Despite missing the playoffs and unloading several players through August waiver trades, the Washington Nationals were one of two teams to exceed MLB’s competitive balance tax in 2018.
The Associated Press reported Saturday that the Nats and World Series champion Boston Red Sox each surpassed the $197 million luxury tax threshold set by the league’s collective bargaining agreement, a deal signed by MLB and the Players Association in 2016.
Washington received the penalty for the second-straight season, earning a 30 percent tax of the money it spent above the $197 million mark. In total, the team was charged $2,386,097 after being hit with a bill of about $1.45 million in 2017. For reference, the Nationals paid Michael Taylor $2,525,000 to be their fourth outfielder last season (per Cot’s Contracts).
A team’s luxury tax figures are determined by the average annual value of its guaranteed contracts. That means that while $126 million of Max Scherzer’s $210 million contract is deferred to 2022-28, his hit against the tax is still a robust $28,689,376.
Three players on the Nationals will cost them more than $20 million in AAV next season: Scherzer, Strasburg ($25 million) and Patrick Corbin ($23,333,333).
Players who either receive the league’s minimum or are arbitration eligible only count against the tax for what they’re paid that season. The CBT also factors in player benefits and the salaries of minor leaguers on each team’s 40-man roster. Cot’s estimates that Washington paid $14.5 million in benefits and $2.25 million to its 40-man minor-league players in 2018.
As the page turns to 2019, Nationals ownership is reportedly set on not surpassing the luxury tax threshold for a third-consecutive season. If it does, Washington will be taxed 50 percent for the first $20 million it spends over the limit followed by “62 percent on the next $20 million and 95 percent on any amount over $246 million” according to AP.
Getting back under the threshold is important to the Nationals for two reasons: They won’t have to pay the CBT and their rate of increased taxes would reset. Including Washington’s most recent deal with Matt Adams, the team currently sits at approximately $182,822,709 in AAV — about $23.2 million below the $206 million threshold set for next season.
This doesn’t leave a whole lot of room for the rest of the items on Washington’s offseason wish list: two more starting pitchers, a second baseman, a left-handed reliever and Bryce Harper. It could also pose a problem at the trade deadline, as teams are charged prorated amounts of the contracts they acquire midseason.
If the Nationals decide they could swallow exceeding the luxury tax by $20 million so as to maximize spending before reaching the second threshold, they’d owe $10 million in taxes to MLB. The threat of paying $10 million is what stands in the way of the Nats utilizing a buyer’s market in free agency to fill out the rest of their roster.
Tanner Roark, who the team traded to the Cincinnati Reds in an effort to shed payroll, was expected to earn $9.8 million in arbitration in 2019. While the move gave the Nats more flexibility in their spending, it opened up a new hole in the back of a rotation that already had a question mark at the No. 5 spot.
Thus is the cost of sustained success in today’s era of baseball. The rise of the Atlanta Braves and Philadelphia Phillies’ young cores has put pressure on the Nats to actively bolster their roster. To their credit, Mike Rizzo and Co. have done just that with the acquisitions of Corbin, Adams, Kurt Suzuki, Yan Gomes, Kyle Barraclough and Trevor Rosenthal this winter.
But Washington’s NL East rivals don’t have nearly as much money tied to their star players, who are all mostly still signed to their rookie deals. Philadelphia or Atlanta would have no problem paying a player of Roark’s caliber $9.8 million if he was already on their team.
The Nationals aren’t operating like a team with a lot of payroll flexibility, but they could be if the Lerner family decides a deeper roster is worth the $10 million. Now, that’s not to say they won’t. Re-signing Harper would essentially guarantee Washington exceeds the luxury tax and mixed reports have the team still somewhat in play for the All-Star outfielder.
Gone are the days Washington can enter the season with a few uncertainties and cruise to a division title. Every game will count in 2019 and if the Nationals are going to finally put an end to their playoff futility, then they might have to shake their fear of breaking the bank.