For those who’ve been paying close attention to MLB-related news of late, the words “salary cap” have been uttered and written often. Salary caps, which limit the payroll spending for professional sports teams, have become commonplace in other sports leagues. That, however, is not the case with Major League Baseball.
Does the MLB have a salary cap?
No, Major League Baseball (MLB) does not have a salary cap, nor a floor for payroll spending.
Out of the four major sports (MLB, NBA, NFL, NHL), baseball is the only one that does not have a salary cap.
How does the luxury tax limit teams’ spending?
While there is no cap, Major League Baseball does tax teams that go over what is known as the Competitive Balance Tax (CBT) threshold.
This threshold changes on a yearly basis, in line with the existing collective bargaining agreement (CBA). For the 2026 campaign, it will be $244MM. Should teams go over that limit, a financial tax will be assessed.
How much money a team has to pay depends on how far the overage is. There’s a simple percentage that a team must pay should the payroll be above that threshold. For example, a team that considered a first-time payor (i.e., goes over the $244MM for the first time (non-consecutive)) will have to pay 20% on the overage, so long as it was fewer than $20MM above the limit.
From there, an additional surcharge will be inserted, based on the overage. Page 120 of the 2022-2026 MLB CBA indicates how much money CBT payors must pay.
Keep in mind that second-time payors go over two years in a row, while third-time payors go over in three consecutive years or more. Should a team that was a payor in a previous season go under the existing CBT threshold, the penalties reset.
History of past salary cap implementation
After the 1993 MLB season, the league’s existing collective bargaining agreement with the players’ association ended. Rather than start a lockout, the league and players opted to go into the 1994 season without a CBA in place. However, that avenue opened up the possibility of a players’ strike.
The league went into a lockout stage in 1990, with the primary focus being on adding a salary cap, as well as implementing a new revenue-sharing plan. A cap was never put into place in 1990 but the owners tried to revisit the issue four years later.
Players went on strike beginning on August 12, 1994. It cost the league the 1994 World Series, and nearly went into the 1995 season before the strike ended, thanks to a court decision that supported the players’ sought injunction over planned use of replacement players.
No cap was put into place in 1995 when play resumed.
The league and players’ union were embroiled in another dispute nearly 30 years later. In December 2021, the previously-existing MLB-MLBPA collective bargaining agreement expired. The owners, yet again, sought to implement salary restrictions. While no cap was proposed, the league wanted to push the lowest luxury tax threshold to $180MM, while also adding a $100MM salary minimum.
However, none of that was implemented. Ultimately, the two sides agreed on a new CBA that will expire in December 2026.
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