Investment tax numbers
DMZ · April 21, 2005 at 9:50 am · Filed Under General baseball
On Yahoo, many other places. Based on initial projections, only two teams will be penalized for investing in their teams:
Yankees pay $30,637,531
Red Sox pay $969,177
And that’s it.
Important to note, as you see these numbers float around, is that “For the luxury tax, payrolls are based on the average annual values of contracts for all players on the 40-man roster and include benefits.”
Benefits is a huge, huge number. We’ve discussed this here before (and sorry, but I don’t have time right now to dig it up) and this is medical, pension, probably meal and other per-diem costs. So when you see Seattle on there at $109.3m — that’s not payroll.
Comments
31 Responses to “Investment tax numbers”
Would it be safe to assume that the total cost of benefits is roughly equal for each team?
Sounds like you’re not a big fan of the luxury tax, DMZ.
Can’t say I blame you- considering that the way MLB is run right now, a number of teams get big fat subsidies to be crappy.
Sorry for being a jerk here…
Regarding your article on the PI today DMZ, I have a question. You say that a man on second with no outs will typically lead to 1.2 runs being score by the offense. Does it matter how that man on second got there? For instance, a batter that hits a double might lend you to believe that the pitcher was grooving some pitches, whereas a bloop single and a steal might be more of a factor of random chance / weak catcher’s arm, etc.
Does it make any difference? Does it statistically matter even if there is? Is there anything to show that stealing a base “messes with a pitcher’s head?”
If benefits are similar to what “normal people” have, you’re probably looking at a 20-30% markup over salary. Healthcare is going to be a smaller percentage (since premiums are pretty level across society but salaries aren’t). The per diem is a very significant number. I know it was $76.50/day a few years ago; multiply that by 180 days and you’re looking at close to $14,000 per 25-man roster slot.
I do love how the Yankees are paying $30M to keep a roster full of old, overpriced pitchers. And this is without the full weight of the ARod contract, since Texas is paying a large chunk of his salary.
The luxury tax is working — it’s letting the big spenders spend while redistributing wealth to the small-market clubs, and the small clubs not named “Rockies” or “Royals” are spending it on talent. The Rockies, as far as I can tell, are spending their money on not-talent.
According to the CBA, benefits includes contribution to the Benefits Plan; Workers’ compensation premiums, payroll, unemployment
compensation and social security taxes; Spring training allowances, All-Star Game expenses, “in-season supplemental
allowancesâ€Â; Moving and traveling expenses; Contributions (in their entirety) to the post-season Players’ pool; College Scholarship Plan; Player medical costs (i.e., fees to doctors, hospitals, and
other health care providers, and the drugs and other medical supplies
for the treatment of Player injuries)
The luxury tax payroll numbers also prorate signing bonuses which can also cause some differences between that and what you usually hear as payroll.
So, yes, as Derek said, benefits is a rather large number.
Of course it matters how he got there. However, there is no good way to both measure the different ways a runner reaches second AND then draw meaningful inferences from it. Therefore, just assume that it does not matter so that you can get some kind of use from the knowledge you do have.
I’m going to start a new thread on the PI article.
w/r/t the CBA — one of the unresolved questions is whether such numbers include the super-aggressive medical costs teams incur themselves. Beyond players and their families, do the tabs for all the MRIs go in here?
#4, I’m in agreement with you about the luxury tax working. For a little while it seemed like there were more clubs like the Rockies and Royals who were either spending very badly, or not spending at all. Some of those clubs (Pirates, for example?) seem to now be heading in the right direction. Let’s also not forget Bud Selig’s famous “aberration”, the A’s, who have accomplished so much with so little, in a payroll sense.
Dw, the Devil Rays are not spending money on talent, or non-talent. They’re stealing money from the system, and getting away with it. It’s a joke. If I was George Steinbrenner I’d be livid.
#9, yes, there are still problems out there. What system of accountability could be put in place to address this? Are there any checks and/or balances existing? For example, what % of $$ coming in through the luxury tax can be spent on “overhead” and what has to go to acquisition or development of new talent? If a club is losing $$ annually, how do you justify telling ownership that it must spend these funds on high-priced free agents?
No, the system ain’t perfect, but it’s proving that it CAN work, and it sure beats a blank.
