The Steve Cohen tax and the possible future of a Salary Cap and Floor in the CBA

soxhop411

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The Impact on the Mets: Nowhere did the owners act more explicitly against Cohen than in the addition of the fourth threshold. Only two teams in the last five years had crossed even the third threshold — the 2018 Red Sox and the 2021 Dodgers — and one of them traded one of the best players in baseball shortly thereafter to duck below the luxury tax again. Even Los Angeles has reset its payroll to get below the tax and avoid the repeater penalties, which means Cohen is the only owner who:

A. Has shown a willingness to spend above the tax threshold
B. Hasn’t been brought to heel by the penalties to get below the tax

That extra threshold seems like a just-in-case move by the owners. Maybe no one ventures that far into the tax and it’s not really needed. Maybe someone — cough, Cohen, cough — does spend that much for a little while, and the penalties rein him in.
https://theathletic.com/3182166/2022/03/14/how-does-the-new-cba-affect-the-mets-specifically/
As we are remember during the CBA negations the owners and MLBPA agreed to add what at the time was coined the "Steve Cohen Tax".. As the Athletic quote above notes, it seems like it was done as a Just in case, since nobody expected the mets to spend as much as they did this offseason even with that new "Steve Cohen" tax added in..


Also during those same negotiations owners and the MLBPA briefly discussed a (salary floor) that of course went nowhere...

This does have me wondering if this lead to the possibility of a salary cap and Floor being bit more likely to be implemented during the next CBA talks.. ( I would assume any Salary cap or floor would need to be modeled after the NBA or NHL (since both leagues have teams based in Canada) so the floor and cap would need to fluctuate depending on the global market and not just the US)
 
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Moonlight Graham

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The Mets strategy is exactly what I thought the Red Sox should have done with Mookie 3 years ago. Pay the luxury tax, using your biggest competitive advantage (deep pockets).
 

OurF'ingCity

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If you’re looking at it from MLB’s perspective, it comes to what will make the sport more exciting - a handful of super teams, or a more even distribution of star talent among teams?

Obviously, the smaller market teams would prefer the former, but overall I tend to think having a handful of teams amassing all this talent is more fun from a neutral perspective. It’s going to be very interesting following the Mets next year, and if, instead, Correa had signed with, say, the Twins and Senga had signed with the A’s or whatever due to a salary cap I’m not sure that would make things more interesting.

Of course, the most frustrating thing about this is that the Sox are not one of those teams where the star talent is concentrated.
 

E5 Yaz

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The last time an owner outspent the league in the way that Cohen is doing, he owned the New Jersey Generals
 

The Gray Eagle

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The Mets will be paying so much tax that a bunch of other teams are going to get a nice little payday from them.
The first 13% of the tax money goes to benefits and retirement, then 50% of the rest goes to teams that were under the tax limit. A few million will be going directly into the pockets of the cheapest owners. That's a nice little handout for slashing payrolls.
 

Murderer's Crow

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The Mets will be paying so much tax that a bunch of other teams are going to get a nice little payday from them.
The first 13% of the tax money goes to benefits and retirement, then 50% of the rest goes to teams that were under the tax limit. A few million will be going directly into the pockets of the cheapest owners. That's a nice little handout for slashing payrolls.
Philosophically, it's such bullshit that other teams get this money. The money should go directly to the minor leaguers and youth or international baseball programs.
 

soxhop411

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Philosophically, it's such bullshit that other teams get this money. The money should go directly to the minor leaguers and youth or international baseball programs.
that is another issue itself, which would be solved by a Cap and floor IMO, you would require teams to spend to a minimum level that changes based on the economy, so you dont have a team like the A's...
 

Gdiguy

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I've been thinking about this, and hilariously I think ultimately the other owners brought this on themselves with the non-$ penalties

I get why they did them, but the big problem with it is that it essentially bifurcated the team-building models - so either you want to build through drafting and cheap young players (in which case going $1 over the tax threshold is now really bad, and going even moderately ($40M) over is really really bad), or you don't - in which case once you're $40M over, you've already paid the penalties and so you might as well go really really over because at that point you're already eating the drafting penalty so it's just $.

