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MAGIC NUMBER FOR MLB OWNERS: PAYROLL AT 50% OF REVENUES?
Published December 1, 1995
MLB owners' latest payroll-tax proposal "appears to be aimed at ultimately reducing player payrolls to no more than 50 percent of club revenues," according to Murray Chass in this morning's N.Y. TIMES. While negotiators from neither side would confirm the details of the owners' offer, or the players' expected response, Chass reports the plan calls for a 25% tax on portions of team payrolls above $44M in Year 1 of a seven-year "adjusting tax system." In the following years, "the tax-triggering thresholds would be linked to the previous year's industry revenue, and the tax rates would be based on the percentage of the previous year's revenue that was spent on player payrolls." For Years 2-6, the tax would be anywhere from 25-50%. But it would "disappear" in Year 7 if the clubs spent 50% or less of total revenue on player salaries in Year 6. In addition, the threshold would remain at $44M as long as overall revenues were below $2.2B (the proposal puts '95 revenues at $1.556B). Once revenue exceeds $2.2B, the threshold would increase by 2% of the amount over that figure. Based on 14% growth, the owners estimate the threshold could be $68M by Year 7. Under the new plan, five clubs would have been taxed in '95, compared to 11 under the owners' March '94 plan (50% at $44M) and six under the players' final counter-offer (25% at $50M). Also, the owners would retain arbitration for some players in exchange for earlier free agency (N.Y. TIMES, 12/1). UNION REACTION: MLBPA Exec Dir Don Fehr: "It's premature, but all options are open. The question always becomes, if you're getting into a tax, why are you doing it, what is the anticipated effect? What do you do with the money? Is it used to invest in the game's future or just to subsidize people? Does it have the effect of effectively inhibiting a free market or is it a tax that has a cost attached to it but preserves the essence of the free market?" Chass notes, if the union accepts the idea of a tax, "the proposal could include enough variations for the two sides to negotiate an agreement" (N.Y. TIMES, 12/1).