Why it won’t cost Nats that much if they have to pay luxury tax

In striking one-year deals with all three of their arbitration-eligible players yesterday, the Nationals also got some more clarity on their total team payroll - and its luxury tax implications - heading into the 2018 season.

Obviously these numbers could still change depending on other moves the Nats make along the way, from potential free agent signings to potential trades both before and during the season. But what does appear pretty clear at this point is that this is going to be the largest payroll in club history and most likely will exceed the luxury tax threshold.

Here’s what we know following yesterday’s signings of Anthony Rendon ($12.3 million), Tanner Roark ($6.475 million) and Michael A. Taylor ($2.525 million) ...

Rizzo-Points-Presser-Sidebar.jpgThe Nationals now have 16 players under contract for the 2018 season, collectively making about $170 million. If they make no more moves before opening day, the remaining nine players on the 25-man roster would all have fewer than three years of big league experience, make at or slightly above the league minimum ($545,000) and collectively total about $6 million.

So that’s a $176 million opening day payroll, which would be a new club record, shattering the mark set last season of $164 million.

How does that leave the Nationals susceptible to MLB’s luxury tax, which this year will penalize teams that go over the $197 million mark? Well, for luxury tax purposes, the average annual value of a player’s contract is used, not his actual salary for the season.

Which means that players who have back-loaded or deferred contracts (of which the Nats have several) carry a higher number. For example, Max Scherzer’s salary and prorated bonus money in 2018 is $22,142,857. But the average annual value of his seven-year contract is $28,689,376. And that’s the figure used when calculating luxury tax payroll.

The end result of all that? The Nationals currently are looking at a luxury tax payroll of $199.2 million, which puts them $2.2 million over the threshold.

The club already surpassed the $195 million threshold last season and thus paid a 20 percent penalty on the amount they exceeded that number. If they go over again this season, their penalty rate goes up to 30 percent. (If they go over a third straight year, the penalty rate jumps to 50 percent.)

Teams across baseball understandably are trying to avoid doing that, which explains in part why so many big name free agents have yet to sign this winter. But in reality, the penalty isn’t all that excessive, especially for a team that doesn’t surpass the threshold by much.

If the Nationals’ final 2018 luxury tax payroll ends up at $199.2 million - it won’t, because there are countless roster changes still to come - only the overage ($2.2 million) would be taxed, at a 30 percent rate. That works out to $660,000. In baseball terms, that’s nothing.

Even if the Nats make a major addition, a star player with a $20 million average salary, the penalty would be an extra $6 million. That’s not nothing, but it’s also not an exorbitant dollar amount that would cripple the franchise.

In the end, the Nationals (like all clubs) are going to do their best to stay under the $197 million threshold. But if they believe an extra player or two can get them over their elusive October hump, an extra couple million dollars shouldn’t stand in their way.

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