The assumption within the industry, and the desperate desire of those who follow the team, is that the Washington Nationals will add a reliever or two before the August 1 trade deadline, thereby reinforcing the only weak spot in an otherwise deep and talented roster. But as is always the case with the Nationals in July, the biggest questions are not what they need and do they want to go get it, but whether they will be willing to spend any money required to do so.
This year, Major League Baseball’s competitive balance tax — previously irrelevant to these relatively conservative spenders — could factor into their willingness to spend.
That the Nationals are anywhere near the $195 million threshold might surprise many. While the Nationals have four players under contract with $100 million-plus deals, many of those contracts are backloaded or deferred, meaning in any given season, the Nationals are not necessarily paying each of those players as much as one might think.
This season, for example, Max Scherzer will make (just) $22.1 million, though his deal is worth $210 million over seven years. The sum of what the Nationals are actually paying their 40-man roster this season is just north of $164 million, according to information compiled by Cot’s Baseball Contracts. By that measure, they would have $30 million or so to work with at the trade deadline — plenty of money with which to get a reliever or two and not earn punishment.
But the competitive balance tax does not tax the actual payout on multi-year deals such as Scherzer’s. Instead, it taxes team payroll as calculated using the average annual value (AAV) of those deals. Instead of the $22.1 million Scherzer will make this year, his contract counts roughly $28.7 million. Instead of the $18.3 million the Nationals are paying Stephen Strasburg, his deal counts at $25 million, the AAV of the deal he signed last May. When using the AAV of those major deals to calculate the Nationals’ payroll, instead of what they are actually paying this season, their payroll for competitive balance purposes grows to $179.6 million.
Even at slightly less than $180 million, the Nationals would still have $15 million to work with at the deadline, which is enough to add a top-tier setup man or two. But the competitive balance tax does not just account for player salaries. It also accounts for what can broadly be called “player benefits.” More specifically, the money teams spend on player medical expenses, spring training allowances, moving expenses, contributions to the postseason players’ pool, and other such non-salary expenditures. Cot’s estimates those costs to total around $13 million for each major league team.
So when one factors in that $13 million, a good estimate of the Nationals’ payroll — at least for competitive balance tax purposes — is somewhere around $193 million. That leaves General Manager Mike Rizzo and his staff roughly $2 million to work with below the luxury tax, should they decide — or get orders from above — to stay below it.
“We haven’t mentioned it as a factor,” said Rizzo, who acknowledged the Nationals are a little closer to that luxury tax threshold than they have been before. “It has not been a deterrent.”
The penalty for a first time competitive balance tax offender is a 20 percent charge on overages. In other words, let’s call their payroll $193 million. If the Nationals were to add a reliever owed $3 million this season, and do so just before the August 1 trade deadline, they would be responsible for the remaining portion of his salary — say, very roughly, $1 million. The salary of any player the Nationals acquire is not what they would owe him in reality, nor for payroll purposes.
But even if the Nationals were to add, say, $5 million in payroll at the deadline, they would surpass the threshold by $3 million. Twenty percent of $3 million is $500,000. So the ultimate charge for surpassing the luxury tax this year would not be substantial, nor likely prohibitive.
Penalties extend beyond just money, however. Should the Nationals exceed the luxury tax, then sign a player who declined a qualifying offer this offseason (which is not necessarily something they will need to do, given the state of their roster), they would forfeit a second and fifth-round draft pick next year. Under Rizzo, the Nationals have treasured their draft picks, and been reluctant to do anything that would cause them to sacrifice picks.
But if one is thinking purely in terms of finances, the overage charge feels even less significant when recast in the context of the money the Nationals are actually paying their players this season. Remember, because of deferrals and backloaded deals, the Nationals will actually pay out around $164 million to their roster this season. So add $5 million to that, then the $500,000 (or whatever) penalty, and they still come up short of the $170 million mark.
Obviously, money is not the only thing that will dictate the Nationals’ moves at the deadline. Their willingness to part with elite prospects, the willingness of other teams to be trade partners, and the number of teams willing to sell will probably factor more in the end. But for the first time in their history, the Nationals could cross the luxury tax threshold if they spend even a moderate amount in late July. If they are able to bolster the bullpen in the process, and do not expect to pursue a big-name free agent this winter, the minor penalty they would owe as first-time offenders might just be worth it.