And 'just $' doesn't matter to Cohen. For all sorts of reasons - but in addition to the obvious one (he's worth an estimated $14B, so even if that was in T-bills he'd be making what, $560M per year in interest?), I really think the under-rated one is that valuations of sports teams in general are flying upwards, and in particular he's trying to shrink the $3B+ valuation gap with the NYY. And if he can do that, who cares if he loses $200M a year for a few years - if he can sell the team in a decade for $5B it's probably net-positive even without eating into his net worth.

and honestly, I'm pro-team spending - the Mets (and NYY, and Red Sox, and a few other teams) are almost certainly significantly net-positive at the luxury tax limit once you back out all the accounting tricks (/ parking lots owned by the owners / sweetheart TV deals with RSNs owned by the owners / etc etc ). I'm not really a fan of 'yeah let's force Cohen to make $100M / yr profit because the poor Marlins can't compete with him being willing to spend $350M'

I get why they're not totally comparable, but - Manchester United spent what, ~$750M on salaries this year? Barcelona's is $600M+? I don't think a baseball team in NY spending half that is really that crazy
 
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kieckeredinthehead

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If you’re looking at it from MLB’s perspective, it comes to what will make the sport more exciting - a handful of super teams, or a more even distribution of star talent among teams?
It’s not really clear that this is a viable strategy. When was the last time a team won the World Series by buying a bunch of players? You can define that in whatever way you want, but say where the top 3 players by WAR were post arbitration? Of all the free agents signed this winter, how many are going to win a World Series? How many where they’re the most valuable player on the team? Even if the answer is “not none,” it’s only going to happen for this crop in the next three years or so, after which they’ll just be another sunk cost.

The fundamental issue with Major League Baseball is that compensation is completely disconnected from performance. Players are just better at baseball before they reach free agency. Buying superteams is an unbelievably inefficient way to play baseball. If you need to win 90 games to compete in the postseason and it’s $10m/WAR for free agents, you’d have to spend $400m (not including luxury tax) to do it. MLB shouldn’t be concerned about the “haves” and “have nots” because most of the haves are just going to blow a bunch of money on broken down former superstars which then gets redistributed to the have nots through the luxury tax. MLB should be more worried about appropriately valuing its talent so that teams can reward their home grown players when they’re good and help them stay with their team at an appropriate salary as they age.
 

ehaz

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There are just too many shitty owners for a reasonable floor/cap proposal to ever work.

During the last CBA negotiations, MLB proposed a salary floor of $100M but tied it to a $180M threshold and additional revenue sharing. That's an embarrassing offer. Not to mention the floor would barely do anything--even the Rays are already at ~$100M.

Edit:

This thread reminded me of one of the league mouthpieces more absurd tweets from the CBA negotiations.

View: https://twitter.com/JonHeyman/status/1502712804478001155?s=20&t=peePmITDLXTmtNEOilHAKg


Anyways the same thing that has happened in years past will happen again:

- Owners will make an embarrassing cap/floor offer that’s even worse for the players than the current system.
- Players will reject it and try to reduce the revenue sharing payments going to owners that don’t try to field competitive teams.
- Everyone agrees to continue with the same system with higher luxury tax thresholds that don’t fully account for the increase in inflation/franchise valuations.

Maybe an extra extra Cohen tax gets added. But ultimately teams like Miami, Oakland, Pittsburgh, and Tampa LOVE this arrangement. It’s the best deal in sports. You actually get PAID to suck even more. And if you get any heat from your fan base, you can point to a guy like Cohen and say “how can we compete with this? baseball is broken.” Enough fans are rubes that they’ll buy this, the Pirates and A’s owners will gladly use Cohen’s luxury tax payments to buy more yachts, and on and on it goes.
 
