The CBT, or the Competitive Balance Tax, is commonly referred to as the “luxury tax.” This is a tax for teams that carry a payroll that exceeds an agreed-upon threshold for that season.
If a team exceeds that threshold for the first time, they are the subject of a 20% tax on all overages. If a team does it a second time consecutively, they are hit with a 30% fine.
During the 2023 season, nine teams were hit with the luxury tax. These teams included the Mets, Yankees, Padres, Phillies, Blue Jays, Braves, Dodgers, Angels, and Cubs.
For the 2024 season, the CBT threshold has been set at $237 million. It will be a $4 million rise from last season’s $233 million. It will rise $4 million more for the 2025 season ($241 million) and $3 million in 2026 ($244 million).
What does Shohei Ohtani’s contract mean for the Dodgers regarding CBT?
Shohei Ohtani shocked the baseball world with his record-breaking 10-year, $700 million deal with the Los Angeles Dodgers. Things got even crazier when it was announced that he would defer $68 million of his contract annually.
There are no limits set to how much a player can defer. While the Dodgers will certainly go over the threshold, they are minimizing their penalties with this move.
Ohtani deferring much of his contract also allows the team to continue to spend and sign players. After six seasons of missed postseasons, he wants the best shot at hoisting multiple World Series titles.
The Dodgers extended their championship window by signing Ohtani. They will be one of the juggernauts of the major leagues for years to come. They have one of the best cores in all of baseball; all they need to do is figure out their starting rotation, and they are set.