Updated: Early Report That Cubs Had Exceeded Luxury Tax Threshold Was Wrong, Which We Called
Ed. note: Updates to story follow original text, but if you want the nutshell version, it’s: The price is wrong, Bob.
According to a report from USA Today’s Bob Nightengale, the Cubs have exceeded the luxury tax threshold for the second consecutive season. This is bad for a number of reasons, not the least of which is that they’ll have to pay a penalty on the overage. I should note right off the top that the report does not offer a breakdown of the salary figures, but only states that they came from “year-end payroll reports submitted to MLB, and obtained by USA TODAY Sports.”
The Cubs were one of six teams to have gone past the $195 million mark, though only the Dodgers ($244 million) and Yankees ($209.3 million) did so on base payroll alone. In addition to the AAV of player contracts, teams must factor in awards bonuses and another $13 million in benefits, insurance, etc. for the overall 40-man roster. Taking their reported $186.5 million base, that would put the Cubs at approximately $199.5 million overall (a number the report only insinuates but not actually put in print), less than $5 million over the line.
We’ll get to some more details on the numbers in a bit, but let’s first discuss exactly how bad it would be if the Cubs really are over the limit. When Brendan Miller wrote about how the new qualifying offer rules would impact the Cubs, he was doing so with the assumption that they’d be in the group that came in under the cap. If the report is true, they would face much stiffer penalties and wouldn’t be rewarded as well for players who signed elsewhere (right, Ed Begley Jr.?).
Rather than losing just their second-highest pick and $500,000 of international bonus pool money for signing a QO player, a team paying on the luxury tax would lose its second and fifth-highest picks and would forfeit $1 million in international pool money. Oof.
Oh, and then there’s the matter of their compensation for losing Jake Arrieta and/or Wade Davis. Instead of getting a pick after Competitive Balance Round B (the end of the second round), luxury tax scofflaws are relegated to picks after the fourth round if another team signs those players. Losing two picks and then having the two (at most) you gain come that much later in the draft is not a good combo. Like, not at all.
So you can see now why I wrote a little while back that the Cubs need to be judicious with their spending this winter. The last thing they want is to rack up big numbers in free agency and face the possibility of a third consecutive overage. But there’s still some doubt about whether they’ve really done it twice yet.
As Brett Taylor points out over at Bleacher Nation, these figures smell kinda funny. He notes that Cot’s Contracts had the Cubs at just under $178 million in payroll, and that’s including the $13 million in benefits. So where’s that extra $21 million coming from? We can add a little for the additions of Jose Quintana, Alex Avila, Justin Wilson, and Leonys Martin, but those were all pro-rated for the time the Cubs employed them in 2017 and wouldn’t push them over.
Because I have neither tremendous access to nor in-depth knowledge of all the various loopholes of MLB payrolls (though I did read about all of it starting on page 112 of the CBA document), what follows is rife with guesswork. Turning to Spotrac’s salary figures, we see that the Cubs’ adjusted payroll for the season comes to $182,400,336. Adding in $2.25 million for 15 players on the 40-man roster gets us to $184.65 million. Is it possible that there are some additional bonuses out there in the amount of, say, $1.9 million? That’s plausible, right?
But it still doesn’t answer how those numbers and the ones listed in the report are so far off from what Cot’s shows. Ah, but perhaps it does. Spotrac is using flat-out salary figures from 2017 and not the AAV of the contracts, which is how the number for the luxury tax threshold is calculated. It could it be that the payroll numbers in the report USA Today accessed have not been properly weighted to account for contractual averages. They may include other amounts as well.
For instance, Jason Heyward earned over $28 million in 2017 but has an AAV of only $23 million; Ben Zobrist’s AAV is $2 million less than his actual pay for this past season; Anthony Rizzo’s is about $1.5 million. Then you’ve got various other accounting involved with guys like Miguel Montero and Brett Anderson, which might actually skew the Cot’s numbers higher because they don’t have his salary pro-rated. So that’s maybe a wash, I don’t really have the math
If I were to hazard a guess at this whole thing, I’d say that the numbers in those year-end payroll reports do indeed reflect the total salary amounts (pro-rated in some cases), not the AAV. If we dig a little further into Spotrac’s numbers, we find a total salary of $198,846,580. Then we subtract the $12,452,380 in draft-pick signing bonuses to arrive at just under $186.4 million, or just $100K shy of the number in Nightengale’s report.
Add in the $13 million in required benefits and you’ve got yourself a luxury tax overage. It’s a good thing I’m not wearing socks, man, because that math wasn’t easy.
So while I’m not saying Nightengale is wrong, I believe it’s entirely possible that the numbers he’s referencing have not been properly adjusted for accurate payroll calculation. There may be wishful thinking involved on my part, but the numbers sure seem to back me up. I certainly hope that’s the case, since being over the luxury tax limit would seriously hamstring the Cubs this winter and beyond.
I’m not sure whether it’s the workout I finished earlier this evening or all the patting myself on the back I’ve done since, but my shoulders are sore and it’s hard to type this. In any case, the theory I presented appears to be correct. At least that’s what I’m assuming based on the fact that multiple people are contradicting Nightengale’s initial report.
So the Cubs will not be paying any luxury tax and they will not have their compensatory picks bumped down two rounds. Which is good.
Source: #Cubs are not projected to pay the luxury tax this year after staying under the $195 million threshold.
— Patrick Mooney (@MooneyNBCS) November 13, 2017
Contrary to a report, the Cubs won't be paying the luxury tax this season. It has an effect on the compensation given to teams for losing/signing free agents who were given qualifying offers. If the Cubs sign one they will lose their second highest… https://t.co/oN4u0xWsI3
— Jesse Rogers (@ESPNChiCubs) November 13, 2017