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MLB owners reportedly propose a salary floor, but there’s a big catch

Owners want the luxury tax threshold to be waaay lower.

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Boston Red Sox v Chicago White Sox Photo by Jonathan Daniel/Getty Images

The current Collective Bargaining Agreement between owners and players expires on December 1, so the two sides held their first face-to-face meeting this week. According to a report by Evan Drellich and Ken Rosenthal at The Athletic, owners proposed a salary floor requiring each team to spend at least $100 million on players. In exchange for the floor, owners would want to lower the luxury tax threshold to $180 million - down from the current $210 million threshold.

The owner’s proposal would tax payroll over the threshold at a rate of 25 percent, with higher tax rates for higher payrolls. Currently, teams are taxed beginning at a rate of 20 percent. The money collected would be used to help teams reach the salary floor. According to Cot’s Contracts, seven teams are under the proposed $100 million payroll number, including the Royals. It is unclear what would happen if teams fail to meet the salary floor - perhaps they would be deprived of revenue-sharing money.

A salary floor would at first glance seem to be a positive for the union, as several teams have drastically cut payroll in rebuilding efforts, with some clubs like the Pirates and Rays perennially fielding payrolls less than half of the proposed $100 million salary floor. But the owners aren’t offering this out of the goodness of the heart - they really want to lower that luxury tax threshold.

MLB revenues have tripled from 2001 to 2019, although the pandemic has caused a major reduction the last two years. Players are pushing for the luxury tax threshold to continue to go up, while The Athletic report notes that owners have alternatively offered the status quo, with the luxury tax threshold unchanged and no floor. The luxury tax threshold has drawn the ire of the union in recent years as teams have effectively treated it as a soft salary cap, with few teams willing to go over.

So lowering the threshold by nearly 15 percent is going to be a non-starter with the union. And owners know that. A cynical take is that this proposal is leaked to make it seem like the owners are giving something up - a salary floor - when in fact they get back so much more in a lower luxury tax threshold. And a salary floor appeals to fans and writers as being “good for the game” in response to teams tanking. Owners have always been much better at handling the public relations aspect of labor negotiations than players.

Still, there is effectively a soft salary cap so perhaps it would make sense for the union to negotiate a floor to go along with it. This opening salvo from the owners is a lowball number that the union can haggle with, but in my opinion, the players could stand to benefit greatly from a salary floor so long as the top-end luxury tax threshold isn’t lowered to the point of wiping out gains. The problem the last few off-seasons is that free agency has dried up with few bidders for player services. Requiring all teams to spend money will create more of a market and drive up salaries - even if the top teams can’t spend quite as much.

It won’t necessarily end the practice of “tanking.” Teams could still reach the salary floor by taking on bad contracts from other clubs. But that simply provides them with more value - much like salary cap room in the NBA. A rebuilding team could take on a bad contract to reach the floor, but also receive a top prospect for the trouble. Or they could be more interested in free agents in the hopes of trading them at the deadline.

But there would have to be a lot of details worked out. Where does the $100 million number come from, and will it go up as revenues increase? Will this number eventually be pegged to revenues, and if so, what constitutes revenues? Teams can more creatively hide revenues with their regional sports networks and ballpark area real estate developments. Additionally, the floor being proposed here is much lower than that of other sports. The NBA requires teams to spend 90 percent of what the top teams spend. The NFL salary floor is around 80 percent of the cap. This proposed baseball floor would be 56 percent of the threshold. This, plus revenue sharing is what creates parity in payrolls in those sports. Baseball still wouldn’t have that under this proposal.

Tensions between the two sides haven’t been this high since the last work stoppage in 1994-95. Both sides are still simmering over differences stemming from how salaries were handled during the pandemic. But at the very least, it’s good that the two sides are talking.