How Much Can The Dodgers Do Under The Luxury Tax?

We’re now over a month into the offseason and it’s been a strong one for the players, with many of the top free agents landing contracts that have surpassed expectations. While there’s been plenty of aggression from teams that haven’t traditionally been top dogs like the Mets, Padres and Rangers, the Dodgers have been unusually quiet so far.

The Dodgers opened the 2022 season with a payroll of $281MM, per Cot’s Baseball Contracts. At the end of the year, they had a large crop of players hit free agency, wiping a huge chunk of change off the books. Clayton Kershaw, David Price, Craig Kimbrel, Trea Turner, Tyler Anderson and Andrew Heaney were all making noteworthy money in 2022 before hitting the open market, with a few midseason pickups and role players departing as well. The Dodgers then cleared out even more money by non-tendering Cody Bellinger and his projected $18.1MM arbitration salary as well as declining Justin Turner’s $16MM club option for 2023.

With all of that, it was certainly a possibility that the club could come into the winter spending wildly and getting their payroll back up to last year’s levels. But while the free agents have been coming off the board with eye-popping deals, the Dodgers have largely been laying in the cut so far. Since the offseason began, the club has re-signed Kershaw and added Shelby Miller on one-year deals, for $20MM and $1.5MM, respectively. Those contracts have brought the club’s payroll for 2023 up to $173MM, per Roster Resource, with a competitive balance tax figure of $189MM.

That leaves the Dodgers plenty of room to work with, in a sense. That pure payroll figure is more than $100MM below what they carried last year and that CBT figure is more than $40MM shy of the lowest CBT threshold. It’s possible they are simply playing a long game, waiting for the frenzy of the early offseason to die down and searching for bargains later in the winter. But there are also reasons to suspect they might continue being fairly inactive.

For one thing, there’s the Trevor Bauer situation to consider. The club signed him to a three-year, $102MM deal going into the 2021 season, though Bauer only made 17 starts for them. He was placed on administrative leave in July 2021 while the league investigated assault allegations against him. In April 2022, he was given a two-year suspension, covering the final two years of his contract with the Dodgers. That suspension was without pay, wiping Bauer’s salary from the club’s commitments.

However, Bill Shaikin of the Los Angeles Times recently wrote about Bauer’s attempt to appeal that suspension, with a decision from an arbiter expected either this month or next month. If the suspension were to be completely overturned, the Dodgers will have to pay him for both 2022 and 2023, a $32MM salary for each. That’s true even if the club immediately releases Bauer after that decision. That’s a decent amount of money in itself, but Shaikin points out the Dodgers were luxury tax payors this year and would potentially have to pay extra fees on Bauer’s reinstated salary as well. In terms of 2023, the club’s CBT figure would jump to over $220MM. Shaikin also points out it’s possible the suspension is merely reduced, which would leave the club on the hook for some but not all of that money.

That decision will have a big impact on the club’s financial outlook going forward, so it stands to reason they want to wait and get some clarity there before making huge commitments. There are also more traditional baseball reasons for playing the waiting game, though. The departure of those aforementioned free agents has created many holes in the roster, but they might be able to fill them internally with their strong crop of prospects. On Baseball America’s most recent top 100 list, the Dodgers featured seven players, six of them in the top 52 spots. MLB Pipeline also has seven Dodgers on their list. FanGraphs is a bit less bullish but still puts five young Dodgers in the top 100.

Not only are these prospects highly regarded around the sport, they mostly are close to the majors or already there. Right-hander Ryan Pepiot made his MLB debut in 2022 while fellow righties Bobby Miller and Gavin Stone reached Triple-A. Third baseman Miguel Vargas cracked the majors this year while second baseman Michael Busch spent most of the year in Triple-A. Outfielder Andy Pages isn’t far behind, having spent the year in Double-A. Catcher Diego Cartaya is a bit further away, having spent most of this season in High-A, but he fared well and will likely be in Double-A to start 2023.

It’s possible the club thinks it’s time to let these younger players step up and start folding over a new leaf. “Earlier in the last decade, we had a wave of young guys who were going to be real contributors,” Dodgers CEO Stan Kasten told Bill Plaschke of the Los Angeles Times last month. “We think we are now on the precipice of the next wave of young guys. We need to make room to allow that to happen.” That certainly suggests the club is willing to let their pricey free agents walk and attempt to replace them with younger and cheaper alternatives.

There’s no guarantee a prospect will come up and succeed at the major league level, no matter how high their praise among evaluators. But teams can’t build successful rosters through free agency alone and have to at least produce some talent from their own pipeline. There is certainly risk in trying to achieve that, but the Dodgers aren’t in a terrible place right now, on paper. Despite the many departures and modest activity thus far, the club’s overall projected WAR currently ranks sixth in all of baseball, according to FanGraphs.

