Luxury Tax

[PSUColonel]

I was listening to CBS Sports Radio this evening while the Cano signing was being discussed. Obviously the subject of the luxury tax came up. Essentially, if the Yankees are not willing to go over the 189 million, it essentially means, baseball in fact hAs a salary cap for all intensive purposes. Is it time we model this in OOTP? I have never played with a cap in this game ever...starting to wonder if it might be time though.

[slugga27]

I think, if implemented properly, it would be a nice addition.

But I do disagree with you saying that baseball effectively has a salary cap and using the Yankees to illustrate the point. The Dodgers are well over the luxury tax threshold.

[RchW]

I've used a soft cap and a tax in OOTP for several versions now and it seems to keep the finances in good health.

[PSUColonel]

Times are changing. The luxury tax is becoming a very big deal to clubs.

[PSUColonel]

How do you implement a "soft cap"?

[PSUColonel]

Just read about it in the manual..I never knew this existed.

[PSUColonel]

well, as it turns out, I have been using this, as it was part of the default settings. It is set at 120. (million I assume) What would happen to the financial health of a league if it were raised to 189 to reflect the MLB? The default also uses a 20 percent tax above the soft cap from what I can tell. Very curious about this.

[NYY #23]

There is no salary cap though. The $189 mil is the luxury tax number, and the Yankees have exceeded it every year. It works on a sliding scale, so the first time you exceed it you pay something like 17% for the amount you are over. The Yankees are up to 50%, so their reason for going under was to reset their luxury tax rate, so when they go over next year they pay 17% again.

[RchW]

Originally Posted by NYY #23

There is no salary cap though. The $189 mil is the luxury tax number, and the Yankees have exceeded it every year. It works on a sliding scale, so the first time you exceed it you pay something like 17% for the amount you are over. The Yankees are up to 50%, so their reason for going under was to reset their luxury tax rate, so when they go over next year they pay 17% again.

You are right but I think PSU has a good point to see how this would work. What we really need is a better way to replicate team behavior vs market. See below. It seems there is no logical connection between team market and the budget and payroll. Look at Pittsburgh then SF SD and Arizona. Why is SF and their big market the same budget as Pittsburgh's small market? Why are the LA Angels equivalent to SD?

I know I could edit finances but it would be better for me if I could choose a financial model and have it be at least consistent in terms of market size.

Oops I may have gone a little OT.

[PSUColonel]

Originally Posted by RchW

You are right but I think PSU has a good point to see how this would work. What we really need is a better way to replicate team behavior vs market. See below. It seems there is no logical connection between team market and the budget and payroll. Look at Pittsburgh then SF SD and Arizona. Why is SF and their big market the same budget as Pittsburgh's small market? Why are the LA Angels equivalent to SD?

I know I could edit finances but it would be better for me if I could choose a financial model and have it be at least consistent in terms of market size.

Oops I may have gone a little OT.

Rich, if you don't mind my asking, where can that screen be found within OOTP?

[Bluenoser]

Originally Posted by PSUColonel

Rich, if you don't mind my asking, where can that screen be found within OOTP?

Stats, Team Stats, financials.

[Le Grande Orange]

Keep in mind that the luxury tax payroll threshold in real life includes all players on the 40-man rosters and disabled lists, payments to released players under guaranteed contracts, and each team's share of the player extended benefits (in 2012 this was equal to $10.8 million per club). The actual amount of payroll accorded to the 25 players on the active roster would be millions below the stated luxury tax payroll amount.

Note too that multiyear contracts use the average annual value, and that signing bonuses and option year buyout amounts are prorated over the guaranteed years. In other words, the actual amount paid out by a club to players during a season can be different from what it's luxury tax payroll is.

OOTP's system is vastly simpler (and, I think, needs to be beefed up).

[PSUColonel]

Right, I am wondering how he got both leagues on the same page.

[RchW]

Originally Posted by PSUColonel

Right, I am wondering how he got both leagues on the same page.

My highly developed "crop selection" and "paste special" skills in IrfanView.

[PSUColonel]

I see

[Klew1986]

PSU, are you using the default 120 Soft cap and 20% tax above soft cap numbers?

[PSUColonel]

yes, I am. I am wondering what would happen if we started using actual MLB numbers. What if the soft cap were 189? I assuming 120 is 120 million? I get scared to fool around with default numbers for fear it will throw things out of whack.

