According to numbers provided by Major League Baseball and published by the Associated Press, the Detroit Tigers’ payroll for luxury tax purposes totaled over $187 million for the 2014 season. The threshold where clubs have to pay a "competitive balance tax," also known as a "luxury tax," is $189 million.
Had the Tigers exceeded the $189 million threshold in 2014, they would have had to pay a 17.5 percent tax on the overage. Detroit is one of five major league clubs to ever have paid a luxury tax since the system was implemented for the 2003 season. The Tigers paid a $1 million tax in 2008. The Boston Red Sox and the Los Angeles Angels have also paid a luxury tax once each.
Detroit had the third highest payroll for the 2014 season, behind only the Los Angeles Dodgers and the New York Yankees, as well as the third highest payroll for luxury tax purposes. The Tigers’ actual payroll for the season totaled $173.3 million, but added up to over $187 million for purposes of calculating the luxury tax. The formula includes the average annual value for the contracts of players on the entire 40 man roster, and the club’s share of player benefits, which is estimated to be $10.6 million per club, per season.
The Tigers had an opening day payroll of $163,635,500 according to Cot’s Contracts. That figure represents the actual amount paid by the club in salaries for the 25 players on the major league roster at the start of the season. After adding the average annual value of players on multi year contracts, and adjusting for players acquired during the season, plus player benefits, the total came to less than $2 million shy of the tax threshold.
Midseason acquisitions can have a significant impact on a team’s payroll for tax purposes, especially if they acquire veteran players. David Price ($14 million AAV), Joakim Soria ($5.5 million AAV), and Jim Johnson were added during the season, and their salaries would be pro rated and added to the total for purposes of figuring the luxury tax. As we discussed in this article, the Tigers have very little room to add payroll without exceeding the threshold for the 2015 season.
Had the club tripped over the $189 million threshold by a small amount, a tax of 17.5 percent may seem relatively insignificant. However, the tax would increase to 30 percent for the 2015 season if the club were to exceed the threshold in consecutive seasons. According to the terms of baseball’s collective bargaining agreement, the tax will expire after the 2016 season, and there will be no tax beginning with the 2017 season.
The Dodgers had the highest payroll in the major leagues with a record $253.3 million for the season, which came to $277.7 million for tax purposes. Their 30 percent tax on the overage comes to $26,621,125. The New York Yankees paid a record tax of $28.1 million for the 2013 season but cut their tax bill down to $18.1 million in 2014. New York has exceeded the threshold in every season since the tax was implemented, and they pay a 50 percent tax on the excess every season.
MLB calculated the average player salary at $3,692,123, an increase of 11 percent from 2013.