Dodgers News: CBA a Low Blow for Dodgers

Major League Baseball announced yesterday that a new CBA has been agreed to continuing 25 years of labour peace.

After months of negotiations and the threat of a lockout, the MLB, owners and the MLB Players Association have finally settled on a new agreement, the first under commissioner Rob Manfred. A 5 year deal, the CBA will ensure that the longest standing streak of labour peace will reach 30 years.

Points of contention in these negotiations included the notion of draft pick compensation for elite free agents, an international draft and the luxury tax threshold.

Naturally, the nature of this agreement means there are a number of clauses that will effect the way the Dodgers can operate over the next 5 years. With that in mind, let’s take a look at what we know so far and how it will impact the Dodgers in the coming years.

The Luxury Tax

Perhaps the most important change to the CBA, as it relates to the Dodgers, is the change to the luxury tax. The luxury tax threshold will increase from $189m in 2016 to $195m in 2017. This will increase incrementally to $210m by 2021, the last year of the new CBA agreement.

Source: Luxury-tax thresholds could rise in something close to this progression over new five-year CBA: $195M, $197M, $206M, $209M, $210M.
— Ken Rosenthal (@Ken_Rosenthal) December 1, 2016

This increase in itself is great for the Dodgers, any time you can increase payroll without incurring a penalty as a large market club is great news. Given the Dodgers need to pay off debt, the potential to avoid large amounts of luxury tax payments is a major benefit to the club.

However, while the luxury tax threshold will steadily increase over coming seasons, the penalty for exceeding the threshold is set to spike. Where the penalty for exceeding the luxury tax threshold was a 50% tax on all overages, the new CBA will also include an extra penalty for so called ‘super spenders’. This penalty comes in the form of an extra 60-70% tax on any payroll that exceeds $250m. As a club that consistently runs a payroll greater than $250m, the new luxury tax could be a large financial burden for the franchise going forward.

The luxury tax has also now been worked into free agent compensation. Under the new CBA, teams who are over the luxury tax will have to forfeit an extra draft pick for signing free agents compared to those who are not over the threshold (free agent compensation itself will be discussed in greater detail below).

The luxury tax system under the new CBA represents the strongest attempt by the MLB yet to institutionalize competitive balance. With such heavy penalties for exceeding the luxury tax threshold, expect the Dodgers to avoid exceeding the threshold for the duration of the CBA.

Free Agent Compensation

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As mentioned above, free agent compensation will now be a tiered system. A major win for the Players Association, first round picks will no longer be implicated in free agent compensation. Instead, teams signing a player who rejects a qualifying offer will be forced to part with their 3rd round draft pick, so long as they do not exceed the luxury tax threshold. In the event that a team has exceeded the luxury tax threshold they will be forced to forfeit both their 2nd and 5th round draft picks.

With the Dodgers placing a strong emphasis on building from within, the prospect of losing both their 2nd and 5th round picks stands as a large deterrent to exceeding the luxury tax threshold. In the event that the do exceed the tax threshold, don’t expect the Dodgers to be playing at the top end of the free agent market. With the changes in the CBA not kicking in until next off-season, the Dodgers will be able to spend freely this off-season but the new luxury tax and free agent compensation will likely play a large roll in their decision making for the 2017 season and subsequent off-season.

International Free Agent Spending

Apparently, the Commissioners office wasn’t too pleased about the Dodgers spending well over $20m on day 1 of the 2015 international signing period, despite being awarded a pool of approximately $3m. Apparently they were similarly displeased about the Red Sox throwing $31.5m at teenage phenom Yoan Moncada. As a result, the new CBA has installed a hard cap of approximately $5m for all teams.

A tiered system, most team will receive a signing cap of $4.75m for all international signings, while teams with draft picks in Competitive Balance Round A or B will get caps of $5.25m or $5.75m. Teams can trade international spending money so it is possible to increase these caps. The age exemption has also been increased from 23 to 25.

As a result, the days of the Dodgers blowing everyone away in the international market are over. This is yet another blow to the Dodgers shutting down one of their major talent pipelines – one that saw Julio Urias, Yasiel Puig, Yadier Alvarez and Yusniel Diaz all injected into the Dodgers system.

10 Disabled List

One of the biggest changes to this CBA is reducing the minimum stint on the disabled list from 15 days to 10. After the Dodgers broke the record for total days lost to the DL in 2016, they will have a chance to shatter it in 2017. Shorter DL stints are far more easily managed by clubs so expect it to be used often.

This change is beneficial to both players and clubs. For players, this limits the need for them to play through pain as clubs will likely be more receptive to a 10 day stint. As a result, this should hopefully prevent minor injuries from becoming more serious throughout the season. For clubs, a shorter minimum stay on the DL puts less strain on the teams depth chart.

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As a result, expect the DL to be used far more frequently over the next few seasons.

Final Thoughts

In aggregate, this CBA hasn’t moved the needle much. We still have draft pick compensation, the luxury tax threshold increased insignificantly and there are still restrictions on international free agent signings. However, this CBA is the toughest to date for large market clubs, suppressing their spending power both on the international and free agent markets. While these are all merely minor tweaks to already existing processes, they will have serious consequences on the way the Dodgers are able to acquire talent for the next 5 years. As a result, the Dodgers front office will have to be more creative than ever if they wish to outpace their rivals.

Have any questions or about the CBA and the Dodgers? Let us know in the comments below.