The club will surely be looking to make improvements there, though how aggressive they will be is to be seen. It’s been suggested by some the team would like to stay under the luxury tax in 2023 in order to spend more aggressively next winter when Shohei Ohtani is likely to be the top free agent available. As a reminder, the CBT carries increasing penalties for clubs that pay it in consecutive seasons. The Dodgers have paid the tax in 2021 and 2022 and would be a third-time payor if they did so again in 2023. However, if they stayed under this year, they would reset and could cross the line again in 2024 as a “first-time” payor and significantly lower penalties. With so many contracts coming off the books and so many prospects ready to debut, it would seem now is a good time to flip that reset switch. But if that is indeed the plan, the Bauer decision will loom even larger. If the suspension is upheld, the club has over $40MM to work with before nearing the line, but the number is closer to $10MM if the decision is overturned.

Either way, there’s still plenty of talent currently on the roster. As mentioned, FanGraphs considers them the sixth-best club in the majors at the moment. The rotation is in decent shape with Kershaw, Julio Urías, Tony Gonsolin and Dustin May taking up four spots. There are some injury question marks with that group but it’s got a lot of upside. They also have the aforementioned prospects as options for the back-end and depth, with Pepiot, Miller and Stone in the mix. The bullpen has some exciting young pitchers in Evan Phillips, Alex Vesia and Brusdar Graterol.

There’s plenty of talent on the position player side as well, with many of them capable of moving around to other positions as needed. Will Smith is one of the best catchers in the game and will be behind the plate. The club is reportedly comfortable with Gavin Lux moving from second base to shortstop. Super utility guy Chris Taylor could take over the keystone for him. At the corners, Freddie Freeman will have first base spoken for while Vargas could get an extended audition at the hot corner. Max Muncy can spend some time at first, second and third while also acting as the designated hitter somewhat regularly. In the outfield, Mookie Betts will have one position spoken for while Trayce Thompson should have another. That leaves one spot open for either Busch or James Outman, a prospect a bit behind Busch on the rankings but one who’s posted huge numbers in the upper minors and has already made his MLB debut. There’s also the possibility Muncy takes over second base while Taylor spend significant time in the outfield.

If the club has $40MM to work with, there are plenty of ways for them to spread it around to improve the team while still leaving room for their younger players to take a step forward. Adding a starter would bump their prospects out of the top five but opportunities would surely come up throughout the year. Kershaw hasn’t been able to throw 130 innings in a season since 2019 due to various ailments. May just came back from Tommy John surgery late in 2022 and only made six starts on the year. Gonsolin jumped from swingman to starter but dealt with a forearm strain down the stretch. Even with a free agent addition, opportunities will undoubtedly arise for Pepiot, Miller and Stone.

The top remaining free agent starter is Carlos Rodón, who was predicted by MLBTR for a salary of $28MM but is reportedly looking for a seven-year deal and could theoretically take a lesser annual salary to max out his guarantee. The Dodgers usually prefer higher salaries and shorter terms but they could change their tune if they’re focused on their CBT hit in 2023. Even adding about $25MM for someone like Rodón would leave the club with room for other upgrades, so there isn’t really any starting pitcher they couldn’t fit into their plans in this scenario. Some of the other options available include Noah Syndergaard, Nathan Eovaldi and old friend Ross Stripling.

Adding an outfielder seems a possibility, as it was reported the club made a run at Kevin Kiermaier before he agreed to join the Blue Jays. If the club looks to other options, they likely won’t need to break the bank. The top options are already off the board with Aaron Judge and Brandon Nimmo each agreeing to rejoin their respective New York clubs. That leaves Andrew Benintendi as arguably the top guy left in this department. MLBTR predicted he would land a $54MM contract over four years, or $13.5MM per season.

The club could also pursue an infielder and bump Taylor into spending more time on the grass, perhaps with Lux staying at second. The top remaining option there is Carlos Correa, though it seems he’s not in the club’s plans. That leaves one other marquee option in Dansby Swanson, with a big drop down to less exciting options like Elvis Andrus, Jean Segura, Brandon Drury or Justin Turner. Swanson was predicted for a $22MM salary over seven years for a $154MM total, while those other names will surely come in under that.

There are plenty of enticing options in any of those paths, but the club would have to be willing to cross the luxury tax again in order to do all of them. If they are indeed planning on staying under, they will like have to make tougher choices about which of these areas are worth their investments and which are worth leaving open for the young ones. Staying under the tax wouldn’t completely hamper the club, as they would almost certainly go into the next season pegged by many for a postseason spot. But FanGraphs currently considers them the fourth-best team in the National League, behind the Braves and the hyper-aggressive Mets and Padres. A modest offseason could still leave the Dodgers in decent shape, but it could perhaps knock them off their pedestal as perennial favorites.