Boston Red Sox president chief executive officer Larry Lucchino (left), owner John W. Henry (center), and chairman Thomas Werner (right) hold a press conference prior to spring training at JetBlue Park. Mandatory Credit: Steve Mitchell-US PRESSWIRE
The Yankees and Red Sox have both publicly stated that they want to be below the luxury tax threshold before the 2013 season, when the soft cap rises to $189 million. To this point, we've heard that the reasoning was to reset the luxury tax penalties, as repeat offenses would now result in a higher 50 percent penalty rather than the 40 percent of the old collective bargaining agreement. Not only would a team getting under the tax avoid this increase, but they would also get a chance to reset the penalty clock, and pay 17.5 percent rather than be treated as a repeat offender.
That's all worthwhile, given we're talking about taxes on millions of dollars that could be invested in other areas of the team and organization. But team president Larry Lucchino mentioned another item on the minds of the Red Sox and Yankees that gives the idea of getting under the luxury tax even more traction.
Tuesday on WEEI, Lucchino mentioned revenue sharing rebates when asked about getting under the luxury tax. (You can find Lucchino discussing them after the seven-minute mark.) Getting under the luxury tax means large market teams are eligible to receive rebates on their revenue sharing, as teams in the 15 largest markets are no longer eligible for receiving revenue sharing funds, regardless of what their actual revenues were. Essentially, if a team should have made more in revenue given their market size, teams like the Yankees and Red Sox -- assuming they are under the luxury tax -- would be eligible to get their money back rather than pay out to teams who shouldn't need the help.
We asked Neil deMause of Field of Schemes to help clear this up:
If I'm reading this correctly, making large-market teams no longer eligible for revenue sharing could actually give them an advantage in bidding for players. If the Astros and the Royals, say, are both just below-average in revenue, the small-market Royals may think twice about a signing that could increase interest in the team just enough to bump their revenue to where they lose their league checks. But for the Astros, who would have no league checks to lose, there's no downside: they get to keep any new revenue, so a guy who puts $10 million worth of extra fannies in the seats is worth $10 million to them.
This essentially gives baseball's middle class more incentive to spend on free agents, and to lock up their own players to lucrative extensions in the here and now, rather than be frugal in the short-term in order to hold out for revenue sharing. As for how it will affect the Red Sox:
There is no imaginable scenario in which the Red Sox would be getting revenue sharing under either the old or new system. The difference here is that, as Lucchino noted on WEEI, money that would have been set aside for low-revenue teams that are ineligible because they're in big markets will now get kicked back to high-revenue teams -- but only if they're below the luxury tax threshold. So it's an added incentive for teams like the Sox to stay below the cap: Not only do they avoid the luxury tax, but they get a shot at a rebate windfall, too -- though until we see how many large-market teams rank in the bottom half for revenue, there's no way to know exactly what the rebate check might look like.
Jayson Stark thinks this could result in a "revolutionary shift in the landscape of baseball." He continues:
But suppose the Yankees and Red Sox really are determined to keep their payrolls below the tax thresholds within the next two years. Well, all around them, huge TV deals will begin to kick in for some of the teams chasing them. So then what?
One GM forecasts that in the American League alone, you could see the Yankees, Red Sox, Angels, Rangers and Tigers all bunched in a similar payroll neighborhood. Over in the National League, the Phillies, Giants, Cubs and Dodgers could move into that same neighborhood. And they might not be alone.
The Yankees and Red Sox would still likely lead the league in payroll, but the new lucrative television deals that are popping up all over the sport would certainly help close the gap with the help of a harder -- but still soft -- cap on spending. Even teams like the Padres are getting huge television deals, so the low-end will also see the gap narrow.
Of course, the luxury tax isn't going to be static at $189 million, so this isn't to say spending won't continue to increase across the game, and especially at the top end. But if the Yankees and Red Sox spend more in line with how the rest of the market moves, rather than in their own universe, then the rest of the league could have things a little easier in terms of keeping pace financially.