Actually, the D-Rays have some talent up now (Baldelli, Crawford, Cantu, Kazmir, Huff, Phelps when his head’s on straight) and some promise in their minor-league system. Whether they’re managing that young talent effectively is debatable (they’re not).
Would spending the cash money they’re getting from the Yankees help them now? Not really. I mean, what do you spend it on?
If they’re smart, they’re pocketing the money and looking to use it to keep Crawford or Huff when they can file for FA. They’re not smart, though, so they’re probably pocketing the cash. It’d be nice to require the owners to spend the money on talent, and that’s something that can be discussed in ’06. But I’d love to have the young talent the D-Rays have right now, especially if they came without their front-office management.
I expect that how the luxury tax money is spent will be a BIG issue in the next Collective Bargaining Agreement. The Players Union should be trying to negotiatet that a specific percentage of luxury tax revenues distributed be spent on salaries for players on the 40-man rosters. They have less interest in seeing that money spent on scouting and development, and of course no interest in seeing owners pocket.
I am sure that both the Union and the owners will easily agree that the last thing it should be spent on is lowering ticket and concsession prices.
#9 George has nobody but himself to blame. Instead of over paying for old tallent can you imagine if they had spent their money on Beltre, Vlad, and Beltran. Add in a trade for Hudson instead of Johnson, not sure what they’d offer, and somebody under 40 instead of Brown and they’d have a better team than they do know with probably less of a payroll.
As for the Devil Rays why should they spend the money? Adding 40 million to their payroll still puts them in the cellar in that division. Its smarter to let their own guys develope into stars first and then spend the money that they’ve been saving.
Sorry for spelling errors, etc.
Who cares where the teams spend the money? The main point of the luxury tax should be to curb spending and even the playing field more.
I’d prefer if they did a dollar for dollar tax and started it at 100 million. An actual salary cap of some sort would be great. And hey, while we’re at it, throw in a minimum salary to make sure teams on the bottom end are trying to compete.
Of course, it’s hard to force teams losing money to spend cash they don’t have because there’s hardly enough revenue sharing going on.
Who cares where the teams spend the money? The main point of the luxury tax should be to curb spending and even the playing field more.
Sigh. This is called communism.
An actual salary cap of some sort would be great. And hey, while we’re at it, throw in a minimum salary to make sure teams on the bottom end are trying to compete.
No, a salary cap/floor would be an abysmal failure.
Of course, it’s hard to force teams losing money to spend cash they don’t have because there’s hardly enough revenue sharing going on.
Carl Pohlad, owner of the Twins who volunteered to contract his franchise because he “couldn’t compete”, is one of the 300 richest people in the entire world.
You’ve bought a series of lies from the owners hook, line, and sinker. These guys own baseball teams because they are ridiculously good businessmen who realize that owning an MLB team is a great investment.
There’s plenty of revenue sharing going on IMHO. The more you share the more you discourage teams from busting their own butts to make money. I have no sympathy for teams who can’t be creative enough to market their teams well, or smart enough to spend their money well. And I find it ironic that your first statement is “who cares wehre teams spend the money,” but later you advocate a minimum salary (assuming you mean minimum payroll). Isn’t that a contradiction, or am I misinterpreting something here.
Why is a salary cap and floor such a bad idea? I haven’t thought much about it but wouldn’t it make more teams competitive. Say if the Yankees could only spend $125M, teams spending $80 would be close to them instead of being at a $100M payroll disadvantage. And the floor would keep the union happy by making “bad” teams try to compete.
Isn’t this what the NBA and NFL, to some degree have now and hasn’t it worked?
As I said, I haven’t studied this much, so I may be way off.
Also, the point of the luxury tax, as with revenue sharing, etc, is not to “even the playing field”. It’s to reduce the cost of labor. The owners are in this for profit, and revenue sharing/caps/etc that lower the cost of labor make them more money. You don’t see teams that get revenue sharing money lowering the cost of tickets or beer.
Communism?
Baseball isn’t a free market. If I own a team in Kansas City, it doesn’t matter if I think I can make more money in New York – I can’t move my team there. Of course the other obvious way that baseball isn’t a free market is that the Yankees need the other 29 teams (and need at least some of them them to be credible opponents) in order to make their money. Stick the Yankees in a league with 29 high school JV squads and see how much George gets for his television rights.
The haves need the have nots to be a have. That’s what the luxury tax addresses.
