What is CBT in baseball? MLB's luxury tax regulations explored following Shohei Ohtani's controversial $700m contract

The CBT, or the Competitive Balance Tax, is commonly referred to as the "luxury tax." This is a tax for teams that carry a payroll that exceeds an agreed-upon threshold for that season.

If a team exceeds that threshold for the first time, they are the subject of a 20% tax on all overages. If a team does it a second time consecutively, they are hit with a 30% fine.

During the 2023 season, nine teams were hit with the luxury tax. These teams included the Mets, Yankees, Padres, Phillies, Blue Jays, Braves, Dodgers, Angels, and Cubs.

For the 2024 season, the CBT threshold has been set at $237 million. It will be a $4 million rise from last season's $233 million. It will rise $4 million more for the 2025 season ($241 million) and $3 million in 2026 ($244 million).

What does Shohei Ohtani's contract mean for the Dodgers regarding CBT?

Shohei Ohtani shocked the baseball world with his record-breaking 10-year, $700 million deal with the Los Angeles Dodgers. Things got even crazier when it was announced that he would defer $68 million of his contract annually.

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There are no limits set to how much a player can defer. While the Dodgers will certainly go over the threshold, they are minimizing their penalties with this move.

Ohtani deferring much of his contract also allows the team to continue to spend and sign players. After six seasons of missed postseasons, he wants the best shot at hoisting multiple World Series titles.

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The Dodgers extended their championship window by signing Ohtani. They will be one of the juggernauts of the major leagues for years to come. They have one of the best cores in all of baseball; all they need to do is figure out their starting rotation, and they are set.

About the author

Jared "Bloomy" Bloom is a journalist covering Major League Baseball at Sportskeeda and a former college baseball pitcher from Illinois, who just graduated with a Master's degree in Sport Psychology.

A writer with over 3 years of experience, Jared is consistently more concerned with quality than quantity, thoroughly checking multiple sources of information, and prides himself in being knowledgeable not just about MLB, but the game of baseball in general. He loves breaking down plays and game-changing moments, as well as looking closer into players' statistics.

Jared is a die-hard Chicago White Sox fan, and one of his earliest memories is seeing his great-grandfather, a huge Sox fan, in his rocking chair watching a game. Jared started playing from the age of 5 with his grandfather coaching him early on.

Jared loved Tim Lincecum for his quirky delivery and looked up to him as a role model when playing. His current favorite is Phillies star Bryce Harper, an exciting player who doesn't let injuries hold him back. Jared's favorite sports moment is Mark Buehrle's opening day between-the-legs glove flip to first base in 2010.

When he is not watching or writing about baseball, Jared can be found racing BMX at his local Rockford BMX track or coaching his local youth travel baseball team.

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Edited by Jared "Bloomy" Bloom