How Cole Hamels Trade Impacts Cubs Luxury Tax Number
According to FanCred’s — which, is there a worse name in sports media? — Jon Heyman, the Cubs will actually assume $5 million of Hamels’ remaining salary obligation, which shifts the numbers below just a bit. Keep reading for the specifics on exactly how this stuff all works, but the Cubs’ luxury tax figure now comes to around $5.33 million and leaves them with around $5.5 million under the penalty threshold.
Sources: Cubs will pay $5M of Hamels’ remaining obligation
— Jon Heyman (@JonHeyman) July 27, 2018
The Cubs have acquired starting pitcher Cole Hamels from Texas, pending medicals, which means they now employ 40 percent of the 2017 Rangers opening day rotation. Current reports have the Cubs covering $4 million of the the roughly $14 million Hamels is guaranteed — $8.05 million for this season and a $6 million buyout of Hamels’ $20 million club option for 2019.
The impact on the Cubs’ salary figure, however, will be slightly larger. This is because the average annual value (AAV) of a player’s contract, not the specific amount being paid in any given year, is used for calculating the luxury tax. Hamels is being paid $22.5 million in 2018 but the AAV of his six-year, $144 million contract is actually $24 million.
That means Hamels’ cap hit is larger than his salary this year. This also means the Cubs’ cap hit for Hamels will be slightly larger than whatever amount they are paying him this year. If the report of $4 million is correct, it represents 17.8 percent of Hamels’ 2018 salary (4 divided by 22.5 = .178). Thus, the Cubs will be on the hook for 17.8 percent of Hamels’ $24 million cap hit, which is $4.27 million, which still leaves them around $6.6 in 2018 cap space.
And that’s all they’re on the hook for, since Hamels’ option does not yet affect their 2019 luxury tax situation. Option year buy-outs are guaranteed money and are therefore included in the AAV of a contract. As such, that $6 million buyout has already been factored into that $24 million AAV above.
If the Cubs do choose to exercise the 2019 option, which seems highly unlikely, only the remaining $14 million ($20 million salary minus $6 million buyout) will count toward the 2019 tax figure. This amount would put the Cubs over the 2019 cap as things project right now. In fairness, though, any scenario that includes the Cubs keeping Hamels in 2019 probably also involves trading Tyler Chatwood and his roughly equivalent salary.