In 2012, Guggenheim Baseball Management purchased the LA Dodgers from–dare I speak their names–Frank and Jamie McCourt. At the time, Dodger fans were relieved to have an ownership group with deep pockets purchase the team.
Now, the Adrian trade, and lack of Winter Meetings activity has some fans worried. We need a reminder that this ownership group has a long term plan for success that is still a work in progress despite this year’s World Series appearance.
Within months of taking over, Guggenheim spent money early on to win back the fan base after the McCourt years: a $85 contract extension to keep fan favorite Andre Ethier, trading for Hanley Ramirez, and then swinging the big Adrian Gonzalez trade with Boston. In 2014, Andrew Friedman was hired to take over baseball ops and guide the team through its second phase of developing young, MLB ready talent.
This ownership group has slowly moved away from the large, onerous contracts that bogged down previous Dodger teams, and has steadily held on to young talent, instead of, oh say, flipping Corey Seager for Cliff Lee, or dealing Cody Bellinger for Cole Hamels. This brings us to where we are today… days after the beloved Adrian Gonzalez and friends were sent to the Braves for Matt Kemp. Some fans do not totally understand the rationale behind the trade. Sure, almost all fans get the fact Bellinger has pretty much locked down first base for the next decade, but it is not totally clear why the Dodgers traded roughly $43 million in contracts for $43 million in contracts.
To understand this trade, you need to understand Baseball’s new Collective Bargaining Agreement (CBA). This is the agreement between the MLB teams and the MLB Players Association (the Union). The CBA’s are renegotiated every few years and govern everything. The CBA covers things such as a player’s pay and travel allowences, to roster sizes, to whether tobacco is allowed on the field or not. The current CBA runs through 2021 (feel free to peruse all 359 pages of it here at your leisure (CBA)) and subjects teams to stiffer luxury tax thresholds and associated penalties.
This trade needs to be viewed in the context of the new CBA. First, the four players traded by the Dodgers signed their contracts prior to this new CBA, so there would have been no way to know how burdensome these contracts were to become. To summarize the new luxury tax, officially known as the Competitive Balance Tax, MLB.com offers a good primer on the topic. Teams that exceed the thresholds in place for each season incur a tax equal to each dollar above the threshold.
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The tax rate increases each year the team exceeds the threshold. A new component of the tax also penalizes teams that are $40 million above the threshold by moving their top draft pick back ten places. The threshold for 2018 is $197 million. The Dodgers would have been just over that limit. So what’s the big deal? Well, teams that do not exceed the threshold for one season, have their penalty rate reset. By trading away $40 some odd million committed to 2018 contracts for $40 some odd million of Kemp’s cotract which is spread accross 2018-2019, the Dodgers effectively have reset the threshold.
This means the Dodgers now have room to make a few additions to the roster, and gear up for next season when Clayton Kershaw can opt out of his contract, and Manny Machado, Bryce Harper, and Josh Donaldson, among others are part of a star-studded free agent class. Make no mistake, this cost-reallocation trade is a very strategic move by the Dodgers front office, which brings me to my next point. Why you shouldnt be dusting off those number 27 Matt Kemp jerseys.
It is very likely Kemp will likely be shopped prior to the beginning of camp at Camelback Ranch. How will the Dodgers be able to move two years, and approximately $40 million on Kemp’s contract? For starters, the Dodgers will have to pay down half of that contract, and second send a package of mid-level prospects, like an Edwin Rios, Omar Estevez, and Caleb Ferguson package along with Kemp to entice an American League team that could use Kemp as a right handed hitting DH.
This would allow the Dodgers to deal from their impressive minor league depth, and allow a team to purchase their mid level prospects by taking on Kemp’s contract and sending a fringe player back to the Dodgers to complete the trade. The initial Gonzalez trade package along with the subsequent offloading of Kemp’s contract will set the organization up to spend on quality free agents, while continuing to funnel its elite young talent to the MLB level. The process will be able to repeat itself. If a veteran’s contract becomes a burden, sell that veteran off by dealing from positions of strength with expendable prospects who are valued by other organizations.
From the beginning, Guggenheim, and subsequently, the Friedman regime, reiterated they wanted to implement and field a team that is sustainable for years to come. I’m not sure if they envisioned the new luxury tax model, but they have equipped the organization to become a perennial contender.