Mets Hit Record Luxury Tax Bill: Baseball's Unprecedented Tax Penalties

In a historic turn of events, the New York Mets are set to pay an extraordinary luxury tax of almost $101 million, marking a record in Major League Baseball. The Mets, owned by Steve Cohen, concluded the 2023 season with a tax payroll of $374.7 million, eclipsing the previous high set by the 2015 Los Angeles Dodgers. Despite a significant summer selloff, shedding players like Max Scherzer and Justin Verlander, the Mets' tax bill soared to $100,781,932 after a lackluster fourth-place finish in the NL East.

It is important to note that this so-called tax is imposed by Major League Baseball on teams whose owners opt to exceed a pre-determined payroll threshold. It is not a federal tax imposed by the IRS. As defined on theleague's website, "Each year, clubs that exceed a predetermined payroll threshold are subject to a Competitive Balance Tax — 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."

Per an Associated Press report, a tax credit of $2,126,471 mitigated the Mets' final bill under a provision in the latest collective bargaining agreement. However, the club’s two-year tax total stands at a staggering $131.6 million. Other notable teams facing tax penalties include the San Diego Padres ($39.7 million), the New York Yankees ($32.4 million), the Los Angeles Dodgers ($19.4 million), the Philadelphia Phillies ($6.98 million), the Toronto Blue Jays ($5.5 million), the Atlanta Braves ($3.2 million), and the 2023 World Series champion Texas Rangers ($1.8 million).

The Yankees and Mets were the sole franchises to surpass the $293 million threshold, implemented in the 2022 labor contract, known as the Cohen Tax, designed to curb Steve Cohen's spending. According to the AP, this year's collective tax reached a whopping $209.8 million, more than double the prior record of $78.5 million for 2022. Total spending on luxury tax payrolls soared to an unprecedented $5.79 billion, a 12.2% increase from the previous year. As the Yankees' cumulative tax payments since 2003 near $390 million, it solidifies their status as the highest-taxed team in MLB history.

The tax landscape for 2024 brings a new initial threshold of $237 million, with teams like the Mets, Yankees, Dodgers, Padres, and Phillies facing escalating tax rates if they surpass designated thresholds. As baseball grapples with unparalleled financial dynamics, the Mets' colossal tax bill serves as a testament to the evolving fiscal challenges within the sport.

As the Mets grapple with the aftermath of a record-setting luxury tax bill, the beginning of 2024 heralds a familiar tune for the Queens-based team. The New York Post notes that with spring training looming in six weeks, the Mets, under the helm of new president of baseball operations David Stearns, find themselves amid an uneventful start to free agency. Despite Luis Severino's one-year, $13 million deal, the rotation and other key positions remain glaringly understaffed.

Amid financial constraints after the tax blow, the Mets face challenges in acquiring marquee names, leaving openings in the rotation, bullpen, third base, and the outfield. The failed pursuit of Yoshinobu Yamamoto has prompted exploration of alternatives, with Shota Imanaga and other free agents on their radar. With a hesitant approach to long-term deals, the Mets are strategically navigating the market while resetting in 2024.

On the pitching front, options like Blake Snell and Jordan Montgomery might be out of reach, directing attention toward cost-effective choices like Imanaga and the returning Hyun-jin Ryu. Ryu's recent performance for Toronto presents a viable one-year deal, aligning with the Mets' cautious spending strategy post-Yamamoto. In the lineup, potential acquisitions include former Yankee Gio Urshela and the versatile Justin Turner, who could add depth and flexibility to key positions.

Carmen Mandato / Getty Images Sport via Getty Images

As the Mets face a pivotal turn point in reshaping their roster, financial considerations and strategic moves on and off the field will define their trajectory into the upcoming season.

Mets Hit Record Luxury Tax Bill: Baseball's Unprecedented Tax Penalties

Want tax & accounting tips and insights?