Resetting the Cubs Payroll Situation After the Cole Hamels and Drew Smyly Moves

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Resetting the Cubs Payroll Situation After the Cole Hamels and Drew Smyly Moves

Analysis and Commentary, Chicago Cubs News

Last week, we took an in-depth look at the Cubs’ projected 2019 payroll to get a sense of where things stood heading into the offseason – both from a total dollars perspective and for luxury tax purposes – as we head into an expectedly busy offseason.

In short, at the time, we determined that the Cubs luxury tax payroll (which is calculated differently than the actual 2019 payroll, and is likely more important) was right around $210,907,143. That figure included $14.5M in health and pension benefits, as well as $2.25M in miscellaneous 40-man salary, and $42.25M in arbitration raises. There is certainly some estimating going on there, but the numbers are pretty close to a reality.

And remember, that luxury tax number matters quite a bit for the Cubs this winter, because they appear to be already over the first threshold:

Tier 1: $206M
Tier 2: $226M
Tier 3: $246M

You can check out that post for the full details on the penalties for exceeding each limit, but in short, once you to over the first tier, there are draft-related consequences (and obviously a tax), the second tier just costs you more money, and the third and final tier gets taxed at a disproportionately high rate *and* drops your first pick in the next draft ten spots. Whether the Cubs really believe those penalties are too significant to mess with or not, that third tier feels like a limit they’ll (at least try to) respect.

But even with those numbers in mind (roughly $210M spent and $36M to go), we figured the Cubs had enough space to make some significant moves this offseason. But things have already changed.

In case you missed it this morning, the Chicago Cubs traded Drew Smyly to the Texas Rangers and picked up the option on Cole Hamels. And with those moves, our numbers changed dramatically.

Smyly was scheduled to receive $7M in salary next season, but because he made only $3M last season, his overall hit for luxury tax purposes was just $5M ($7M+$3M = $10M/2 years = $5M in AAV). So by trading Smyly to the Rangers, the Cubs received $5M in luxury tax relief. But that move wasn’t done in isolation.

Simultaneously, the Chicago Cubs picked up the $20M option on Cole Hamels for 2019, which added $20M in actual dollars *as well as* luxury tax dollars for next season. If you’d like to get into the nitty gritty of why, Brett has you covered in the tweet below. But you can skip past that if you just take our word for it.

So with *this* move, the Cubs took a $20M hit to the luxury tax calculation. Which means, in total, the Cubs went to bed last night with a luxury tax payroll of $210,907,143, but are now sitting somewhere close to $225,907,143 – which is right up against that second tier, and would leave about $20M in space beneath the upper-most tier, which we think they might respect.

But here’s the thing: it’s not really $20M, at least not in effective terms. As we’ve learned over the years, the Cubs front office likes to leave about $5-$10M in space beneath whatever threshold they’re respecting for in-season additions and bonuses, because whatever you spend during the season counts against the luxury tax threshold, too. So if you’re conservative, you might say that the Cubs really have only $10M more to spend this winter (in terms of AAV, at least), which … is just not a lot.

Hence, reports like this are not necessarily entirely inaccurate:

But that doesn’t mean they’re stuck. The way we see it, they have a few options. Brett, take it away:

The Cubs can either stop spending altogether (eek!), forget about the consequences altogether (ooh!), or make some trades to relieve more salary. I don’t think the first option is likely, and as neat as that second option sounds, I think the Cubs might explore some trades to shed some salary for other moves first.

Now, don’t get me wrong: I think they definitely could (and arguably should) just say screw it and blow past that last threshold with no regard for the penalties, but I’m just not sure that’s what’ll actually happen. The third tier threshold offers a convenient reason to stop spending at a certain limit (and, let’s be fair: if the Ricketts are spending $246M in payroll, it’ll be hard to call them cheap). At the same time, I don’t think you’d pick up the Hamels option at all if you were really trying to cut salary or stay under the luxury tax threshold – especially, given how many other pitching options they already have in-house.

So basically, the headlines for today are simple: Smyly to Texas, Hamels stays in Chicago, the Cubs luxury tax payroll takes a $15M bump, and the rest of the Cubs starting options as of today (plus Adbert Alzolay, who missed most of 2018 with a lat injury) look like this:

Busy morning. I love the offseason.


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