The Detroit Tigers were one of five Major League Baseball teams to surpass the luxury tax threshold for the 2017 season. As a result, the club will pay a luxury tax for the third time in franchise history and for the second consecutive year, according to Forbes’ Maury Brown.
The Tigers’ payroll for tax purposes totaled $207,204,947 in 2017, which was third-highest in MLB behind only the Los Angeles Dodgers and New York Yankees. As a tax “offender” for the second consecutive season, Detroit will pay a luxury tax on the amount above the $195 million, which comes to $3,661,484. The tax is actually a bit lower than in 2016 (about $4 million, according to Cot’s contracts). The club also paid a tax of $1.3 million in 2008.
The Tigers opened the season with a higher payroll than the Yankees, but trades during the season reduced the payroll significantly. Prior to the All-Star break, Detroit was on target to pay a surtax on the amount of payroll above the $215 million mark.
Detroit has now paid a total of $9 million in luxury taxes for the three seasons that they exceeded the tax threshold, per Maury Brown. The Yankees, Dodgers, and Boston Red Sox have paid much more as habitual tax offenders, although the Red Sox managed to get their payroll under the tax threshold in 2017.
The Dodgers, Yankees, San Francisco Giants Giants, and Tigers are all currently set to have payrolls below the tax threshold for the 2018 season due to expired contracts and trades that have reduced their respective payrolls. Los Angeles and New York have been paying a 50 percent tax on every dollar in salaries added for the past several seasons. The final player payroll for the World Series Champion Houston Astros was $140,475,350, which ranked 18th in the major leagues.
The new collective bargaining agreement (CBA) adds penalties in the form of reduced compensation for losing free agent players, and a loss in international revenues for repeat offenders. The Tigers have already been penalized significantly beyond just the taxes that they have paid.
The Tigers will be under the cap in the future
The Tigers, unlike some of the other free spending clubs, are not expected to stray above the tax threshold any time soon. Detroit’s payroll is on target for $135,270,000 for the 2018 season. This number includes the average annual value of multi-year contracts, payments for the full 40-man roster, over $14 million in player benefits, and $14 million for Justin Verlander and Prince Fielder. The Opening day payroll for the 25-man roster is on track to hit $123.3 million in 2018, pending further player acquisitions. Another $23 million is set to come off the books after next season, as Victor Martinez and Jose Iglesias have expiring contracts.
Since Major League Baseball first implemented a luxury tax system in 2003, the Yankees have had a payroll above the tax threshold every season, while the Red Sox have been the only other club in the penalty for multiple seasons until 2015. For the past three seasons, there have been four to six clubs over the threshold every season, with other clubs creeping closer to the tax threshold. As of Tuesday, only the Red Sox are on target to exceed the tax threshold in 2018. It should be noted that there are a few big free agents who have yet to sign, including J.D. Martinez and Eric Hosmer, who could put their respective teams over the threshold.
The total amount of luxury taxes collected was down in 2017 from the previous season. With the biggest spenders getting their payrolls under the tax threshold for 2018, MLB’s tax revenues figure to be down significantly for the 2018 season. The $60 million plus revenue collected in luxury taxes will be allocated with the first $13 million going to player benefits, and the remainder divided evenly between the players’ retirement fund and the 25 clubs who did not exceed the tax threshold in 2017.
The biggest spending teams are likely just resetting their tax rate at 20 percent and will be treated as first time offenders in 2019, when Bryce Harper leads a banner crop of free agent players due to hit the market after the 2018 season. The Tigers joining the spending frenzy appears doubtful.