Anthony Rizzo says teams are treating luxury tax as a salary cap

First baseman Anthony Rizzo was eager to talk about a labor issue as spring training begins for the Cubs in Arizona. Per Gordon Wittenmyer of the Chicago Sun-Times, the three-time All-Star said of the competitive balance tax (more commonly known as the luxury tax), “I think the luxury tax wasn’t meant to be a salary cap, and teams are treating it like that. Are you sacrificing winning a championship to be under the tax threshold? Who knows? We don’t know that.”

Rizzo’s own team has been concerned with the competitive balance tax threshold, set at $208 million for the 2020 season. They’re currently north of $210 million, which would result in a small tax on the overage of about $2 million. A pittance, really. But the Cubs only signed to free agents to guaranteed major league deals this offseason: outfielder Steven Souza and reliever Jeremy Jeffress. The Cubs won the World Series in 2016, but slid backwards in the years since, losing the NLCS in 2017, the NL Wild Card game in 2018, and missing the playoffs last year.

Rizzo said, “You’ve seen it the last two years with us: We haven’t gone out [and signed big free agents],” Rizzo said. “But the few years before that we’ve gone out and signed megadeals.”

The Red Sox are another team guilty of viewing the CBT threshold as sacrosanct. After winning a championship in 2018, the Red Sox disappointed with a third-place finish last season, resulting in the dismissal of Dave Dombrowski. The club focused on shedding payroll, trading Mookie Betts and David Price to the Dodgers in order to clear about $50 million, dropping their total payroll to under $190 million.

Rizzo noted this, saying to Wittenmyer, “So you see one end of the spectrum, [the Yankees’] signing of the richest deal ever with Gerrit Cole; that’s what the Yankees do as long as I’ve been alive. And on the other end, trading away [Betts] to shed payroll when you have a team that just won a World Series. It’s weird.”

The CBT is not as complicated as it seems. Each year, a threshold is set as per the collective bargaining agreement. Last year was $206 million, this year is $208 million, next year is $210 million. Teams that exceed the threshold for the first time pay a penalty, but only on the overage. Teams exceeding the penalty in consecutive years pay increasingly more expensive penalties. Teams that exceed the CBT threshold by a lot also pay a surtax. Specifically, it’s broken down like this:

  • Exceeding CBT threshold frequency
    Once: 20 percent tax on overage
    Two consecutive seasons: 30 percent tax
    Three consecutive seasons: 50 percent tax
  • Exceed CBT threshold amount
    $20-40 million: 12 percent surtax
    More than $40 million once: 42.5 percent surtax, Rule 4 Draft pick moved back 10 places
    More than $40 million two or more consecutive seasons: 45 percent surtax, Rule 4 Draft pick moved back 10 places

Keeping in mind that every team is worth over $1 billion, even the penalties for being a habitual CBT offender are a relative pittance. The Red Sox are the third-most valuable franchise in baseball at $3.2 billion, according to Forbes. The Cubs are fourth at $3.1 billion. It’s more complicated than this, as that value is not entirely liquid, but the teams that have self-imposed austerity measures are not exactly scrounging around the couch cushions for quarters to help keep the lights on.

Rizzo is right that teams are treating the CBT as a salary cap. The penalty for going over is, for the most part, the price of a modest free agent reliever. But front offices have held the CBT threshold as sacrosanct despite the league setting year-over-year revenue records. With so many avenues for revenues to come in, teams do not need to build a championship-caliber club in order to be profitable. Thus, they can point to the CBT threshold and shrug their shoulders as they slash payroll, maximizing profits in the process. The results have been a stagnant free agent market for baseball’s middle class, unnecessary wholesale rebuilding efforts, and a degradation of the on-field product.

Rizzo said, “How much this game is making, it’s not [out of line] for us players to speak up. There’s billions, and then there’s millions. There’s a big difference between the ‘b’ and the ‘m’.”

Rizzo is one of a growing number of players now conscious of baseball’s labor landscape. The players made concessions in order to get largely superficial gains in the last CBA like travel accomodations. The owners rejoiced as they gained even more control over the sport as a result. The players have since recognized their error. I have been writing about baseball for nearly 13 years and this is the most labor-conscious I have seen the players. Greed and overreach on the part of ownership may be their undoing. One imagines the competitive balance tax and other labor-unfriendly rules are not long for this world after December 1, 2021, when the current CBA expires.

Written by