For the first time in the evolving existence of Major League Baseball’s competitive balance tax, the Washington Nationals’ payroll was large enough to incur penalties in 2017, according to people within the organization and with the league. As first-time offenders, those penalties were minimal. But the Nationals are poised to become second-time offenders in 2018, an offense that would incur escalating penalties — just in time for them to prepare to spend on one of the most vaunted free agent classes in major league history.
For competitive balance tax purposes, average annual value, rather than pure payroll, is the figure that matters; it also includes the approximately $13 million teams pay to medical benefits and the like each year. The competitive balance tax threshold sat at $197 million in 2017, and while Cot’s Baseball Contracts (one of the more accepted resources for analyzing team payrolls) has the Nationals under that mark, those figures do not include the contracts of players added midseason: Ryan Madson, Sean Doolittle and Brandon Kintzler. Combined, the Nationals added about $6.6 million in prorated salary when they traded for that trio, pushing them to a final payroll (for competitive balance tax purposes) of nearly $200 million. The Nationals will be taxed on those overages, though minimally because they are first-time offenders. They will pay 20 percent of their overages in taxes, which will not amount to much, all things considered.
For the 2018 season, the Nationals added $5 million to their payroll when they made their deal with Brandon Kintzler official Thursday afternoon. They will add another $4 million when their deal with Matt Adams becomes official. When they do, their projected 2018 payroll (for competitive balance tax purposes) will leap to around $210 million. As second-time offenders, they will pay 30 percent of their overages if they remain over that threshold — more if they exceed that $197 million by more than $20 million, which is not out of the question given their recent propensity to add help at the trade deadline.
In other words, unless they offload substantial salary (and they likely won’t, given the pieces they have in place and the relatively small sums owed the more expendable ones), the Nationals will be paying substantial competitive balance taxes in 2018, too. And as they bid for Bryce Harper and potentially others entering 2019, they will be faced with the potential to become third-time offenders should they accumulate too much added payroll. Third-time offenders pay 50 percent of their overages.
While good fodder for panic, the potential to become third-time offenders shouldn’t affect the Nationals’ plans next winter much at all. With Harper, Madson, Daniel Murphy, Shawn Kelley, Gio Gonzalez and others coming off their ledger after this season, the Nationals’ projected payroll (for competitive balance tax purposes) is only about $100 million or so, meaning even the signing of a high-profile star for $40 million or so a year wouldn’t push them over the limit again, nor hinder their pursuit of complementary pieces.
But the fact that they are already over the threshold for 2018 could affect the Nationals’ dealings moving forward. Willing to spend on big names when necessary, but unwilling to spend freely, the Nationals likely won’t continue adding pieces to the point of moving into a new penalty realm by exceeding that threshold by more than $20 million. They are a midrange free agent or two from pushing that limit, and might not have the same flexibility at the trade deadline they did last year — though no one with the organization has said as much. Fortunately for Mike Rizzo and Co., the Nationals got the key late-game reliever they needed in Kintzler and the big bench bat they needed in Adams already. They can fill out the bench, bullpen, and perhaps even starting rotation with more cost-effective options, and leave no gaping roster holes.
Could the Nationals free up some payroll space this offseason? Perhaps, though their biggest contracts belong to their least tradable pieces. Gonzalez’s $12 million salary might be the most tradable of the group, but however flighty he might seem to those who watch him every day, he is a relative bargain at that price. While that could make him enticing to another contender, trading Gonzalez would leave the Nationals a hole in their rotation that they would probably have to spend to fill. They already are looking for a fifth starter as it is. The Nationals’ most tradable assets are cheap, controllable young outfielders — the kind of assets one trades for a big, perhaps more expensive piece, not usually a cheaper one.
For now, the Nationals will continue to build their 2018 roster knowing that they are already over the threshold at which they must pay taxes. They do not have many holes to fill, and likely can fill the ones they have without spending much more. But if a need arises, or an opportunity for a big-name acquisition falls into their laps, they might now have more reason to hesitate, so as not to spend money on taxes that could go to something (or, in particular, someone) next winter.
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