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Gdiguy

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You can define that in whatever way you want, but say where the top 3 players by WAR were post arbitration?
That's a fun cutoff, since the 2018 Red Sox had Betts (who wasn't post arb, but would be up to $20M by the next year), Sale & Martinez
2019 Nationals also (I'm not totally positive whether Rendon was post-arb, but he was making nearly $19M that year + Strasburg & Scherzer)

But then again - we haven't seen a team just say 'screw it' and blow past the luxury tax limit to this degree before; usually having free agent signings makes you cut corners elsewhere
 

Marciano490

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Is the underfunded small market team concept for real or a canard? All these owners are billionaires and I’m sure they could get a ton of fresh cash in for a bit of equity in the team. Obviously, Cohen is rich rich, but is going from $60-120 mil a year going to hurt anyone owning a baseball team?
 

Red(s)HawksFan

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Is the underfunded small market team concept for real or a canard? All these owners are billionaires and I’m sure they could get a ton of fresh cash in for a bit of equity in the team. Obviously, Cohen is rich rich, but is going from $60-120 mil a year going to hurt anyone owning a baseball team?
Every team gets roughly $60M from national TV rights deals (TBS, ESPN, FOX) and at least $100M through revenue sharing, so before selling a ticket or selling their own local TV/radio rights, they all have ~$160M in their coffers for the year. There's really no excuse for any team to have a payroll under, say, $120M.
 

Kliq

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I have a friend who is a fan of the Reds (with the poorest owner in baseball, a net worth estimated at "only" $400 million) and he is ripshit about the spending this off-season and thinks it will kill interest in the game in local small markets. Thinks either the "poor" owners should be forced to sell to billionaire owners, or the spending needs to be reigned in with a salary cap.

I'm not really sure this is that unusual in baseball. Sure the Mets are spending a ton of money right now, but plenty of teams are spending a ton of money, and given the different teams that have made it to World Series and won World Series over the past decade, (14 of the league's 30 teams have made it to the WS in the last decade, with 8 different teams winning the World Series) it doesn't seem like the game isn't competitively balanced, especially compared to previous eras of baseball history.
 

8slim

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I have a friend who is a fan of the Reds (with the poorest owner in baseball, a net worth estimated at "only" $400 million) and he is ripshit about the spending this off-season and thinks it will kill interest in the game in local small markets. Thinks either the "poor" owners should be forced to sell to billionaire owners, or the spending needs to be reigned in with a salary cap.

I'm not really sure this is that unusual in baseball. Sure the Mets are spending a ton of money right now, but plenty of teams are spending a ton of money, and given the different teams that have made it to World Series and won World Series over the past decade, (14 of the league's 30 teams have made it to the WS in the last decade, with 8 different teams winning the World Series) it doesn't seem like the game isn't competitively balanced, especially compared to previous eras of baseball history.
I agree. If MLB has teams in markets that are "too small" to compete then they should move the franchises to more lucrative markets. If a franchise has an owner who's not rich enough to compete they should force a sale. Because unless you're going to institute a hard cap like the NFL, there is always going to be some level of inequality. And yet, my hot take is that in terms of outcomes, MLB has seen far more parity than the NBA over the past 20+ years.

*edit* I mean, Tampa is the 13th biggest market in the U.S. (using the 'designated market area' categorization), and nearby Orlando is 17th. If the 13th biggest market doesn't provide the necessary financial resources to compete then I don't know what you can do. Oakland shares the 6th biggest market, and it's not like the lesser teams that share the #1, #2 and #3 markets don't have the resources to compete. I think the issue is less the market itself and more about ownership. If the stadium sucks and they can't engage the community, that's on them.
 
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Kliq

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I agree. If MLB has teams in markets that are "too small" to compete then they should move the franchises to more lucrative markets. If a franchise has an owner who's not rich enough to compete they should force a sale. Because unless you're going to institute a hard cap like the NFL, there is always going to be some level of inequality. And yet, my hot take is that in terms of outcomes, MLB has seen far more parity than the NBA over the past 20+ years.

