Though the Dodgers’ pockets are among the deepest in the game, they haven’t been known (at least under their current front office leadership) for handing out monster contracts. The Dodgers, in fact, successfully dipped under Major League Baseball’s luxury tax threshold for the first time under the Guggenheim ownership group in 2018.
Still, when the Los Angeles organization swung a massive contract swap last December to sneak beneath the tax line, the general assumption was that the club mostly saw an opportunity to re-set its tax rate. After all, the scheme under the current collective bargaining agreement includes enhanced penalties for repeat offenders, increasing the incentives for performing a limbo act at least once every few years. Many wondered if the timing was designed at least in part to coincide with a 2018-19 free agent market that features some premium talent.
Now, though, there’s some evidence that the Dodgers may have different plans altogether. According to a report from Bill Shaikin of the L.A. Times, a 2017 document prepared for potential investors suggested that the organization projected to remain beneath the luxury tax threshold for years to come. Specifically, the Dodgers told investors they projected to carry a $185MM payroll for 2019 and 2020 before increasing that number to $191MM in 2021 and $196MM in 2022. The organization predicted soaring revenue despite a streamlined budget (including with regard to player salaries).
Some provisos are assuredly warranted. As Shaikin explains, this document hardly binds the team in a legal sense. And a “high-ranking team official” tells Shaikin that the payroll numbers represented only a “forecast.” That said, it’s also fair to point out that any organization could theoretically expose itself to potential liability by including any known misrepresentations in a bid to draw investors.
Notably, too, the document was prepared before the team qualified for the postseason last year and ultimately went on to make consecutive World Series appearances. And it’s somewhat unclear whether the salary levels contemplated would relate to actual expenditures or calculations for purposes of assessing the competitive balance tax. Over the long haul, that might not matter much, but it certainly weighs into both the team’s immediate plans and the intentions behind the numbers it presented.
So, what might all this mean for the Dodgers’ near-term spending outlook? Most immediately, a source indicated to Shaikin that it’s quite likely the Dodgers will go past $200MM for the coming season. Whether or not that’s due to tweaked thinking since this document was prepared, it seems that the $185MM figure is no longer realistic.
Even if the Dodgers were to stick to that kind of spending level, the constraints may not be as great as one might imagine. Presently, the Dodgers are within just a few million dollars of that $185MM sum, though that estimate includes yet-undetermined arbitration salaries and doesn’t account for factors like non-tendered players or potential trade candidates with notable salaries (or projected salaries).
Furthermore, L.A.’s luxury tax ledger, which is based on the average annual salary of the team’s contracts rather than actual year-to-year salaries, is cleaner. Currently, the Dodgers payroll sits at just a bit north of $161MM for purposes of the CBA — well shy of this year’s $206MM luxury tax barrier. Even if one of Hyun-Jin Ryu or Yasmani Grandal were to accept a $17.9MM qualifying offer, the Dodgers would be at just over $179MM in luxury tax dollars, although that outcome would throw a wrench into the supposed 2019 bottom-line payroll target.
All things considered, it’s eminently possible for the Dodgers to add a premium salary — even after re-upping Clayton Kershaw at a rate that’s just short of the loftiest AAV in history — while staying out of the tax. It would take some finagling, and would perhaps mean parting with talented players on generally appealing contracts, but the document does not seem to conclusively take the Dodgers out of the hypothetical running for highly-paid players.
In the broader picture, of course, there’s surely something to be gleaned from this document. The notion of a payroll that trudges northward with inflation certainly does not align with the general image of the Dodgers as a freewheeling financial behemoth. It generally suggests that the organization will prioritize efficient spending while generally avoiding massive and lengthy contractual entanglements — a description that won’t be surprising to those that have followed the club’s course under president of baseball operations Andrew Friedman.
That said, it’s difficult to reach any firm conclusions based solely upon this document. For instance, the Dodgers’ financial experts may simply have been projecting payroll to grow steadily from its then-projected future rate, rather than making any detailed assessment of the ever-complicated process of compiling a roster from season to season. And there are always creative possibilities that could be part of the planning here. The Dodgers’ wealth of young talent leaves the team capable (in theory, at least) of shedding contracts that go bad in future seasons. Most importantly, business plans change, and individual player investment decisions will surely not be dictated by the directional thinking at one point in time.