Cubs

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Cubs

Money makes the world go 'round.

It's also been the main topic of conversation during this pivotal Cubs offseason. 

Fans want the Cubs to spend more money — namely on a guy like Bryce Harper, but really on anything or anybody that could help the team get back to the Promised Land.

The Cubs owners and business operations, however, have other ideas in regards to the budget for Theo Epstein's baseball operations department.

There are a lot of questions about the Cubs' budget and while this is no means a comprehensive rundown of the situation, here's what's going on and how it's affecting the team this winter:

The timeline and a tough end to 2018

Let's start at the beginning of this Payroll Saga.

The Cubs, their fanbase and pretty much all of baseball expected the North Siders to be playing more than one playoff game in October 2018 (even Milwaukee anticipated another run-in with the Cubs in the NLDS).

It didn't work out that way, leaving Cubdom stunned and searching for answers. Some 15 hours after the Cubs' season ended in abrupt fashion, Epstein sat in front of the Chicago media and answered questions for 75 minutes, passionately speaking about how the front office and coaching staff need to figure out how the team broke down and ensure it never happens again.

Epstein's presser made it seem like a giant offseason was coming, teasing the potential for major shake-up on the roster and surely seemed to validate the long-rumored pursuit of Harper.

So what's changed since then?

Well, for starters, that was an emotional moment for Epstein. Nobody can blame him for his impassioned rants about the Cubs' offense or lack of urgency, etc. The sting of a surprising loss was still so fresh.

 

At that moment, Epstein also didn't have the Cubs' budget for the winter and heading into 2019. The Cubs set their official budget typically in late October or early November after sorting through everything once the playoffs end.

Epstein and the Cubs front office had a decision to make on Cole Hamels' $20 million option at the end of October and they subsequently traded away Drew Smyly and his $7 million 2019 contract to help make room for Hamels. That's when word started to trickle out about the Cubs' money issues.

The Cubs then talked about their budget problem publicy at the GM Meetings in Southern California in early November and they did not sway from that stance throughout the Winer Meetings that ended in Las Vegas last week, where the Cubs insisted nothing has changed with the budget and they haven't suddenly discovered more wiggle room.

There are those who believe this all may be a smokescreen from the Cubs, who are playing coy in an effort to gain a competitive advantage or bring the price down in the Harper Sweepstakes.

Sooo...do the Cubs have the money to go over the budget if it's the *right* player?

"It doesn't do us any good to ever talk about specifics with money," GM Jed Hoyer said at the Winter Meetings last week. "It just doesn't help. Ultimately for us, we try to keep those numbers internal as the most important thing. I guess I never really answer that question directly."

Luxury tax — it's not just the Cubs

Sure, Major League Baseball does not have a technical salary cap like the NFL, NHL or NBA.

But this new iteration of the luxury tax is essentially acting as a salary cap for teams around the league because the penalties are so severe. Only two teams went over the luxury tax in 2018 — the Nationals and the World Champion Red Sox.

Even while franchise valuations are continuing to climb at record levels, player payroll is plummeting. For the first time in nearly a decade (since 2010-09), MLB teams spent less money in 2018 than the year prior — payroll was down more than $115 million.

MLB teams spent only $4.548 billion on players in 2018. Your first thought may be to focus on the word "only?!?" but the Cubs franchise alone is valued at $2.9 billion in April 2018. That doesn't mean the Rickettses have $2.9 billion in liquid assets, but it illustrates how the franchise (like others around the league) is thriving and yet a smaller percentage of the overall revenue is going to players.

It's not just the Cubs — look around baseball. The Phillies initially kicked off the winter saying they were going to spend "stupid" money and now they are downplaying their interest in Harper and Manny Machado. The Yankees have printed money for the last 20+ years and are supposedly not shopping at the top of the free agent market this offseason. Even the Dodgers, who have come up short in the World Series two years in a row, have been making a concerted effort to cut payroll.

 

Current player salary

This is the old "the proof is in the pudding" aspect of the budget. Want to know why the only true addition the Cubs have made so far this winter is the $5 million over two years committed to a utility infielder?

They're on track for a 2019 payroll that will climb over $209 million and that's before they add any other pieces this winter (like a bullpen arm or two and a backup catcher). And that's an OPENING DAY payroll projection and doesn't account for any salary the front office picks up midseason (as they did last year with Hamels, Brandon Kintzler, etc.).

The Cubs' previous record for Opening Day payroll came in 2018 at a little north of $182 million. 

So not only are the Cubs on track for the highest payroll in franchise history, but they're on pace to obliterate the previous record by nearly $30 million. If they actually signed Harper and added a veteran backup catcher and another reliever or two, that number would jump to $60-$70 million over the previous high water mark for payroll unless they could shed some serious salary before Opening Day.

It's totally understandable fans want the Cubs to do more and improve the roster, but it's not fair to say the team is "cheap" considering they're paying more for the roster than they have at any other point in the 143-year history of the team.

At the moment, the only other MLB team set to go over the $206 million luxury tax threshold for 2019 is the Red Sox, who just re-signed Nathan Eovaldi for a $17 million/year coming off a World Series championship.

Now, there are two numbers that matter to teams — the yearly salaries and the AAV (average annual value) of a contract. The latter is what counts against the luxury tax, so even though Jason Heyward is set to make $20 million in actual take-home pay in 2019, the average annual value of his 8-year, $184 million contract is $23 million per season. So Heyward counts as $23 million toward the $206 million luxury tax mark.

With regards to the Cubs' budget, they are focused on how much they're actually paying players in 2019, not the average annual salary. So even Daniel Descalso is getting deferred money on a very minor deal — he'll take home $1.5 million in 2019, but his average annual salary is $2.5 million for each 2019 and 2020.