*edit* I mean, Tampa is the 13th biggest market in the U.S. (using the 'designated market area' categorization), and nearby Orlando is 17th. If the 13th biggest market doesn't provide the necessary financial resources to compete then I don't know what you can do. Oakland shares the 6th biggest market, and it's not like the lesser teams that share the #1, #2 and #3 markets don't have the resources to compete. I think the issue is less the market itself and more about ownership. If the stadium sucks and they can't engage the community, that's on them.
The difference to me is less small market vs big market, or rich owner vs really rich owner, but rather the diverging business models that teams want to have.

Some teams want to spend money, try to win by having star players, and make money that way. Other teams want to be cost-controlled, collect their revenue sharing profits, and keep costs low and make money that way.

You can dress it up and say that the cost-controlled way is more sustainable and more focused on player development, but really it seems like it's just that some owners are cool spending more money, while others want to keep costs low and collect more money off the top. The market size of the franchise and the personal wealth of the owner does play a factor into that thinking, but we are often led to believe those are the only factors and I'm not so sure.

You mention the Athletics, but what about the White Sox? Billionaire owner in the third-biggest city in the country, and they throw money around like manhole covers.
 

8slim

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The difference to me is less small market vs big market, or rich owner vs really rich owner, but rather the diverging business models that teams want to have.

Some teams want to spend money, try to win by having star players, and make money that way. Other teams want to be cost-controlled, collect their revenue sharing profits, and keep costs low and make money that way.

You can dress it up and say that the cost-controlled way is more sustainable and more focused on player development, but really it seems like it's just that some owners are cool spending more money, while others want to keep costs low and collect more money off the top. The market size of the franchise and the personal wealth of the owner does play a factor into that thinking, but we are often led to believe those are the only factors and I'm not so sure.

You mention the Athletics, but what about the White Sox? Billionaire owner in the third-biggest city in the country, and they throw money around like manhole covers.
Agree. Hell, I remember a time when some people said that Boston couldn't support the Patriots because of a lack of regional interest, bad stadium, etc. As we've seen, it was entirely about needing an owner who was committed to winning.
 

johnlos

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And 'just $' doesn't matter to Cohen. For all sorts of reasons - but in addition to the obvious one (he's worth an estimated $14B, so even if that was in T-bills he'd be making what, $560M per year in interest?), I really think the under-rated one is that valuations of sports teams in general are flying upwards, and in particular he's trying to shrink the $3B+ valuation gap with the NYY. And if he can do that, who cares if he loses $200M a year for a few years - if he can sell the team in a decade for $5B it's probably net-positive even without eating into his net worth.
Now do John Henry. How much has valuation of Red Sox gone up since he owned the team?
 

kieckeredinthehead

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That's a fun cutoff, since the 2018 Red Sox had Betts (who wasn't post arb, but would be up to $20M by the next year), Sale & Martinez
2019 Nationals also (I'm not totally positive whether Rendon was post-arb, but he was making nearly $19M that year + Strasburg & Scherzer)

But then again - we haven't seen a team just say 'screw it' and blow past the luxury tax limit to this degree before; usually having free agent signings makes you cut corners elsewhere
Neither Rendon nor Betts had reached free agency and were both vastly underpaid. Also not clear why Betts' salary in 2019 is relevant, he made $10.5 in 2018.

In the Wild Card Era, two teams* have won the World Series when their top 3 players by b-ref WAR had reached free agency. So, 2 out of 28; doesn't seem like a great strategy. Any guesses which two?

