Cubs Have Until August 31 to Cut Payroll and Reset Luxury Tax
The 2020 season is strange and unique for any number of tangible reasons, so you’ll be forgiven if you forgot all about the competitive balance tax and its effect on the Cubs’ personnel strategy. As fun as it would be to see Tom Ricketts thumb his nose at the various penalties imposed for exceeding the tiered payroll thresholds of the CBT, and despite the organization’s refutations of the notion that the tax guides their decisions, it’s quite obvious the Cubs have worked to limit payroll over the last two winters.
If you are among the select few who believe that they added only Steven Souza Jr. and Jeremy Jeffress on guaranteed deals in the offseason because there truly were “no magic free agents,” I’d advise you to go ahead and stop reading right here. Let this also be an exit sign for those of you who believe Theo Epstein has been playing 4-D chess and that he’s going to be allowed to spend wildly in the coming free agency period.
The Cubs already faced the distinct possibility of a relatively quiet winter even before the pandemic created losses of biblical proportions for Ricketts and other owners. Marquee Sports Network, the venture that was supposed to be flooding baseball ops with “much larger” revenue “immediately” has lost at least 100 broadcasts and still doesn’t have a deal with Comcast. That latter deal alone could end up costing the fledgling network roughly $100 million in revenue this year.
Even if advertising rates rebound and Xfinity ends up airing Cubs games for millions of subscribers in Chicagoland and beyond, Marquee isn’t going to provide nearly the financial boost that had been projected. Because the Cubs are a full partner rather than just entering in a broadcast-rights arrangement, their startup costs were significant. After all the initial bluster about wheelbarrows full of cash, it was admitted that it’d be a few years before the profits produced a legitimate impact on payroll.
And that was when there was still a chance for 162 games.
Even with several large contracts rolling off the books, the real quandary facing the Cubs heading into 2021 is their projected CBT overage. According to Cot’s Contracts, they are at $213,457,833 against a limit of $208 million. That means they’ve got to shave at least $5.5 million from the books, more if they end up making any additions. And as I’m reviewing it, that total doesn’t include Jason Kipnis, whose contract was just purchased Friday night.
The truncated season means there’s not much time left to make cost-cutting moves and the August 31 trade deadline looms as the point of no return. As Alex Speier lays out for the Boston Globe, that’s the date by which the season becomes official and luxury tax figures are set in stone. Banging the season prior to that would be even worse because it would nullify 2020 and carry tax statuses over into next season. That means payroll reduction is pretty much a deadline-only play, since trading a guy prior and then having the season canceled would mean the move was for naught.
Oh, sorry, some of you might be doing the pensive emoji thing about the payroll figures given the proration of salaries. Though incentives and escalators are likewise tied to prorated performance targets, the CBT thresholds remain at their original levels and salaries are being viewed in terms of their full value for those purposes. While the penalties on the Cubs’ projected overage are a pittance, the real penalties for going over would have been the losses of revenue-sharing money and other rebates.
Ah, but won’t those losses be deflated by the overall revenue drop across the league? Yes and no. While the actual forfeitures should be appreciably less than they’d have been in a standard season, they should still come in at the same percentage of overall revenues as they would have otherwise. And since the Cubs may be disproportionately affected by the lack of fans, which is probably the case even if Ricketts’ 70% claim comes from creative accounting, they could actually end up taking a bigger relative hit.
I’m not going to stop you from daydreaming about the Cubs taking advantage of a depressed market to load up on all kinds of talented free agents as they renew their core and make another push. At the same time, it’s important to pay attention to the very obvious reality that they’ve curtailed spending in each of the last two offseasons and have been burned by getting very poor production from several of those free agents.
Failing to make one or two moves during spring training in service of payroll reduction may yet come back to haunt Epstein over the next month and change. Tyler Chatwood and José Quintana seemed like potential sacrificial lambs heading into the season, but the revenue crunch and an unfortunate slip while washing wine glasses have significantly decreased potential for a move. Would the Cubs then be forced into a trade solely for the sake of slashing payroll?
That prospect isn’t so bad if they find themselves out of it by late August and choose to simply punt away the rest of an unpredictable season. But what if they’re out in front? Would they really go for it and maintain — or even add to — payroll with the knowledge that it could hamper their efforts in subsequent seasons? There’s also the possibility that they could jettison a player with a significant salary and still make a push, confident in the knowledge that it won’t affect their odds in a crapshoot.
I certainly hope I’m wrong and that there really are wheelbarrows of cash waiting at the end of the goofy-ass rainbow that is 2020, both the baseball season and the year in general. Nothing exists to indicate that is a possibility, though, and everything seems to be screaming that the Cubs need to make some moves or risk at least one more quasi-rebuild season before making another legitimate push.
We should know by August 31 which path they intend to take.