San Francisco Giants finish under MLB’s Luxury Tax, Avoid Penalties

The San Francisco Giants have had some success this season! They have found themselves under the Luxury Tax, meaning no penalties this year, and their penalties reset upon the next time they go over.

If you’ve followed the San Francisco Giants closely this season, you’ve heard time and time again that their goal is to keep their payroll under the $197 million Luxury Tax Threshold.  From beginning of free agency this winter, to throughout the season and into September, they have been adamant about dipping under the tax and avoiding penalties. They have done that, as a report from the Associated Press yesterday told us only the Nationals and Red Sox will pay the luxury tax this year.

One thing Major League Baseball does well, is the Luxury Tax and the penalties that come with it. Its referred to as the “Competitive Balance Tax” and it does exactly what it sounds like. Unlike the NFL, NBA and NHL, Major League Baseball does not have a salary cap on their teams payrolls. MLB sets what they call, a “Luxury Tax Threshold” and each year it goes up. This season, it is set at  $197 million. In Major League Baseball, you are allowed to go over this number…but for a price.

MLB’s system is good because you are allowed to go over if you want to go all in on winning a championship and you want to spend big and put together a fantastic team. But, it will eventually enforce teams to manage their spending and keep it under control. The penalties are that expensive, that if a team goes over once, the penalties dramatically increase each year they fail to stay under the tax. So what are these penalties?

Well the first year a team exceeds the tax, they pay an additional 20% on all overages. The next year it goes up to 30%, and the third year its a whopping 50%. The Giants paid the 50% tax on the 2017 season.

Just to put into perspective just how much all this money can add up, the Yankees decided to try and dip under the tax this season so their penalties could reset. They want to reset, because since 2003, they’ve been over the tax for fifteen straight years and have shelled out over $340 million in just tax alone. Both the Yankees and Dodgers had to pay MLB an extra $52 million in penalties last season, which is motivation enough to get their payrolls under control.

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The theme of the 2018 San Francisco Giants could be many different things, mostly negative. But, the one consistency with this season was their hard-fought battle against paying millions on millions of dollars in luxury tax penalties. The Giants front office maneuvered their way through a busy off season by counting every single penny they would be spending this upcoming season.

Already an offender in 2017, the team had to pay over $4 million in penalties for going over last years luxury tax threshold. Although that may not seem like a lot in the grand scheme of things, the penalties will just keep skyrocketing.

This entire 2018 season, the Giants have been right up against the tax. They’ve traded players away, worked out creative free-agent contracts and have been stubbornly diligent in their fight to reset their penalties. With the season winding down, and the Giants going nowhere, their roster is set and they will officially finish the 2018 season under the $197 million tax.

This is very important and huge for the organization, because this off season they need to spend some money if they want to compete next year. This allows them to pursue top free agents, such as Bryce Harper.

With a good chunk of change coming off the books from pending 2019 free agents, the Giants will be looking to get right back up near that tax once again in 2019. Lucky for them and other big spenders, the Luxury Tax jumps from $197 million to $206 million for 2019. With the Giants finishing off another massively disappointing season, there will be lots of changes coming this off season. They’ve already committed to winning, and to win next year, they’re gonna have to spend even more money, and quite possibly, dip back into the luxury tax penalties.