Not exactly. There is no cap on player salaries. There is simply how much you are willing to pay for the players + how much you are willing to pay for the tax (plus once you're more than $40m over the tax threshold there are non-financial penalties).
Let's say your payroll would otherwise be just under the tax threshold for 2024 & would be $236,999,999 (we'll call it $237m). But you see the opportunity to add Ohtani for $41m per year & remove a $1m player, putting you at a $277m payroll. The cost of Ohtani isn't actually $41m in the first year, because $40m of it is taxable. Using the Red Sox as an example, since they reset this past year, their marginal rates are lower & they would pay a 20% tax on the 1st $20m & 32% on the 2nd $20m, for a total tax payout of $10.4m. In that scenario, Ohtani's $41m contract actually costs his team $51.4m per year, & the total payroll cost would be $287.4m.
Let's say the same scenario repeats itself in 2025 when the tax threshold is $241m & the team is again willing to go right up to that financial only threshold. The rate increases to 30% on the first $20m & 42% on the next $20m for a total of $14.4m tax, a marginal cost of $55.4m for Ohtani's contract, & an overall payroll of $281m with a payroll cost of $295.4m.
& then in 2026, the team has a decision. Do we want to be a 3-time repeater, or do we want to duck back under the threshold & make some of these taxes less onerous? As a 3-time repeater in 2026 when the tax threshold will be $244m, then the marginal cost of that tax becomes 50% for the 1st $20m & 62% for the next $20m, meaning that tax burden would now be $22.4m, & Ohtani's contract is now costing you $63.4m. So you have a choice. Do you cut from your team meaningfully somewhere else, do you move on from your expensive player, or do you just pay the tax? The overall payroll would be $284m with a payroll cost of $306.4m. The more revenue your expensive player is making you, the more palatable paying $306.4m for your team would be. If another player provided just as much WAR as Ohtani, but didn't bring in the outside revenue, the owner is far less likely to greenlight continuing to run payrolls at that level & would be more likely to insist on a reset.
Now, a reset may be a reality regardless, & in a lot of ways this whole exercise is an oversimplification, but the salary structure absolutely can change if your most expensive player is also making you a ton of revenue.
