NEWSLETTER
If there is anything sexier than accounting methods for various alternative financial scenarios during a pandemic, I don’t know what it is.
*crickets*
Bigger and more entertaining fish to fry, no doubt. But since the Chicago Cubs very likely geared their entire offseason toward a goal of getting under the luxury tax in 2020, it’s a story we are still following closely, even in these crazy times.
As you’ll recall, with their on-paper commitments for the season, the Cubs are still at least a few million over the $208 million luxury tax (which, if they finished the year that way, would likely limit their flexibility AGAIN next offseason). And, since getting under during even a NORMAL season was going to present serious problems (what happens if the Cubs are competitive? do they dump at the deadline all the same?), getting under during a shortened season could be extremely challenging, if not already impossible.
We already know that, for luxury tax purposes, the players’ salaries – by Average Annual Value – will be completely unchanged by the shortened season. The on-paper AAV is still what counts, regardless of how many games are played and regardless of what the player is actually paid.
But what about in the event the entire season is cancelled? Surely you can’t have a luxury tax if there are no payrolls, right?
Well, yes and no. And the “no” part doesn’t even really help the Cubs.
A little more color on the Cubs’ situation:
Update on this: There is no automatic CBT reset if there’s no 2020 season. If there is no 2020 season and Sox spend > $210M in 2021, they’d be taxed as a team surpassing the CBT threshold for a third straight season. https://t.co/fmyhhsXsab
— Alex Speier (@alexspeier) March 30, 2020
In other words, if the 2020 season is cancelled, the luxury tax does indeed go away for almost all purposes: you don’t pay a tax and you don’t get treated as a luxury tax payor during the upcoming offseason. It’s like it doesn’t exist.
HOWEVA, you ALSO don’t get to count 2020 as a year getting under the luxury tax. It’s just like the year didn’t exist, so your 2019 status carries forward. Thus, to actually get back under the tax and reset, the Cubs would have to stay under the luxury tax next year. So, whether there’s a little bit of season or a cancelled season, either way, it’s highly likely the Cubs will head into the offseason trying – once again – to stay under the luxury tax. So that’s cool.
Your one caveat here, I suppose, is that with the current CBA expiring after 2021, and in the even the 2020 season is entirely wiped away, there is no chance the Cubs could become a third-time offender during the current CBA, which is what made it so brutal for big market teams to go over the luxury tax three years in a row.
So I guess it’s possible, if the season is cancelled, but it becomes clear by the offseason that the next CBA won’t punish third-time offenders quite as harshly, then maybe the Cubs will just spend this offseason like normal, not worried about 2021 become their second consecutive season over the tax (2019 and 2021). Lotta ifs and buts and whatevers.
In the end, here’s the long and short of it: the Cubs tried very hard to get under the luxury tax this year, but didn’t get there before the season was set to start. That meant they were going to have to try to do it during the season, which is tough when you’re also trying to compete. Now, the baseball shutdown will make those efforts all the more difficult (if the season is shortened dramatically) or impossible (if the season is cancelled).
