The last time payrolls dropped as much as they did from 2017 to 2018 was back in the 2004-05 seasons. (Photo by Billie Weiss/Boston Red Sox/Getty Images)

Payrolls were down in baseball by the largest amount in over a decade, and the drop was largely thanks to two of the sport’s biggest spenders.

Due to an uncharacteristically quiet offseason from the Los Angeles Dodgers and New York Yankees, two of the sport’s biggest spenders, the 30 major league teams spent just $4.548 billion in payrolls, a $115 million drop-off from 2017.

The last time MLB’s total payroll dropped that much was a $204 million drop-off from 2003 ($2.4 billion) to 2004 ($2.196 billion). It’s also the first time payrolls fell in the sport since they dropped by $2 million in 2010.

Luxury tax serves as a soft salary cap, even for the rich

While there were teams with bigger drops in payroll, the Dodgers and Yankees combined to account for $89.8 million of the $115 million in lost payroll. New York dropped from $224.2 million to $193.0 million, while Los Angeles dropped from a league-high $253.6 million to $195.0 million.

Noticeably, both clubs brought their salaries below the $197 million luxury tax line, which was a major point of emphasis for the two teams. While Major League Baseball does not have a hard salary cap, the luxury tax has acted as a soft cap to many teams.

The first time a team goes over the luxury tax, it pays a 20 percent tax on all overages. That mark raises to 30 percent for a second consecutive year over the line, and all years after that are given a 50 percent tax. However, if a team gets under the luxury tax line, their slate is wiped clean.

A combination of factors led to last offseason being particularly slow. For one, it was a fairly weak free agent class with only two players getting nine-figure contracts. But teams were very slow to sign even the best players, as Eric Hosmer ($144 million) and J.D. Martinez ($110 million) didn’t sign until the second half of February.

Another factor was that teams wanted to get under the luxury tax so that they could spend freely on this vaunted free agent class. While Josh Donaldson had an injured and down year and Clayton Kershaw re-upped with the Dodgers, Bryce Harper and Manny Machado are still two of the biggest free agents of the century.

The other big payroll slashers

The Dodgers and Yankees cutting salary was more egregious because their teams were among the most competitive in baseball, but several others pared payroll while rebuilding.

The Detroit Tigers cut the most payroll (from $207.2 million to $135.3 million) after shedding the salaries of Justin Verlander, Justin Upton, Anibal Sanchez, and Ian Kinsler, among others. Meanwhile, the Kansas City Royals cut $53.0 million after losing Hosmer and Lorenzo Cain, and the Miami Marlins cut $46.8 million while trading the best outfield in baseball.

In all, 18 of the 30 major league teams cut payroll last season with eight shedding more than $10 million in salaries. And like 2017, three teams stayed under $100 million in salary commitments.

How did spending correlate with winning?

Money wasn’t strictly the biggest factor when it came to winning, as the fourteen highest-spending teams only included five playoff squads. The second- and third-highest spending teams (Washington Nationals and San Fransisco Giants) finished a combined 26.5 games out of their respective division leads.

However, the biggest-spending team was the Boston Red Sox, who won the World Series. Their $239.5 million payroll was $34.5 million more than the next closest-team; that’s a bigger gap than the one between the second-ranked Nationals and 10th-ranked Seattle Mariners. And, of course, they faced off against the Dodgers, who were the fourth-highest spending team.

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