Nationals Over Luxury Tax Threshold

Posted: August 4, 2017 in Uncategorized
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While the Nationals have a history of putting some finishing touches on their roster in August (e.g. Marc Rzepczynski, Matt Thornton), a significant/expensive addition isn’t likely to be in the cards, reports Chelsea Janes of the Washington Post. Per Janes, the Nats have crossed over the luxury tax threshold for the first time in franchise history.

[Related: Washington Nationals depth chart and payroll outlook]

The Nationals opened the season with a payroll close to $170MM, though the luxury tax is calculated in terms of the average annual value of those contracts, so backloaded contracts like Stephen Strasburg ($15MM in 2017 but $25MM average annual value) count more toward the luxury tax. Additionally, the Nats took on the likes of Ryan Madson, Sean Doolittle,  Howie Kendrick and Brandon Kintzler in July.

As Janes notes, the Nats will pay a 20 percent tax on their overage as a first-time offender. The exact figure of the Nats’ luxury tax payroll remains to be seen, but there are a few other elements of their overage that are worth noting. Firstly, if the Nationals exceed the luxury tax for a second time in 2018 by a similar margin — they’ll fall in the $0-20MM overage bracket for 2017, so their overage itself isn’t of dire consequence — they’ll be taxed at a 30 percent rate instead of a 20 percent rate.

Secondly, if the Nationals elect to pursue a free agent that has rejected a qualifying offer this offseason, they’ll now face a steeper penalty for signing him. The new collective bargaining agreement stipulated that luxury tax payers will forfeit their second- and fifth-highest selections in the following year’s draft and will also lost $1MM from their league-allotted international bonus pool.

The Nats are in the metaphorical “penalty box” when it comes to the international market anyhow, so the loss of pool money isn’t a significant hindrance, as they can’t sign any individual player for more than $300K anyhow. But, exceeding the luxury tax could make it a bit more costly in terms of draft compensation if the team wishes to pursue Greg Holland or Wade Davis in free agency — both of whom look like potential QO candidates.

The Nats do have the contracts of Kendrick, Kintzler, Jayson Werth, Joe Blanton, Oliver Perez, Stephen Drew, Chris Heisey, Adam Lind and Jose Lobaton coming off the books following the 2017 season. Werth alone will account for $18MM of luxury tax relief, and that group as a whole will bring more than $35MM of relief. With Anthony Rendon, Tanner Roark and Michael Taylor representing the only three players in line for arbitration raises, the Nats should be able to dip back under the threshold even with some offseason additions on the free-agent market this winter.

from MLB Trade Rumors


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