Cubs Have Preserved Some Space Under the Luxury Tax Cap for In-Season Deals

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Cubs Have Preserved Some Space Under the Luxury Tax Cap for In-Season Deals

Analysis and Commentary, Chicago Cubs News

After the 2016 season, Major League Baseball and the Players Association got together to renegotiate a new Collective Bargaining, and, in the process, created more serious penalties for crossing over the luxury tax threshold.

For 2018, that threshold sits at $197 million, and includes the full 40-man roster, any in-season bonuses, and other expenses like benefits/insurance. If a team exceeds that level during the year, not only do they pay a tax, but now they also risk losing draft picks and international bonus pool money.

If it weren’t for these additional penalties (and the paralyzingly exciting 2018-2019 free agent class, for which a number of teams are expected to exceed the luxury tax cap, and for whom the draft pick costs would be steeper if they were already over the tax cap), teams like the Los Angeles Dodgers and New York Yankees certainly may have been more involved in the Yu Darvish sweepstakes and, at a minimum, would’ve driven the price up on the Cubs.

But they weren’t and the Cubs, who had much more space beneath the luxury tax threshold than some other big-market clubs, were able to land Darvish on a reasonable deal and stay beneath the threshold (with some room to spare) for 2018. Given that the Cubs may be one of those teams that wants to go after a big-time free agent (and thus would pay more in draft-related consequences if they were over the luxury tax cap this year), having room to spare for this 2018 season is a very good thing.

… But how much room do they actually have to spare?

Now that Yu Darvish is in the fold, let’s take a closer look at the Cubs’ finances – in terms of luxury tax spending – and see how much space they left themselves for any in-season bonuses that might be triggered or pick-ups at the trade deadline, shall we?

Using the Cot’s Contracts Tax Tracker (it’s so very useful), the Cubs’ current payroll for luxury tax purposes lies at $184,626,742 (there’s a chance this’ll be higher by the end of the season, but we’ll get to that in a minute), and here’s how it breaks down:

Known payroll commitments: $163,607,142
Est. 25-man 0-3 year players: $4,725,000
Est. 40-man players-minors: $2,250,000
Est. Player Benefits: $14,044,600

For a more detailed breakdown, be sure to check out this spreadsheet. Also note, Chris Gimenez is currently in on a minor league deal, but is expected to make the big league roster – at which point, he’d add a reported $1.275 million to the payroll for 2018.

Again, taken together, that amounts to $184,626,742 in 2018 payroll for luxury tax purposes, which leaves $12,373,258 available for the in-season pickups to stay under the $197 million luxury tax cap. HOWEVER, that first figure does *not* include any bonuses that Cubs players might receive for their performance throughout the season, which do count against the luxury tax.

For example, although we don’t know the particulars just yet of any bonuses (we’ve only heard about escalators to future year salaries), Yu Darvish might be able to earn more than his $21M AAV that goes into this year’s calculation. For other examples, a number of Cubs players have bonuses tied to various performance thresholds and awards. There aren’t a ton of them, and it’s not a gargantuan dollar value at stake (we don’t have access to them all), but it’s a consideration.

Putting it shortly, because of in-season bonuses, there’s reason to believe the Cubs’ breathing room beneath the luxury tax threshold will probably be slightly less than the $12.3M they have right now.

And, again, having that buffer really matters. Last season, for example, the Cubs added about $4.45M in payroll for luxury tax purposes in Jose Quintana ($2.1M), Justin Wilson ($1.35M), and Alex Avila ($1M), alone. And while those numbers are all fairly low, adding a pricey veteran on an expiring contract (i.e. the guys most usually available at the deadline) can cost a bit more than that. Adding someone like Justin Verlander would’ve cost the Cubs around $12M in “cap space.”

So basically, keep about $10 million (or less!) in mind as you break out your shopping list at the trade deadline this season.

Brett Taylor contributed to this post.


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Author: Michael Cerami

Michael Cerami is a Writer at Bleacher Nation, and you can find him on Twitter at @Michael_Cerami.