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How the Dodgers’ latest trade should push the Giants to stay under the CBT threshold

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Once upon a time, a trade involving Matt Kemp and Adrian Gonzalez would have stunned the baseball universe, sent shock waves across the sport and stolen headlines around the country.

On Saturday afternoon, the Los Angeles Dodgers and Atlanta Braves actually did complete a trade involving Kemp and Gonzalez, and it will go down as one of the most boring moves of the offseason. Kemp is back in Los Angeles, a team that likely has no intention of keeping him next season while Gonzalez has already reportedly been designated for assignment, meaning he’ll be free to sign with any franchise this offseason.

The trade, though, has significant long-term ramifications for the Dodgers, and in turn, should impact how the Giants view the remainder of their offseason. By swapping Gonzalez, pitchers Scott Kazmir and Brandon McCarthy and infielder Charlie Culberson for Kemp, the Dodgers eased the burden of their financial commitments for next season, bringing the team below the $197 million competitive balance tax threshold that will be in place for the 2018 season.

The Giants, meanwhile, are likely working to stay below the $197 million threshold as well (See: Matt Moore trade), but they’ll still consider whether certain players are worth splurging for to put the team in position to contend next year. The Dodgers’ latest move, though, should force the Giants’ hand.

With Los Angeles positioning itself to dip under the tax threshold for the 2018 offseason, the Giants should do everything in their power to field a competitive roster while also staying below the $197 million payroll ceiling. By doing so, it will allow San Francisco to compete for next year’s massive free agent haul on a level playing field, and set the Giants up for long-term success as opposed to the potential short-term gains the franchise could pursue by exceeding the tax limit this season.

Why should a wealthy franchise like the Giants care about the luxury tax? Shouldn’t ownership do whatever it takes to put a winning product on the field regardless of how much money it takes? (Insert argument about paying $15 for a beer and $9.50 for a mediocre bratwurst at AT&T Park here).

To understand why the luxury tax matters to the Giants, it’s important to understand the tax itself, the team’s current tax situation, the situation of its chief rival, the Dodgers, and the situations of other major market franchises like the New York Yankees. There’s no way to convey all of that information in a brief manner, but I’ll do my best to streamline the key details and build out some additional perspective of the Giants’ situation as it relates to the tax in 2018.

Let’s start with the tax itself. Teams that surpass the threshold are subject to a tax on the dollars they spend above the threshold. For first-time offenders, the rate is 20 percent. For three-time offenders, the rate is 50 percent. The Giants, as you might have guessed, are three-time offenders. So every dollar spent past $197 million, as I understand it, is really $1.50 spent. That shouldn’t worry an ownership group much, and it hasn’t worried the Giants in the past.

However..

Should a team exceed the tax by $20 million, each dollar over $217 million (197+20) is taxed at an additional 12 percent rate. Should a team exceed the tax by $40 million, each dollar over $237 million is taxed at an additional 42.5 percent rate, and a 45 percent rate for repeat offenders.

It should be noted, of course, that when a team dips below the luxury tax in a given season, the penalties reset. So for three-time offenders like the Giants and the Dodgers, dipping below the tax in 2018 would allow them to surpass the tax in 2019 and be taxed at a 20 percent rate as opposed to a 50 percent rate.

Why does that matter?

For the Giants, it matters because they already have more money committed to players in 2019 and 2020 than any other franchise, so they won’t have much wiggle room to sign free agents or trade for valuable players if they surpass the luxury tax threshold in 2018. They’re also approaching a point in time when they’ll soon have a decision to make about offering Madison Bumgarner a mega-contract, and if they do offer a gigantic deal, it will only add to the financial commitment they’ve already undertaken in subsequent seasons.

Now, about those free agents.

Next offseason, Bryce Harper and Manny Machado will headline a star-studded class with players that will change the trajectories of the franchises they sign with. In anticipation of the monster offseason that lies ahead, the Dodgers’ latest trade positions the franchise to dip under the tax threshold and start from scratch next year. The Yankees, too, are conscientious of the tax, as they elected to shed salary and trade third baseman Chase Headley to San Diego in an effort to create more flexibility.

Even if the Giants aren’t able to lure Harper and Machado, San Francisco must be prepared to sign some of the secondary names that will flood the market to compete with baseball’s best clubs. Josh Donaldson and Charlie Blackmon will be available, while pitchers like Drew Pomeranz and David Price will be freed up. If the Giants still have bullpen troubles, Andrew Miller and Craig Kimbrel could help solve them. There are no shortage of impact players who will be looking for money to be thrown their way, and by surpassing the competitive balance tax threshold in 2018, the Giants would be jeopardizing their chances to offer significant sums again next year.

By trading Moore to Texas on Friday, the Giants now have roughly $20 million to address their primary offseason needs of acquiring a center fielder, third baseman and bullpen help. It’s not a lot of room, but it’s a start. If San Francisco can somehow find a way to move Denard Span, it would free up even more money ($11 million) and give the team even more of an opportunity to build a competitive roster next season.

The odds are stacked against general manager Bobby Evans and vice president of baseball operations Brian Sabean if they truly intend to compete next year, especially if they make the best fiscal choice for the future of the franchise by staying under the tax threshold. If they don’t, and sell out in an effort to win right away, any short-term gain could have severe long-term consequences if San Francisco’s front office finds out it’s unable to compete for the glut of quality players who will enter the marketplace next offseason.