[Le Grande Orange]

Originally Posted by PSUColonel

yes, I am. I am wondering what would happen if we started using actual MLB numbers. What if the soft cap were 189? I assuming 120 is 120 million? I get scared to fool around with default numbers for fear it will throw things out of whack.

I wouldn't simply adopt MLB-like numbers as OOTP's financial environment is entirely different. I don't think, for example, the spread between highest and lowest team revenue and payroll comes close to matching the kind if spreads seen in real life these days.

If you're looking to set a luxury tax threshold for your league, I'd first suggest examining the previous season and look at what the end-of-season payrolls were for each club. You can then use of one of two methods to determine your threshold.

The first is to use the method MLB used in its initial implementation of the luxury tax in 1997-99: use the midpoint between the fifth and sixth highest payrolls. This means the top five teams in terms of payroll will pay some amount of luxury tax every season. (You can scale this number of teams based on your league size. Five out of 30 is one-sixth. So for a 24-team league you'd have the top four team paying each season, so you'd set the threshold at the midpoint between the fourth and fifth highest payroll teams.)

The other method approximates the size of the negotiated thresholds used in the CBAs since 2002. Simply take the average of a given number of the highest payroll teams and use that as the threshold. Since 2002, that has worked out to an average of between the top three to top six highest payrolls. (Since the negotiated threshold sometimes doesn't change in a year but payrolls rise, the equivalent average works out to involve more teams.) So pick the number of teams you wish to use—four is a reasonable start—and average them. Depending on how dispersed your payrolls are, you may well end up with a threshold that only one or perhaps two teams will cross (just like in real life).

[PSUColonel]

Using your logic from number one, the luxury tax should be around 152. Higher than 120 for sure. I am assuming this will create a larger gap between wealthy and poor teams?

[Le Grande Orange]

Originally Posted by PSUColonel

Using your logic from number one, the luxury tax should be around 152.

Are you using actual MLB payrolls to figure this? I would argue you can't really do this since I'm not sure to what degree OOTP tracks total player expenditures by the end of the season.

In real life, for example, it counts the 40-man roster. It distributes the pay of traded players through the date of the trade to each team as appropriate. Players outrighted to the minors have their pay included up to the point of the outright assignment. The annual average value of the contract is used, signing bonuses are prorated, etc. There are lots of little accounting considerations. None of which I don't think OOTP recognizes.

Here are the actual 2012 MLB luxury tax payrolls as calculated by MLB itself. The threshold that season was $178 million.

2012 MLB Luxury Tax Payrolls

           Wages and
    Team    Bonuses      Benefits        Total
-------------------------------------------------
 1  NYA   212,639,568   10,799,590    223,439,158
 2  BOS   167,153,233   10,799,590    177,952,823
 3  ANA   165,853,248   10,799,590    176,652,838
 4  PHI   163,723,842   10,799,590    174,523,432
 5  SFN   149,599,538   10,799,590    160,399,128
 6  LAN   147,458,980   10,799,590    158,258,570
 7  TEX   137,714,380   10,799,590    148,513,970
 8  DET   134,431,998   10,799,590    145,231,588
 9  SLN   115,011,681   10,799,590    125,811,271
10  MIL   110,065,731   10,799,590    120,865,321
11  WAS   108,179,349   10,799,590    118,978,939
12  CIN   107,970,471   10,799,590    118,770,061
13  CHA   103,659,970   10,799,590    114,459,560
14  CHN   101,912,251   10,799,590    112,711,841
15  MIA   101,025,043   10,799,590    111,824,633
16  COL    95,402,597   10,799,590    106,202,187
17  MIN    95,060,855   10,799,590    105,860,445
18  NYN    94,904,428   10,799,590    105,704,018
19  ATL    94,518,437   10,799,590    105,318,027
20  TOR    92,926,944   10,799,590    103,726,534
21  BAL    86,256,650   10,799,590     97,056,240
22  ARI    78,092,126   10,799,590     88,891,716
23  SEA    77,590,403   10,799,590     88,389,993
24  KCA    72,662,838   10,799,590     83,462,428
25  CLE    71,826,426   10,799,590     82,626,016
26  TBA    70,406,588   10,799,590     81,206,178
27  PIT    69,517,437   10,799,590     80,317,027
28  SDN    68,017,905   10,799,590     78,817,495
29  OAK    62,273,913   10,799,590     73,073,503
30  HOU    61,465,789   10,799,590     72,265,379
-------------------------------------------------
Total   3,217,322,619  323,987,700  3,541,310,319

Only the Yankees exceeded the threshold in 2012; the Red Sox were just under it.