The Yankee dollar has been pushed aside by Dodger dough. For the first time since 2001, the Bronx Bombers did not end the year with Major League Baseball’s highest payroll. Instead, it was the Dodgers who were baseball’s biggest spender. And, it wasn’t even close. With a final payroll just over $257 million, Los Angeles not only out spent New York by nearly $40 million in 2014, but also easily topped the Yankees’ previous record-high payroll of $237 million, which was set last year.
Top-20 Final Team Payrolls, All Time
Note: Final payrolls represent actual amounts spent (salaries, benefits, earned bonuses and pro-rated shares of signing bonuses), but not AAV valuations used for luxury tax purposes.
Source: bizofbaseball.com and MLB releases published by AP
For their efforts, the Dodgers were also hit with this year’s largest tax bill, breaking the Yankees’ stranglehold on that distinction as well. Don’t expect Los Angeles to be popping corks, however. The team now has until January 21 to send a $26 million check to the commissioner’s office (30% tax levied against the team’s $277 million AAV payroll; click here for 2014 luxury tax payrolls). That tidy sum represents the fourth largest remittance since the first luxury tax was instituted in 1997, and one-third of the total paid by teams other than the Yankees.
Year-by-Year Luxury Tax Payments by Team
Note: Baseball’s first luxury tax was in force from 1997-1999. The current system was instituted in 2003.
Source: bizofbaseball.com and MLB releases published by AP
Percentage of Luxury Taxes Paid Since Inception
Note: Baseball’s first luxury tax was in force from 1997-1999. The current system was instituted in 2003.
Source: bizofbaseball.com and MLB releases published by AP
The Dodgers were able to leap frog the Yankees thanks to an 8.6% year-over-year increase in payroll, which mirrored the industry average, but was actually bested by 18 other teams (all of whom were building off a much lower base), including the Astros, whose 2014 payroll nearly doubled. Meanwhile, the Yankees slashed payroll by 7.8%, the second largest decline, trailing only the White Sox’ 20.7% cut. With the Yankees and Dodgers headed in opposite spending directions, a trend that looks to be continuing this offseason, Los Angeles figures to rule the payroll roost for the foreseeable future.
Year-Over-Year Payroll Changes, 2014 vs. 2013
Source: MLB releases published by AP
Just because the Dodgers have risen to the top of the payroll list doesn’t mean Los Angeles has become the sport’s wealthiest franchise. That distinction still belongs to the Yankees, whose franchise value and net revenue are substantially higher than the Dodgers, according to estimates by Forbes. Nonetheless, it’s the Dodgers who seem more committed financially to building a championship caliber team. How much more? Major League Baseball expects to report a 13% increase in revenue this year. If we assume a 10% increase for each team (which is probably pessimistic for clubs like the Yankees and Dodgers, who each recently signed lucrative, escalating TV deals), the percentage of revenue that the Dodgers allocated to payroll would be nearly double the amount by the Yankees. In fact, based on this forecast, Los Angeles 88.1% ratio of total compensation (payroll, benefits and luxury tax) to revenue would surpass the 2005 Yankees for the highest since at least 2001. At the other end of the spectrum, the Yankees’ declining allocation of revenue to payroll would place the team in the middle of the pack, just ahead of the Rockies, but behind the Mariners.
2014 Estimated Payroll/Luxury Tax as a Percentage of Team Revenue for all 30 Teams
Note: Revenue is net of revenue sharing and stadium debt service. Payroll is based on final figures for each year released by MLB, and may not necessarily equal the amount upon which the luxury tax is based. 2014 revenue is based on estimated growth rate of 10% over 2013 revenue.
Source: MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)
Yankees’ Payroll/Luxury Tax as a Percentage of Team Revenue, 2001 to 2014E
Note: Revenue is net of revenue sharing and stadium debt service. Payroll is based on final figures for each year released by MLB, and may not necessarily equal the amount upon which the luxury tax is based. 2014 revenue is based on estimated growth rates over 2013 revenue.
Source: bizofbaseball.com and MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)
Although the Dodgers will garner most of the attention, they aren’t the only team that has made up ground to the Yankees in terms of payroll. Since 1999, the average annual growth rate of the Yankees’ payroll has been 8.6%, which is actually lower than the league rate of 9.3%. Granted, the Yankees’ payroll in 1999 was already the highest in the game, but the more muted overall growth (resulting from recent cuts) since then has allowed other teams to catch up. As a result, the Yankees’ payroll now represents only 6% of the league total, which is down significantly from a high of nearly 10% in 2005. It’s also worth noting that while other teams have closed some of the spending gap with the Yankees, they haven’t cut into the team’s revenue advantage by nearly as much. In other words, although the Bronx Bombers have the capacity to spend more, they have chosen not to. So far, two years of missing the playoffs has not deterred the team from tightening its purse strings. Another October spent at home, however, might get those Yankee dollars flowing once again.
Yankees’ Payroll and Revenue as a Percentage of the League Total, 1999 to 2014E
Note: Revenue is net of revenue sharing and stadium debt service. Payroll is based on final figures for each year released by MLB, and may not necessarily equal the amount upon which the luxury tax is based. 2014 revenue is based on estimated growth rate of 10% over 2013 revenue for each team.
Source: bizofbaseball.com and MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)
If you have the data readily available, how do these calculations change if revenue sharing expenditures are included?
Forbes revenue figures are net of both revenue sharing and the team’s PILOTs (the financing used to fund the stadium). Those two items were about $160 million in the 2013 analysis. In other words, when I compare payroll to revenue, it’s at the point where revenue sharing and the team’s stadium debt have ALREADY been paid.
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