Posted by: Mike Cornelius | December 15, 2022

The Cohen Tax Hits Home

If a new tax is named after you, a certain logic dictates that you might as well be the first one to pay it.  That, at least, appears to be the thinking of New York Mets owner Steve Cohen.  With a net worth of more than $17 billion, Cohen ranks 38th on Forbes’ list of the wealthiest Americans, more than enough to make him the richest major league baseball owner the day he acquired majority control of the Mets in the autumn of 2020.  The other twenty-nine members of the ultra-exclusive MLB franchise owners club were surely happy to see Cohen replace the Wilpon family, whose travails with Bernie Madoff had hamstrung their ability to spend at a level commensurate with the team’s place in the huge New York market.  But there was plenty of media speculation at the time that at least some other owners feared Cohen would use his fat checkbook to pay salaries far above what they could, or more accurately wanted to, afford.  

Through his first two seasons as the Mets owner, Cohn showed a willingness to spend, but arguably not in excess of what one would expect from a major market club.  The Mets’ player payroll ranked 8th in 2021 and 2nd, just behind the L.A. Dodgers and ahead of the cross-town Yankees, in 2022.  Last season was, however, the first time the Mets exceeded the threshold of MLB’s luxury tax – formally, the competitive balance tax – which requires franchises to pay a percentage of the amount by which they exceed the threshold into a central fund, about half of which is eventually redistributed to other clubs.  The rate increases for clubs remaining above the threshold over multiple years and is also subject to a surtax if the base salary level is exceeded by certain amounts.   

That surtax had always had two levels – 12% for rosters $20 to $40 million above the threshold, and 45% for anything more.  But when MLB’s new collective bargaining agreement was finally hammered out last spring, a third surtax level of 60% for payrolls more than $60 million over the luxury tax base.  That additional, third tier was quickly dubbed the Cohen tax, and now, still two months before the start of Spring Training, it is apparent that the first owner to pay it will be the tax’s eponym.

So far this offseason, the Mets front office has lavished Cohen’s largesse on closer Edwin Diaz (5 years, $102 million), righthander Justin Verlander (2 years, $86.7 million), center fielder Brandon Nimmo (8 years, $75 million), veteran reliever David Robertson (1 year, $10 million), and lefthander Jose Quintana (2 years, $26 million), along with a few lesser deals and on top of the team’s existing contract obligations.  The luxury tax calculation, based on the average annual value of contracts for players on the 40-man roster, doesn’t occur until the end of the season, but the current estimate by Fangraphs is that the Mets number will be in the range of $350 million, more than any other club and far above next season’s $233 million tax threshold.  Since this will be the team’s second year above the limit, the tax rate will be 30%.  But the surtaxes, including the Cohen tax, will add to that.  Every dollar the Mets spend above $293 million ($60 million above the base), will be subject to a total tax rate of 90%.  With a bill in the $75-$80 million range, the Queens franchise will be the first in major league baseball to incur total payroll-related costs of more than $400 million.

As those numbers came into focus in the past couple of weeks, the grumbling started again.  According to a segment of the Great Game’s fan base and, no doubt, more than a few front office types at other franchises, Steve Cohen is bad for baseball.

Of course, for as long as the old game has been around, something has always bad for baseball.  The designated hitter rule ruined the sport, which was never the same anyway after most of the schedule started being played at night.  Long before Cohen came along, George Steinbrenner was destroying the game a couple of long subway rides away from Citi Field.  Then there was Branch Rickey.  Understandably lionized for his role in confronting the Great Game’s original sin, Rickey’s more pernicious role usually goes unmentioned.  While at the helm of the Brooklyn Dodgers, he started delving into the statistics that for millions of fans have always been an elemental part of baseball’s appeal.  He employed a full-time data analyst for the Bums, and promoted a newfangled metric, on base percentage, as a more meaningful measure of a hitter’s worth than batting average.  A fan can draw a straight line from Rickey’s meddling to the advent of sabermetrics, the true and total ruination of the Great Game.  Oh, if we could only return to the dead ball days. 

Fans who dread the likes of Cohen are sincere, but their concerns are as misplaced as were those who feared all those bogeymen, and so many other supposed calamities through the sport’s long story.  The cry is that big spending will drive ticket prices even higher while leaving teams in smaller markets unable to compete.  But neither complaint is well founded.

Connecting player salaries to the price of ballpark admission reflects a distant and vanished time.  To be sure, it was once real, when the daily gate was a club’s primary revenue stream.  But today, ticket sales for the teams with the highest annual attendance, total less than the revenue from local and national television contracts for the teams with the smallest broadcast deals.  Add in the sale of other media rights, from radio to streaming, licensing revenue for all kinds of merchandise, ancillary income for many franchises for a range of non-baseball activities, and ticket proceeds no longer drive the top line of any club’s operating statement.  Yet they remain highly subject to a franchise’s performance.  If the Mets lose 100 games next season, Cohen won’t be able to raise ticket prices because fans won’t pay higher prices to watch a bad product.  Or he can go ahead and increase the price and watch the swaths of empty seats expand until a game at Citi Field starts to look a lot like one at Oakland Coliseum.

Given the roster the Mets are assembling, losing 100 games is highly unlikely.  But sailing serenely to a World Series championship and leaving small and midsize market franchises in the dust is no certainty.  In this century, only three teams have finished the year with both the highest payroll and a championship parade – the 2009 Yankees, 2018 Red Sox, and 2020 Dodgers.  Meanwhile, teams like the Tampa Bay Rays have frequently contended without huge payrolls, and the San Diego Padres franchise, in just the 27th largest media market in the country, is embarrassing every team owner who cries poverty by signing multiple huge contracts for leading free agents.  The competitiveness of a ballclub is determined not by the size of its home market, but by the priorities of its owner.

By that true measure fans in Queens know that the Mets, under Cohen, are ready to compete.  Whether they are good enough to win will be determined first over the course of the longest season, and then through the mad dash of the playoffs, and the only certainty is that there are no guarantees.  Well, there is one.  If the final out of the 2023 season elicits cheers at Citi Field, it’s guaranteed that Steve Cohen won’t mind paying the tax that bears his name, not even for a New York minute.

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