Recap Of The Dodgers’ Luxury Tax Penalties

Luxury tax penalties were recently handed down, and the Dodgers have the highest penalty for the fourth consecutive season. They owed $36.2 million for the 2017 season, with the Yankees a distant second at $15.7 million per NBC Sports.

The Dodgers owe $36.2 million, according to final figures compiled by the commissioner’s office and obtained by The Associated Press. That raises their five-year tax total to nearly $150 million.

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The Dodgers have been over the luxury tax for five consecutive seasons and had the highest penalty for the last four. Here’s a recap of what they’ve had to pay in penalties each season:

• 2013 $11.4
• 2014 $26.6
• 2015 $43.7
• 2016 $31.8
• 2017 $36.2

Getting under the luxury tax threshold was a priority for the Dodgers this offseason. They made a lot of progress, trading Adrian Gonzalez, Brandon McCarthy, and Scott Kazmir to offload roughly $50 million in salaries for 2018. If they’re able to unload Matt Kemp’s $21.5 million annual salary they’ll be well below the threshold. This will also open up the possibility of re-signing Yu Darvish or waiting until next offseason and making a run at Bryce Harper and the rest of that amazing free agent class.

2017 was the 5th consecutive season that the Dodgers were over the luxury tax threshold. Having paid close to $150 million in penalties over the past five seasons, it’s understandable why they put focus in getting under it. Even if they only get under it for one season, it will have huge benefits. Teams are penalized higher percentages for being over the luxury tax consecutive years. The penalty is 20% in year one, 30% in year two, and 50% for every year beyond. So if the Dodgers are under the luxury tax for 2018, but go over again in 2019 they will only need to pay a 20% penalty.

Eric Stephen of TrueBlueLA noted that there are now new tiers of penalties depending on how far over the threshold a team is.

With the new collective bargaining agreement, there are now extra tiers of penalties for exceeding the luxury tax, more punitive as the payroll increases.

• For teams $20 million over the threshold, there is an extra 12% surcharge
• For teams $40 million over the threshold, there is an extra 45% surcharge (42.5% for first-time offenders)

That means that for the Dodgers in 2018, any payroll above $237 million will be taxed at a 95% rate, so each marginal dollar added is nearly doubled.

While luxury tax concerns may have prevented the Dodgers from making a run at Giancarlo Stanton, it’s unlikely to affect future pursuits as heavily. If they manage to stay under the threshold in 2018, they’ll be in a better position to pursue 2018 free agents such as Bryce Harper. Expect the Dodgers to continue trying to get below the luxury tax to make acquisitions like Harper a possibility moving forward.