The collective bargaining agreement (CBA) mandated that there would be a $197 million tax cap for the competitive balance tax (CBT) during the 2018 season, and when the dust settled for the Washington Nationals, they did not get below the CBT limit after trading Brandon Kintzler, the DFA of Shawn Kelley, and the waiver-claims and trades of Daniel Murphy, Gio Gonzalez and Ryan Madson and the waiver claim of Matt Adams. In the end, according to our sources the team’s final payroll was $204,953,657 which was $7,953,657 dollars above the CBT limit which resulted in a 30% tax penalty ($2,386,097) that the Nationals had to pay according to the Associated Press via ESPN. The penalty payment is due on January 21, 2019. Also per the AP, the Nationals had the second highest payroll in 2018 only trailing the Boston Red Sox.
In a twist of irony, even if Bryce Harper was traded on July 31st, the Nationals would not have been able to get under the cap if they had waited to shed the other salaries at the times they did. Maybe the Nationals were aware of that — at least you would hope they were because the math is not as complicated as it seems. Granted, the Nationals went into the 2018 season consciously committed to exceeding the CBT cap by nearly $15 million, but when they found themselves in 3rd place and 6.0 games back on July 29th, they had the golden opportunity to sell-off and retool. We even showed how they could have traded Harper, Murphy, Kelvin Herrera, Gonzalez, Kintzler, and Madson and could have dipped below the CBT cap while using prospects they would have received to acquire some long-term assets like J.T. Realmuto and still walk away with a stronger farm system after all the wheeling and dealing was over — while many would debate that it would have been difficult to drop payroll and acquire top prospects. Yes, we will never know — but general manager and President of Baseball Operations Mike Rizzo knows what teams were offering for his players and supposedly the Houston Astros had a trade in place for Bryce Harper.
According to The Athletic’s Ken Rosenthal, there was a Harper trade in place that would have yielded right-handed pitcher J.B. Bukauskas, catcher Garrett Stubbs and another pitching prospect that was eventually nixed by the Nationals. Bukauskas was ranked as the 76th-best prospect in baseball by Baseball America prior to last season. Furthermore, Rosenthal says it was Nationals ownership who vetoed the trade. After the trade deadline expired, principal owner Mark Lerner said they did not trade Bryce Harper because they were committed to winning and felt they had a chance to still make the playoffs. Yes, many analysts were still picking the Nationals to win the NL East after the trade deadline, but after two devastating losses in Wrigley Field on the August 10th weekend turned what could have been a 3.5 deficit in the NL East to a 5.5 game deficit after two blown games and the embarrassing Sunday Night ESPN walk-off grand slam at the hands of Ryan Madson and another walk-off loss the next night in St. Louis. Those crushing losses made it abundantly clear that IT-WAS-OVER, and the team seemed to come to their senses and put players on waivers and started a sell-off. But they still hung onto Bryce Harper who according to sources had a legacy with the Nationals that ownership wanted to keep intact because they believed he wanted to stay with the Nationals for the rest of his career. Well….
The average fan does not give a hoot about the team paying payroll penalties. Most Nationals fans would have been upset if Bryce Harper was traded. Maybe the Nationals ownership in part made their decision for public relations purposes. If they traded Harper, it would have been like giving away the “Chosen One” and ownership would have been blamed when Harper signed elsewhere. Most fans do not care about J.B. Bukauskas or whatever else the Nationals could have received if Harper was traded. But part of doing a sell-off would have been to get below the cap and dollars are dollars and the Nats are spending like a big market team but they make less in revenues according to Forbes than the Atlanta Braves by nearly $25 million.
When you consider the amount of payroll the Nationals have been writing checks for as a factor to their television revenue, you have to wonder how the Nationals are doing it. According to Forbes, in 2017 the Nationals made only $11 million in EBITA (Earnings before interest, taxes, depreciation and amortization), it does not take a CPA to figure out that after paying interest expenses on the debt load that the team lost money. According to Forbes, the Dodgers had revenue of $522 million compared to the Nationals at $311 million if that gives you some point of reference to the disparity in the league and yet the Nationals out-spent the Dodgers in 2018.
While the Nationals had a nice windfall in 2018 as hosts of of the All-Star game, you can expect that the attendance will drop in 2019 while Harper’s agent Scott Boras has been attributing attendance increases to Bryce Harper’s tenure with the team. Sure, Harper gets credit for putting butts in the seats but winning sells tickets as losing is loathed by fanbases. Sources have also told us that the Nationals will not spend over the $206 million CBT cap in 2019 although many think they will make an exception if Bryce Harper is re-signed. Maybe that is true but if the Nationals go over the limit in 2019, the tax penalty increases to 50% as a violator of the cap in three consecutive years. In simplicity, if Harper pushes the team over the cap, a $30 million salary could cost the team as much as $45 million after penalties. The Nationals ownership would not do that, would they?
We have the Nationals projected today at $179 million in payroll committed plus bonus incentives after the acquisition of Matt Adams. On the surface, the Nationals would be $27 million under the cap, however after a buffer for bonus incentives the team has about $20 million to spend, and the team still needs at least one starting pitcher and a left-handing batting second baseman optimally and could probably use two starting pitcher, a second baseman, and another lefty pitcher in the bullpen — but is there enough cash to do it all? That does not leave much room if any for much more so Mike Rizzo will have to be creative with his payroll.
The remainder of the off-season ends in less than 60-days from now as we transition to the pre-season known as Spring Training. There are well over 150 major league players unsigned today. There is not enough room to sign all of these players realistically to big league deals so many players will sign minor league deals with invites to spring training. The Nationals are in the waiting game now for prices to fall just like every other team is doing. There is no secret to that. We saw it last year.
It is the simple laws of economics of supply and demand and determining where that point of equilibrium is. Players in a free market system are subject to price elasticity of demand referring to how changes in quantity demanded affect the price of a player, and price elasticity of supply refers to how changes in quantity supplied affect the price. Since each player is not the same, this is not a commodity being bought and sold rather more akin to finished diamonds and diamonds in the rough and knowing what is fugazi . For instance Jed Lowrie cannot be compared on the same value scale to Gordon Beckham except for the position they play on the field because age, statistics, and projectibility are key components in the final price.
While Mike Rizzo has pounced on many deals early in this off-season, he is now showing self-restraint to wait out this market and fill the remaining needs. On the other hand, fans do not have the same level of patience as most want instant gratification. Such is the life of a sports fan.
