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Hey Friends,

Steve Cohen bought the New York Mets in November 2020, paying a then-record $2.42 billion for the team. At the time, many people were unsure what to think. Cohen had spent the last forty years working in finance and had built up a $15 billion net worth as one of the world’s best-performing hedge fund managers.

That immediately made him the wealthiest owner in baseball by a landslide.

Add in the fact that he said, “I’m not trying to make money here; I have my business at Point72..I make money over there,” during his introductory press conference, and many people assumed he would try to spend more than everyone else and buy himself a championship. Remember, Major League Baseball is the only major North American professional sport without a salary cap.

Fast forward two years, and the Mets haven’t won a World Series. But that doesn’t necessarily mean those people were wrong — let me explain.

The New York Mets ranked second in baseball last year with an opening day payroll of $253 million, slightly trailing the Los Angeles Dodgers at $277 million.

But the Mets guaranteed nearly $550 million in contracts last offseason and have already signed six players this offseason for a combined 23 years and $461 million.

That brings their 2023 payroll to a staggering $345 million — the largest in MLB history by far — and there are still two months remaining in the MLB offseason.

But here’s the craziest part: other MLB owners saw this coming and decided to implement a new Competitive Balance Tax (CBT) in the league’s CBA last year. This is more commonly referred to as the “Cohen Tax,” and it states explicitly:

“[Teams] 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.” 

Think of it like the luxury tax in the NBA — you can pay extra money to make your team more competitive, but it costs more and more each dollar you spend.

Overview of MLB’s Competitive Balance Tax (CBT)

• The tax kicks in after teams exceed the maximum $233 million payroll.

• Teams are taxed at 20% on all overages in the first year, 30% in the second year, and 50% for the third consecutive year and after.

• The CBT also has surcharge thresholds for clubs that exceed the season’s payroll threshold by $20 million or more — $20M to $40M adds a 12% surcharge, $40M to $60M adds a 42.5% to 45% surcharge, and $60M or more adds a 60% surcharge.

So, when you add in the luxury tax numbers, the Mets payroll is projected to be $421.2 million in 2023 — $345 million in salary and $76.2 million in CBT penalty payments.

That would be the most money spent on a single team in US sports history.

But where does the money collected from the CBT go? Well, this is where it gets interesting because 50% of the money goes to teams that don’t exceed the luxury tax threshold, and 50% goes to player benefit plans, according to Bloomberg Tax.

So that means Steve Cohen will be paying nearly $40 million to other MLB teams this season, as long as they don’t exceed the CBT themselves. Now that’s crazy.

Have a great day. We’ll talk tomorrow.

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