*three, if you want to consider Ortiz a free agent in 2003/4
 

j-man

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Cohen is just useing the system to his adv

i dont mind the $ make as much as u can but no way do i sign a guy for 12 years without at least 1 opt-out

if i ran the red sox i wouild offer deves 10y 400 mil with a opt out after 2029
 

Marciano490

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Finance isn’t my thing, but how can you own an MLB team and only have a net worth of $400 million? Aren’t the teams worth substantially more?
 

jon abbey

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Kliq

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The logic behind having a "poor" owner vs a rich owner really only works if you assume that all of these guys are dumping their own resources into paying for players, as opposed to using the revenue they all get as MLB teams. Sure, Cohen's giant net worth allows him to laugh off luxury taxes in the millions, but it's not like the Reds owners (or any other owner in a lower tax bracket) aren't making any money off of baseball and are wholly reliant on their non-baseball wealth to fund the team.

My friend in question is convinced that a lot of these owners are losing money running these teams, and that is why the poorer owners can't pay to compete. I'm pretty dubious of that myself, but curious to know what some of you guys think.
 

jon abbey

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My friend in question is convinced that a lot of these owners are losing money running these teams, and that is why the poorer owners can't pay to compete. I'm pretty dubious of that myself, but curious to know what some of you guys think.
I kind of doubt it's true but the reason it doesn't hold water for me is that sports franchises basically always seem to appreciate massively in value, so even if that's not liquid and the owner is losing money sometimes on a yearly basis, that is an investment, maybe you lose $20M or $40M a year but your franchise value likely goes up more than that, and that's even before all of the tax incentives.

Checking CIN ownership specifically, the current team paid $270M for the team in 2005, current estimated value of $1.2B. So $930M capital appreciation in 17 years (a total 344 percent rate of return over the 17 years), that needs to be factored in also.
 

Devizier

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Philosophically, it's such bullshit that other teams get this money. The money should go directly to the minor leaguers and youth or international baseball programs.
This is correct. I could live with it if those payments were routed to cities to pay back stadium builds/infrastructure.
 

shaggydog2000

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Every team gets roughly $60M from national TV rights deals (TBS, ESPN, FOX) and at least $100M through revenue sharing, so before selling a ticket or selling their own local TV/radio rights, they all have ~$160M in their coffers for the year. There's really no excuse for any team to have a payroll under, say, $120M.
But they also have to pay for more than player payroll. They have to pay for the major league support staff, from coaches to massage therapists. They have to pay for an entire network of pro and amateur scouts and analysts. They pay for coaches all across their minor league system, for those players, for the draft bonuses, for international signings, for Dominican training camps and Florida developmental leagues. They pay for loans for building new stadiums, or the improvements they made to pre-existing ones. They may be making payments for loans they took out to buy the team. Open market free agents are almost always bad investments vs talented pre-arb players. Forcing a team to sign somebody washed up to get over a minimum player salary cap seems like a dumb idea, as long as they are spending the money somewhere. I'm more interested in doing away with spending caps on draft picks and international free agents, or at least loosening them up. If you don't want to spend on free agents, fine then invest in young players and build a team from the ground up. If you don't want to spend on either, then you get to lose. Have fun and don't cry about it to us. Maybe there should still be some limits on the combined spending on MLB level players and the combo of draft picks and international free agents, but that would just be to keep the richest 3-4 teams from dominating.
 

DanoooME

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Think about it this way: If the owners weren't making money, they'd be selling these franchises in a heartbeat and yet none of them do. These guys are making millions, so there's no excuse for them to not spend money.

As a famous philosopher once said, LOL BOO HOO owners.
 

Gdiguy

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Think about it this way: If the owners weren't making money, they'd be selling these franchises in a heartbeat and yet none of them do. These guys are making millions, so there's no excuse for them to not spend money.

As a famous philosopher once said, LOL BOO HOO owners.
I do think it's true that for some owners their team is basically their entire business / income / net worth, and I can see how they need to run a profit (or at least not significant losses) from a cashflow perspective

But I agree with your overall argument - these owners aren't complete idiots, if they were holding onto a $1B+ item that loses money consistently there would be a lot more team sales