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Does MLB have a salary cap? Major League Baseball’s Luxury Tax Explained
Is there a salary cap in MLB? Read on to know what does MLB luxury tax means.
In the year 2023, Los Angeles grabbed eyeballs as they conducted two luxurious signings, creating history as those were a few of the highest-paying contracts ever signed in the history of Major League Baseball spending more than $1 billion.
While they were able to acquire the Japanese star Shohei Ohtani by handing him a contract of a whopping amount of $700 (the first-ever contract of its kind), they spent another $325 million to get his teammate Yoshinobu Yamamoto on their side.
Does MLB have a salary cap?
With these stunning facts in the picture, it’s important to understand if MLB, like other American leagues- NHL, NFL, and NBA, has a salary cap. The answer is no. MLB doesn’t have a salary cap or a salary limit that can be offered to a player. A team is free to spend as much amount as they can to acquire a player in Major League Baseball.
However, the owners have to shell out Luxury tax but they are still free to spend as much amount as their pocket allows.
At the same time, even the league is not ready to introduce a salary cap in the near future. Tony Clark, the executive director of MLBPA once said, “We’re never going to agree to a cap. Let me start there. We don’t have a cap. We’re not going to agree to a cap”
MLB Luxury tax
As per the MLB website, Luxury tax is, "Each year, clubs that exceed a predetermined payroll threshold are subject to a Competitive Balance Tax — which is commonly referred to as a 'luxury tax’.”
"Those who carry payrolls above that threshold are taxed on each dollar above the threshold, with the tax rate increasing based on the number of consecutive years a club has exceeded the threshold."
Hence, the luxury tax is MLB's version of competitive balance tax.
Salary cap in other American leagues
NFL
NFL has a strict salary cap and in no circumstance, teams or owners are allowed to exceed the limit of annual salary cap in their annual spending of the season. The salary cap for the 2023 season was set at $224.8 million.
NBA
NBA doesn’t follow a rigid salary cap policy, as in they have a salary cap but the teams and owners are allowed to exceed the limit (to a certain extent) if they are ready to pay the luxury tax.
Hence, unlike MLB, where owners are free to spend money, NBA owners can still exceed the salary cap but will have to pay the luxury-tax penalties.
Last year, the salary cap was set at $136.021 million with the tax level set at $165.294 million.
NHL
Just like the NFL, NHL also has a hard salary cap policy with teams not being allowed to exceed the limit. Last season, the NHL salary cap was fixed at $83.5 million annual spends. As the teams aren’t allowed to exceed the limit, there’s no luxury tax involved in the NHL.
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