Last night, the Boston Red Sox beat the Los Angeles Dodgers in Game 1 of the 2018 World Series, which means we *could* very well be just three wins away from what will be one of the most exciting offseasons in recent memory.
Any winter where two players (Manny Machado and Bryce Harper) might get more than $300M apiece and another (Clayton Kershaw) should get at least $200M is going to be a big one. And that’s excluding guys like Andrew McCutchen, A.J. Pollock, Marwin Gonzalez, Yasmani Grandal, Josh Donaldson, Patrick Corbin, Cole Hamels, Dallas Keuchel, Kelvin Herrera, Craig Kimbrel, David Robertson, and Andrew Miller. You could build an instant playoff team exclusively through free agency this winter, which means there should be a WHOLE lot of competitive shifting around the league. And that’s before we get to any of the trades that will inevitably go down.
And there’s no doubt the Cubs will be involved in big-ticket free agency this offseason, given the necessity for change conceded by President of Baseball Operations Theo Epstein. But here’s the big question as it relates to any of that maneuvering: what can the Cubs really do financially this offseason?
And before we can really start breaking down possible future moves against that backdrop, we need to have one foundational thing in mind: where does the team’s payroll stand heading into the offseason?
So, then, we’re going to run down where their payroll stands right now (both in actual dollars and payroll for the purposes of the luxury tax threshold), which will give us a better idea about what is going to be realistic and what isn’t.
First, a quick reminder about that luxury tax threshold, because the rules have changed relatively recently and crossing over that line matters more than it used to.
The Luxury Tax Threshold
For the 2019 regular season, the luxury tax threshold is getting a relatively large increase from $197M in 2018 to $206M in 2019. If the Cubs spend less than $206M on their payroll next season (which is doubtful) they’ll have no repercussions, tax or otherwise. However, if they go beyond it, as a first time offender, they will be forced to pay a 20% tax on all overages up to $226M. Example: a $211M payroll will actually cost you $212M, as you’re $5M over the limit, so a 20% tax on that overage = an extra million bucks paid out. (Also: when you’re over the luxury tax, it costs you more in draft picks/IFA penalties to sign qualified free agents, and you get less back if you lose a qualified free agent.)
That’s just the first tier of the tax. Every dollar spent from $226M to $246M will be taxed at a 32%. And finally, every dollar spent above $246M will be taxed at a 42.5% clip *and* the team’s top draft pick the following year will be moved back 10 places.
Reminder: The payroll – for luxury tax purposes – is not calculated based on the actual dollars paid out in 2019, but rather the average annual value of the guaranteed money in each player’s contract. So, for example, while Anthony Rizzo is scheduled to receive roughly $11.3M in 2019, only $5.9M will be added to the Cubs’ luxury tax total thanks to his team-friendly contract (boy, isn’t Anthony Rizzo great?).
With all that in mind, here’s a look at where things stand for the Cubs (via public reports and Cot’s Contracts):
As you can see, even without another move, the Cubs already project to exceed the $206M luxury tax threshold (give or take a little estimation variance here or there), and that does not include picking up Cole Hamels’ $20 million option for 2019.
We already anticipated that the Cubs would be willing to exceed the luxury tax in 2019, having stayed under it in 2018, and, if you’re going over anyway and incurring some baseball-related consequences, you may as well consider spending relatively freely under the highest tier of the luxury tax if you can afford the extra money (and if the long-term consequences are not too crippling).
[Brett: That doesn’t mean we expect the Cubs to spend indiscriminately and without limits this offseason. For all we know, the Cubs’ internal revenue projections are not as grandiose as we expect, and thus maybe the Cubs will decide to set their payroll limit at the second tier of luxury tax ($226 million). More hopefully, the Cubs will see that next tier – $246 million – as the limit, since that’s where you get hit with the additional draft pick penalty, and it’s also where the total money you’re spending starts to get really significant. If the Cubs’ revenue justifies it, I think it is fair for fans to hope the Cubs are at least willing – for the right players, and to paper over past mistakes – to approach that top tier.]
Given that we anticipate the Cubs will want to save some space for midseason additions and performance escalators/bonuses, that $226M threshold would be MIGHTY hard to stay under if the Cubs wanted to make even one notable addition to this roster this offseason.
If using that upper tier of the tax, the Cubs would have roughly $36M of AAV as of right now that they could add, before freeing up any space via trades and/or non-tenders, but not including any buffer space they’ll want heading into the season. But who knows? If the Cubs/Ricketts are willing to ignore the draft pick considerations (after all, it’s not like you lose the pick entirely), perhaps they’ll also be willing to open up the pocket book, while eyeing that potentially transformative and impending TV deal. It’s conceivable. I just wouldn’t necessarily count on it.
So, instead, when you’re piecing together your offseason maneuverings, you should probably have something like a net addition of $30 to $35 million total. If you’re wanting to see the Cubs go after Bryce Harper (who reportedly wants a $35M AAV) or Manny Machado, while also retaining Cole Hamels and picking up a top bullpen arm … well … you should start doing some mental calculations on how the Cubs can get some money off the books beyond simply moving out Addison Russell. It can be done, though, and a pursuit of at least one top guy should be anticipated.
If you need a reminder about the various dates and deadlines of importance in the offseason, see here.
Brett Taylor contributed to this post.