Does MLB have a salary cap? How baseball’s luxury tax compares with NFL, NBA, NHL contract limitations

Between the blockbuster signings of Japanese stars Shohei Ohtani and Yoshinobu Yamamoto, the Dodgers spent more than $1 billion during the 2023 MLB offseason.

Los Angeles shocked the sports world when it signed Ohtani to the first $700 million contract in American team sports history. It wasn’t done there, dropping another $325 million on his Samurai teammate Yamamoto on Thursday.

As the franchise continues to operate as if it has money trees growing behind Dodger Stadium, it has raised a common question, “Does MLB have a salary cap?”

There’s a reason we’ve never seen spending like this in the NFL, NBA or NHL.

Does MLB have a salary cap?

No, MLB does not have a hard salary cap. Unlike the NFL, NBA and NHL, MLB front offices can spend as much money as their pockets allow.

There is a luxury tax (which we will get to in a minute), but owners can shell out as much cash as they’d like, as long as they don’t mind paying the tax.

You might be wondering if the Dodgers’ historic offseason spending — and almost unfair navigation of Ohtani’s contract deferrals to free up more cash — could finally break the system and force the league’s hand into creating a salary cap.

This past season, MLBPA executive director Tony Clark took a hard stance against that idea despite believing it eventually will be MLB’s goal:

“We’re never going to agree to a cap. Let me start there. We don’t have a cap. We’re not going to agree to a cap.”

What is MLB’s luxury tax?

MLB has a “Competitive Balance Tax,” which is the league’s version of a luxury tax.

As explained on MLB’s website, “Each year, clubs that exceed a predetermined payroll threshold are subject to a Competitive Balance Tax — which is commonly referred to as a ‘luxury tax.’

“Those who carry payrolls above that threshold are taxed on each dollar above the threshold, with the tax rate increasing based on the number of consecutive years a club has exceeded the threshold.”

MORE: How good is Yoshinobu Yamamoto? Here’s what Dodgers fans can expect from new ace

There are also surcharges for teams that are way over the annual spending limit.

For the upcoming 2024 season, the CBT threshold will be $237 million.

Salary caps in other sports

Among the four major professional North American sports, MLB is the only one that does not have a salary cap. However, the NFL, NBA and NHL’s salary caps are all slightly different.

NFL salary cap

The NFL has a hard salary cap, meaning, under no circumstances are teams allowed to exceed the salary cap in annual spending for the league year.

The NFL’s salary cap was set at $224.8 million for the 2023 season.

MORE: Biggest contracts in sports history: How Ohtani’s deal compares to NFL, NBA stars

Because teams cannot go over the salary cap, there is no need for a luxury tax system in the NFL.

NBA salary cap

The NBA operates under a “soft” salary cap, meaning there are several exceptions to allow teams to spend over the designated salary cap to sign players. As a result, the NBA has a somewhat similar luxury-tax system to MLB.

The NBA’s salary cap was set at $136.021 million for the 2023-24 season, with the tax level set at $165.294 million.

Teams that exceed the salary cap are subject to a luxury tax, and the NBA’s newest collective bargaining agreement designated two tax “aprons” with different surcharges for each apron.

So, even though NBA owners can’t spend unlimited money like MLB owners can, they can still go over the salary cap (to a degree) if they’re willing to pay the different luxury-tax penalties.

NHL salary cap

The NHL, like the NFL, also has a hard salary cap. The NHL’s salary cap was set at $83.5 million for the 2023-24 season.

Again, because teams cannot go over the salary cap, there is no need for a luxury tax system in the NHL.

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