Forget about Dodger Blue. Green is the new primary color in Los Angeles.
The Dodgers may have come up empty handed in the postseason, but it wasn’t for lack of trying. In 2015, the organization spent over $290 million on player costs, which, combined with a luxury tax bill of nearly $44 billion, easily made Los Angeles the most aggressive spender in the game, according to figures obtained by the Associated Press. The Dodgers also broke their own record for the costliest payroll and surpassed the 2005 Yankees for the highest luxury tax bill.
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
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
Los Angeles’ record setting payroll represented a year-over-year increase of nearly 14%, or about double the league average. However, the Dodgers weren’t the only team that opened its wallet last season. Eleven teams recorded a higher increase than Los Angeles, albeit off a smaller base, including the Astros and Cubs, whose payroll costs rose by over 40%. At the other end of the spectrum, the Phillies and Diamondbacks spent over 20% less in 2015, while the Yankees’ payroll inched up by 2.5%.
Year-Over-Year Payroll Changes (Final), 2015 vs. 2014
Note: Based on base salary of contract year plus pro-rated items, earned bonuses, and defined benefits of $12,626,624.
Source: MLB releases published by AP
Year-Over-Year Payroll Changes (Actual), 2015 vs. 2014
Note: Based on Average annual value of contracts plus pro-rated items, earned bonuses, and defined benefits of $12,626,624.
Source: MLB releases published by AP
Based on actual payroll (or AAV, the basis used by MLB to calculate luxury tax), the Miami Marlins were the league’s big fish. Thanks to Giancarlo Stanton’s new contract, the Marlins’ AAV increased by over 60%, which dwarfed the big market Dodgers and Yankees, whose 7% growth rate was just below the league average. The Red Sox and Giants also saw a similar increase in AAV, which resulted in both teams paying a 17.5% luxury tax penalty. Despite having more company, the Dodgers and Yankees remain the only two significant payers of the tax since its inception.
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
In 2015, combined payrolls across the majors totaled more than $3.9 billion in real terms (base salary plus earned bonuses and pro-rated items) and $4.4 billion on an AAV basis. These figures represented 41% and 47% of the $9.5 billion in gross revenue expected by the league. It should be noted, however, that these percentages do not include postseason payouts, nor do they factor net subtractions that the MLBPA may use when calculating the portion of league revenue being allocated to players. Nonetheless, with revenue continuing to rise, it stands to reason that players’ salaries will maintain their steady ascent.
Yankees’ Payroll and Revenue as a Percentage of the League Total, 1999 to 2015
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.
Source: bizofbaseball.com and MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)
The Yankees are one team that has bucked the trend of increased investment in payroll. Until recently, the Bronx Bombers had been unmatched in extravagance, but their win at all cost philosophy has taken a backseat to a more profit-driven approach. Not only does the Bronx Bombers’ payroll now sit nearly 25% behind the Dodgers, but several other teams have closed the gap as well. As a result, the percentage of total MLB payroll paid by the Yankees has declined precipitously, even as the team’s share of the league revenue pie as remained stable. In addition, the amount of revenue allocated to building the 40-man roster has continually shrunk, leaving the Yankees below the MLB average in that regard.
Yankees’ Payroll/Luxury Tax as a Percentage of Team Revenue, 2001 to 2015E
Note: For 2001 to 2014, revenue is based on Forbes projections and net of revenue sharing and stadium debt service. For 2001 to 2015, 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.
Note: For 2015, revenue is based on 7% growth, which matches CAGR from 2003 to 2014 (but is less than recent growth rates in wake of new long-term regional and national TV deals with build in escalators).
Source: bizofbaseball.com and MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)
[…] Although the Dodgers once again ranked second in terms of franchise valuation and revenue, the team’s status as the game’s biggest spender took its toll on profit. Los Angeles’ EBITDA plummeted to a $73 million operating loss, which […]