Barring anything crazy occuring over the next two months, the Cubs will assuredly surpass the luxury tax threshold and thus will be paying extra money after 2019. For reference, the Red Sox were forced to pay nearly $12 million in 2018 strictly for taxes. The Cubs had to pay $2.96 million to the tax after their World Series run in 2016.

 

The more the Cubs go over the luxury tax, the more they have to pay.

Here's a breakdown of the Cubs payroll (as of Dec. 19) that impacts the 2019 budget (so not the luxury tax):

Jon Lester - $27.5 million
Cole Hamels - $20 million
Jason Heyward - $20 million
Yu Darvish - $20 million
Kris Bryant - $14 million*
Ben Zobrist - $12.5 million
Tyler Chatwood - $12.5 million
Anthony Rizzo - $11.29 million
Jose Quintana - $10.5 million
Brandon Morrow - $9 million
Kyle Hendricks - $8 million*
Javy Baez - $6.5 million*
Steve Cishek - $6.5 million
Pedro Strop - $6.25 million
Addison Russell - $5.25 million*
Brandon Kintzler - $5 million
Brian Duensing - $3.5 million
Kyle Schwarber - $2.75 million*
Carl Edwards Jr. - $2.25 million*
Mike Montgomery - $2 million*
Daniel Descalso - $1.5 million
Willson Contreras - $600,000**
Albert Almora Jr. - $600,000**
Ian Happ - $600,000**
David Bote - $600,000**
Victor Caratini - $600,000**
Kyle Ryan - $550,000

(Note: * denotes projected arbitration salary; ** denotes player is pre-arb and will make roughly $600K as league minimum salary)

That's 27 players — a complete 25-man roster plus Morrow (slated to begin the season on the disabled list) and Russell (suspended through at least April). 

Russell's suspension is without pay, so the Cubs will not have to pay him roughly $870,000 of his 2019 projected arbitration figure.

So...how did we get here?

Last winter, it seemed like a guarantee that the Cubs would at least have a seat at the table in the Harper Sweepstakes but now that this star-studded offseason is upon us, the Cubs are on pace for the slowest offseason of Epstein's regime.

How did the Cubs get to this point?

—Last offseason's hangover

This front office has been famously aggressive each winter since the Cubs' contention window opened in 2015. First it was adding Heyward, Zobrist, John Lackey and bringing back Dexter Fowler ahead of the 2016 championship season. Then it was trading for Wade Davis and signing Koji Uehara, Jon Jay and Brian Duensing before 2017. That led to last winter, when Epstein and Co. signed Chatwood, Smyly, Morrow, Cishek and Darvish.

It's that last offseason that really has a carry-over effect to this winter. Say what you want about Heyward's contract and there's no denying a guy making $23 million/year has a huge impact on the budget. But he's at least given the Cubs 4.0 WAR, a strong clubhouse presence, Gold Glove defense and delivered the most important speech in the history of the franchise.

Chatwood, Smyly, Morrow, Cishek and Darvish combined to contribute only 1.1 WAR to the 2018 Cubs while taking home $56 million. The team still owes $145 to this group of pitchers (minus Smyly's salary now that he's been shipped off to Texas) over the next few seasons and each of the four remaining pitchers carries a rather significant question mark entering 2019.

 

Last winter serves as a pretty damn effective cautionary tale that the Cubs can't keep spending wildly each winter with no repercussions. It's also a much tougher sell from Epstein's front office to ask for more money when the budget increase they were afforded last offseason failed to deliver (through one season, at least).

—Lack of young pitching

This has been discussed ad nauseam, but the main reason the Cubs are at this point with a tight budget is because the only way they've been able to build a big-league pitching staff during these years of contention is by spending an exorbitant amount of cash. 

Rob Zastryzny is the most accomplished drafted-and-developed pitcher in the Epstein regime and he has appeared in just 18 games and tossed only 34.2 innings over the last three seasons.

Almost 64 percent of the Cubs' projected 2019 payroll is going to the pitching staff, with more than $133 million committed to the 13 arms under contract at the moment. Only Ryan is projected to make less than $2 million and three pitchers (Lester, Hamels, Darvish) will pocket at least $20 million.

The Cubs badly need some cheap and effective pitching to help turn around their payroll/roster issues and the best way to fix the issue is having pitchers come up through the farm system to eat up some big innings in the majors.

—The Cubs have gone all-in to contend the last few seasons

It's not as if the Cubs haven't been spending money on the payroll. Prior to 2016, the highest Cubs year-end payroll for the 40-man roster came in 2010 with a $142.4 million tab.

The Cubs have obliterated that total the last three seasons (per Cot's), racking up year-end payrolls of $205.9 million (2016), $183.3 million (2017) and $193.3 million (2018).

Other factors

The Cubs would not suddenly be able to afford Harper if they had played another week or three in the postseason, but that extra revenue certainly would've helped.

The Ricketts family has spent more than $750 million in rehabbing Wrigley Field and the surrounding area, as Epstein pointed out at the GM Meetings last month. Sure, that hardly impacts the team's on-field success (if it even affects it at all) and it's not like the billionaire Rickettses are suddenly using food stamps or flying Spirit airlines because of the renovations to Wrigleyville.

The Rickettses have also made an insane amount of money from the Cubs' recent success (again, want to reference the franchise valuation of $2.9 billion), but we're simply pointing out that there have been other expenses beyond the payroll.

—The Cubs’ TV rights beyond the 2019 season are still up in the air. But the Cubs have discussed starting their own network, which will take a significant financial investment, like those poured into Wrigley Field and the surrounding area. That includes a financial risk without guaranteed revenue from an established network, but the Cubs hope it could be more financially lucrative at some point.