OMG, a floor is such a terrible idea…
Okay, consider one example.
The A’s spend $30m on payroll and field good teams.
The Devil Rays spend $30m on payroll and field awful teams.
Suddenly, you raise the floor to $40m.
The A’s have to spend $10m more on major league payroll. This will most likely come out of chopping the draft budget, etc, which is what keeps them competitive. They may spend that payroll well, or not (history: no), but this is not what they should be doing with their money.
The Devil Rays spend $10m more on payroll and waste it, as usual. Same thing happens with cuts, except that they get even worse at drafting/etc.
The A’s might get dramatically worse if you do this. The DRays won’t get any better.
Meanwhile, say you’re a team that now has to spend an extra $10m. Where does that go? Do you sign some random guy to a $9m contract? Should small-payroll franchises that need flexibility the most be required to spend on year-to-year scrubs? Aren’t long, pointless contracts the bane of these teams?
Argh.
The haves need the have nots to be a have. That’s what the luxury tax addresses.
It doesn’t address that at all.
Working from that assumption, that the haves need the have nots, what would be a reasonable outcome to work towards? Equal revenue?
Then share 100% of all revenue. Then all teams would compete on equal footing. Franchise value would be equal, because the Yankee brand name could only generate Yankee revenue that would be shared.
Of course, this leads to all kinds of crazy problems, but so do all the other solutions.
One might even design some kind of cool scheme that compensates for market size and shares revenue while still giving teams an incentive to make more money individually.
Dave:
Baseball is the only industry in which an owner can buy an organization, run it for years at a paper, if not an actual, loss, then sell the org for more than he paid for it initially, even after inflation is taken into account.
The problem isn’t the payroll tax, it’s the long-term guaranteed contracts that the Bobby Higginsons and Charles Johnsons of the baseball world have. Those contracts come from bad management in the front office. The marketplace punishes bad contracts pretty harshly; they’re untradable, when you can trade them you don’t get anything of value for them, and you lose that money to sign other talent.
You know, Derek, I think I read about a proposed revenue sharing system like that, once.
I think it was called The Zumsteg Plan. Here’s a link:
http://www.baseballprospectus.com/news/20020815zumsteg.shtml
Of course, baseball does have a salary floor. To see what it is, multiply the league minimum salary by 25.
Salary cap. Luxury tax. Minimum payroll.
All fertile soils for sprouting the weeds of Unintended Consequences”.
“It doesn’t address that at all.
“Working from that assumption, that the haves need the have nots, what would be a reasonable outcome to work towards? Equal revenue?”
No, equal revenue is overkill. Just a saner difference.
I’ve read your plan. Yes it might work better than what we have now. However, that doesn’t mean that the current plan wasn’t designed to address this issue, even if it does it suboptimally. Also, I don’t believe that it is wrong to at least make some sort of effort to deal with this, even if it has unintended consequences.
that doesn’t mean that the current plan wasn’t designed to address this issue, even if it does it suboptimally
I don’t get this. If you look at revenue sharing blindly as it is implemented, without preface or explanation, it does not do what you want it to do. It doesn’t get close. It doesn’t do what you think it was intended to do, or get close to that.
The only reason anyone thinks that revenue sharing is intended to “level the playing field” is because that’s the line the owners sell.
I don’t understand why anyone thinks that revenue sharing is an effort to deal with this perceived problem. If the problem is how to get from Seattle to Tacoma and I tell you to drive around your block until you run out of gas, that’s not progress, and clearly I’m not interested in seeing you get to Tacoma.
Revenue sharing, by reducing the marginal value of wins, reduces the amount of money a team will pay for players who get them incremental wins. It’s a labor cost drag.
Which is painfully obvious when you watch the Yankees payroll continue to go up while other teams stay around the same. However, anything that takes money away from the Yankees makes me a little happy. Even if the system doesn’t work at all.
The way it looks to me is like you’re trying to get from the Safe to my house in the north end and instead of trying 99 or some back roads, you go for the easiest approach and bop onto I-5, even though it’s backed up. It doesn’t get you home quickly, but it’s about what you should expect from people who don’t know how to read maps.
So basically I suggest what’s working quite well in other leagues, despite teams like the Clippers and Bengals, and every response following from certain people say it won’t work, and basically NOTHING will.
What’s the point of discussion at this point? Why even bring it up?