Blue Jays hit with $5.5M luxury tax on 2023 payroll for third place finish in AL East

According to a report by Ronald Blum of the Associated Press, luxury tax assessments for the 2023 season - as compiled by the commissioner’s office - show the Toronto Blue Jays owe $5.5M for going over the $233M competitive balance tax (CBT) threshold this year. The payment is due on January 21st.

MLB says, “A team's Competitive Balance Tax figure is determined using the average annual value of each player's contract on the 40-man roster, plus any additional player benefits. Every team's final CBT figure is calculated at the end of each season.”

While the tax is designed to act as a de facto salary cap, eight teams combined for total luxury tax payrolls of $5.79B, up 12.2% from $5.16B in 2022.

As per the AP, “This year’s tax totaled $209.8M, more than double the prior record of $78.5Mfor 2022.” That was driven largely by the New York Mets under billionaire owner Steve Cohen, who will pay a record $100.8M tax after finishing 4th in the NL East. Along with NL East winner Atlanta ($3.1M) and World Series champion Texas ($1.8M), the Blue Jays are paying the tax for the first time.

The AP article notes that the “Yankees have been taxed just under $390M since the penalties began in 2003, 43% of the $901M total, followed by the Dodgers at $234M. Fourteen of 30 teams have owed tax over the two decades."

Blum also explains that “the first $3.5M of tax money is used to fund player benefits and 50% of the remainder will be used to fund player Individual Retirement Accounts. The other 50% of what’s left goes to a supplemental commissioner’s discretionary fund intended to be given to teams receiving revenue-sharing money that have grown their non-media local revenue over several years.”

Implications for 2024

As a first-time payor for 2023, Toronto owes a 20% surcharge on any dollar spent between $233M and $253M, then a 32% surcharge on any dollar spent between $253M and $273M; a tax bill of $5,535,492 implies a final CBT payroll of $257.8M.

The CBT threshold rises from $233M to $237M for the 2024 season. Blue Jays team president Mark Shapiro said after this season, "I don’t expect a dramatic philosophical shift in payroll. I expect us to stay in the same area.” So assuming a luxury tax payroll near $257M for 2024, the Blue Jays would be a tax payor for a second consecutive season and owe a 30% tax on any dollar spent between $237M and $257M, then a 42% tax on any dollar spent between $257M and $277M.

MLB notes that if a club dips below the luxury tax threshold for a season, the penalty level is reset: “So, a club that exceeds the threshold for two straight seasons but then drops below that level would be back at 20% the next time it exceeds the threshold.”

After accounting for the Kevin Kiermaier and Isiah Kiner-Falefa signings for a combined $18M AAV, and adding back projected MLBTR projected arbitration award's for the 12 arbitration eligible Blue Jays in 2024, Spotrac currently projects a luxury tax payroll of $225M next year, leaving ~$32M or so in payroll capacity below Shapiro’s implied $257M number.

How the front office decides to spend that ~$32M in likely remaining annual payroll room for 2024 will dominate the ‘hot stove’ discussion for the next few months as we near the start of spring training and Opening Day on March 28th in Tampa Bay.

Could they offer free agent Cody Bellinger a $25~30M AAV? Or a $20M per season deal to bring back Teoscar Hernandez or Matt Chapman? Maybe $15~20M a year for a slugger like Jorge Soler or J.D. Martinez and $10M a year to bring back high leverage reliever Jordan Hicks? As free agents continue to come off the board, the pressure to make more moves is mounting.