10M or $15M over, not when the small amount in dispute costs the team the chance to sign certain free agents due to lost draft picks. Rizzo made an incorrect statement about the CBT status, he's the President of Baseball Operations, is he competent to handle the salary cap or does he need help?

I agree with your sentiment that it was a screw up he should be held accountable for.  I think you are over-stating the impact a bit though.  The difference only matters if we sign a qualified free agent, and the difference is losing our 2nd and 5th best draft picks if over versus losing just our second if under.   Basically it causes us to lose a 5th round pick if we sign a FA who has declined their qualifying offer, and some extra international signing money. 

[PowerBoater69]

I agree with your sentiment that it was a screw up he should be held accountable for.  I think you are over-stating the impact a bit though.  The difference only matters if we sign a qualified free agent, and the difference is losing our 2nd and 5th best draft picks if over versus losing just our second if under.   Basically it causes us to lose a 5th round pick if we sign a FA who has declined their qualifying offer, and some extra international signing money. 

It's not that it only matters if we sign a player who received a QA, it's that we've removed ourselves from the market. An unforced error. It's also a $2.5M cash loss, which we know the Lerners won't like, $1.5M in fees and $1M in missed revenue sharing.

[nfotiu]

It's not that it only matters if we sign a player who received a QA, it's that we've removed ourselves from the market. An unforced error. It's also a $2.5M cash loss, which we know the Lerners won't like, $1.5M in fees and $1M in missed revenue sharing.

We've removed ourselves from the market because we are going to make a decision on a big free agent by whether we are going to have to give up our 5th best draft pick or not?   And last year doesn't affect whether we get comp for Harper.  That will be based on this upcoming year's CBT status.  And the difference in international signing money penalty is only 500,000 vs 1,000,000 and that's only if we sign a qualified free agent.

[PowerBoater69]

We've removed ourselves from the market because we are going to make a decision on a big free agent by whether we are going to have to give up our 5th best draft pick or not?   And last year doesn't affect whether we get comp for Harper.  That will be based on this upcoming year's CBT status.  And the difference in international signing money penalty is only 500,000 vs 1,000,000 and that's only if we sign a qualified free agent.

The lost million was for revenue sharing not international signing money. The penalty for signing a QO guy is a second and a fifth.

[PowerBoater69]

Has the slow free agent market impacted the pre arbitration negotiations? Most of the guys signing today are agreeing to less than their projected values.


https://www.mlbtraderumors.com/2018/01/players-avoiding-arbitration-11218.html

[nfotiu]

The lost million was for revenue sharing not international signing money. The penalty for signing a QO guy is a second and a fifth.

If we weren't over the tax, we'd have to give a 2nd pick.  If we are over the tax we have to give a 2nd and a 5th.

[Greg_SRT]

How does this impact the Nats ability to resign Harper? Does it effect it at all?

[PowerBoater69]

If we weren't over the tax, we'd have to give a 2nd pick.  If we are over the tax we have to give a 2nd and a 5th.

You are right, they'd have lost the 2nd either way, so the cost of accidentally exceeding the cap was the potential to lose a fifth round pick, the $2.5 million in penalties and lost revenue sharing, the lost international signing money, and the triggering of escalating fees for 2018+2019.

[PowerBoater69]

How does this impact the Nats ability to resign Harper? Does it effect it at all?

If the Nats are already over the cap and facing 50% penalties for every additional dollar spent in 2019 and beyond, a $400 million contract will cost $600 million. That will have an impact.

[imref]

http://www.masnsports.com/nationals-pastime/2018/01/why-it-wont-cost-nats-that-much-if-they-have-to-pay-luxury-tax.html

So that’s a $176 million opening day payroll, which would be a new club record, shattering the mark set last season of $164 million.

How does that leave the Nationals susceptible to MLB’s luxury tax, which this year will penalize teams that go over the $197 million mark? Well, for luxury tax purposes, the average annual value of a player’s contract is used, not his actual salary for the season.

Which means that players who have back-loaded or deferred contracts (of which the Nats have several) carry a higher number. For example, Max Scherzer’s salary and prorated bonus money in 2018 is $22,142,857. But the average annual value of his seven-year contract is $28,689,376. And that’s the figure used when calculating luxury tax payroll.

The end result of all that? The Nationals currently are looking at a luxury tax payroll of $199.2 million, which puts them $2.2 million over the threshold.

The club already surpassed the $195 million threshold last season and thus paid a 20 percent penalty on the amount they exceeded that number. If they go over again this season, their penalty rate goes up to 30 percent. (If they go over a third straight year, the penalty rate jumps to 50 percent.)

Teams across baseball understandably are trying to avoid doing that, which explains in part why so many big name free agents have yet to sign this winter. But in reality, the penalty isn’t all that excessive, especially for a team that doesn’t surpass the threshold by much.

If the Nationals’ final 2018 luxury tax payroll ends up at $199.2 million - it won’t, because there are countless roster changes still to come - only the overage ($2.2 million) would be taxed, at a 30 percent rate. That works out to $660,000. In baseball terms, that’s nothing.

Even if the Nats make a major addition, a star player with a $20 million average salary, the penalty would be an extra $6 million. That’s not nothing, but it’s also not an exorbitant dollar amount that would cripple the franchise.

In the end, the Nationals (like all clubs) are going to do their best to stay under the $197 million threshold. But if they believe an extra player or two can get them over their elusive October hump, an extra couple million dollars shouldn’t stand in their way.

[imref]

looking at next year, we have about $82 million coming off the payroll, so there is space to keep Harper

[bluestreak]

If the Nats are already over the cap and facing 50% penalties for every additional dollar spent in 2019 and beyond, a $400 million contract will cost $600 million. That will have an impact.

It’s not like you get charged at once. You get charged the average annual value each year. So the Nats could obviously reset one year and then pay no tax.
Also the concern about the Lerners having to pay 1-2 million in tax is laughable.

[Slateman]

If the Nats are already over the cap and facing 50% penalties for every additional dollar spent in 2019 and beyond, a $400 million contract will cost $600 million. That will have an impact.

No, not quite. It only affects the next season's payroll. So If they signed harper to a 400 million dollar contract, the next season's AAV would be penalized at that rate, not the entire contract.

[Slateman]

looking at next year, we have about $82 million coming off the payroll, so there is space to keep Harper

Yea, but we will kind of need to replace some pieces with that money too. Gio, Murphy, Harper, ect.

[Greg_SRT]

Yea, but we will kind of need to replace some pieces with that money too. Gio, Murphy, Harper, ect.

They need Harper imo. He puts fans in seats. Even if they aren’t great that year.

[Slateman]

They need Harper imo. He puts fans in seats. Even if they aren’t great that year.

Harper needs to win multiple championships. That is not going to happen here.