NEWSLETTER
After exceeding the luxury tax on their way to a World Championship in 2016, the Chicago Cubs dipped back under the 2017 luxury tax threshold of $195 million, per the Associated Press.
We knew the Cubs were going to be cutting it close in 2017, but with the changes that the latest Collective Bargaining Agreement made to the luxury tax – specifically, the baseball-related penalties for being over it – the Cubs were transparent about their intention to stay under that level in 2017.
Because they stayed under the luxury tax limit, the Cubs will not only avoid paying the luxury tax, itself, but they will also:
- Receive draft pick compensation after the second round (not the fourth round, where they’d be if they’d exceeded the luxury tax) if Jake Arrieta and/or Wade Davis sign elsewhere; and
- Give up their second highest pick (not second AND fifth) and $500,000 in IFA pool space (not $1 million) if they sign a qualified free agent like Alex Cobb.
The Cubs likely want to stay under the 2018 luxury tax level of $197 million, too, and currently project to have around $30 million more to play with before they’d be at risk for going over at some point during the season, thanks to bonuses and in-season trades.
A reminder: a team’s payroll for luxury tax purposes is *NOT* the same as the actual payroll they pay out in a given year. Instead, luxury tax payroll, which also includes about $14 million in insurance and benefits, is adding up the average annual value (AAV) of every contract on the books for the year. For example, the Cubs will actually pay Anthony Rizzo over $7 million in 2018, but the AAV of his contract is under $6 million – and the latter is the figure that counts for luxury tax purposes.
