An updated look at the Cubs’ 2019 payroll and luxury tax

With last Friday’s exercise of Cole Hamels’ 2019 option for $20 million and the trade of Drew Smyly to the Rangers, the Cubs’ estimated payroll and luxury tax hits look like this:

As you can see in the table, the estimated total of salaries for the 26 players listed is $204,360,000. However, that’s not really the figure we’re interested in for this discussion. That figure is the luxury tax hit of the 26 salaries and other expensed attributed to “Actual Club Payroll” (as noted below), which is $224,467,000.

You will note at the bottom of the table the three luxury tax thresholds for 2019. They stand at $206 million, $226 million and $246 million. The Cubs were under the tax threshold for 2018 and in fact, seemed to go out of their way to do that. This chart, which comes from the MLB/MLBPA collective-bargaining agreement, might explain why:

By staying under the first threshold for 2018, the Cubs “reset” their luxury tax limit for 2019 and so would be a “first-time CBT payor” (“CBT” = “Competitive Balance Tax,” the official CBA name for this tax) in 2019. Here’s a bit more about the Competitive Balance Tax.

You can see that the tax payment for exceeding the third level jumps significantly from the second level. In addition to that, there’s another penalty for going over that third level. From the CBA:

Beginning in the 2018 Contract Year and continuing thereafter, any Club with an Actual Club Payroll at or above the applicable Second Surcharge Threshold in that Contract Year shall have its highest available selection in the next Rule 4 Draft moved back ten places in the Draft order. This penalty will apply in each Contract Year in which the Club exceeds the Second Surcharge Threshold, regardless of whether the Club is a First-, Second-, or Third-Time CBT Payor or whether the Club has incurred the same penalty for exceeding the Second Surcharge Threshold in a prior year.

(“Actual Club Payroll” refers to the payroll for luxury tax purposes, which is reflected in the salary table above.)

So not only would the Cubs be subject to that much higher tax if their payroll goes over $246 million, but they’d also have their first pick in the 2020 draft (the “Rule 4 Draft”) moved back 10 places. That provision doesn’t apply if the team has a first-round pick among the top six. Obviously we hope the Cubs do well enough so they wouldn’t be picking that high; a team exceeding the second threshold with a pick in the top six would have its second-round pick moved back 10 places. (Such a team is a two-time loser, since with a top six pick they’re likely having a 90-loss season and getting their pick moved down.)

Let’s make this absolutely clear, and I’m putting this in boldface. The Cubs and the Ricketts family can certainly afford to have a payroll over $246 million, if they so choose. They might not choose to do so. But I do think they can and will go very, very close to that threshold, paying the tax at the first two levels.

Here’s an interesting take on this from Brett Taylor:

Beyond the issue of the luxury tax and the total payroll is the roster itself. You will note that there are 26 players in the table above, all of whom played in the major leagues for the Cubs in 2018. Someone, or multiple someones, are going to have to be removed from that group in order to have an Opening Day roster of the maximum 25 players.

Which means the Cubs still have moves to make (even beyond the fact that they still have 40-man roster moves likely coming to protect players from the Rule 5 draft). I would think that they are going to try to deal a pitcher or two, as well as run some players through waivers hoping they’ll clear. Brandon Kintzler, with a $5 million deal for 2019, could be tradeable. I’ve written here several times about trying to deal Tyler Chatwood, but even if the Cubs can do that, it wouldn’t likely help the tax situation, as just about the only way the Cubs can trade Chatwood would be to take on someone else’s bad contract.

It’s possible the Cubs could non-tender Addison Russell, given his situation we’ve discussed here many times before, as well as the fact that he is under suspension for the first 30 games of 2019. I’ve suggested they could trade Jose Quintana, perhaps for younger, cheaper, cost-controlled pitching. That would take $10.5 million off the luxury tax calculation and give the team more room to sign a big-money free agent. (You obviously know who I’m talking about here, though it is my feeling that Bryce Harper will not be a Cub in 2019 and beyond.)

Lastly, the following players are arbitration-eligible in 2019: Russell, Kris Bryant, Javier Baez, Kyle Hendricks, Kyle Schwarber, Mike Montgomery, Carl Edwards Jr. and Tommy La Stella. The numbers in the table above are estimates of what those players will receive in 2019; the actual numbers could be somewhat different. The estimates given here differ slightly from the arbitration estimates posted by MLB Trade Rumors, but they’re generally similar.

None of us knows precisely what the budget given to Theo & Co. for baseball players from ownership will be for 2019. It seems clear to me, at least at this point, that it wouldn’t break through the $246 million threshold, and in fact, would probably want to stay around $10 million below that in order to leave room for possible midseason acquisitions. That would make the maximum 2018 payroll for luxury tax considerations about $236 million. As you can see from the current estimates, they’re still about $12 million below that level.

But the first thing that will likely change is they’ve got more big-league players than they have room for. Something, obviously, has to give before Opening Day.