Theo Prepping Cubs Fans for Roster Turnover, “That’s Just the Reality.”
“The moment this CBA came out, we knew ’20 and ’21 were going to be times people would be scratching their heads because we wouldn’t be able to squeeze any other talent onto this roster,” Theo Epstein told Barry Rozner of the Daily Herald. “You understand that and you come to terms with it.”
In 2017, MLB and the MLBPA negotiated a new collective bargaining agreement (CBA) which changed some landscape around competitiveness in the game. Essentially, it made it financially problematic for teams to continue to pump payrolls over the Competitive Balance Tax (CBT). But it isn’t just the fines that teams are assessed for repeatedly eclipsing the tax threshold, it isn’t even moving the team’s top draft pick back 10 spots that hurt the most.
The Cubs had a 40-man CBT payroll of $234,759,847 in 2019 (the CBT uses Average Annual Value, or AAV, and not actual annual salary). The 2019 CBT was $206 million, and the club was $28,759,847 over the tax threshold. Because this was the Cubs’ first offense, they are taxed at 20%, but because they were $20 million over (but less than $40 million) they had a tax surcharge of 12.5% added. This resulted in a total tax bill of around $7.9 million.
While $7.9 million isn’t anything to shake a stick at, it isn’t a lot in terms of an organization that pulled in $460 million in revenue. Couple this with the $900 million they earned in 2017 and ’18, and it is certainly something the club can absorb. But, it isn’t just the first year tax, it’s that the taxes get more strict in subsequent years. In year two of being over the tax (consecutively) the base tax increases to 30%, in the third year, it becomes 50%.
But we are only talking about taxing the dollars spent over the tax, so if the Cubs go into the 2020 season with a $214 million roster (Roster-Resource) their tax would only be on the $6 million they are over the $208 million CBT for 2020, or a penalty of $1.8 million. In 2021, if they remained $6 million over the CBT, their penalty would be $3 million.
Again, this isn’t earth-shattering, but where the real penalties come into play are in revenue-sharing.
Under the current CBA, all teams pay into the MLB revenue-sharing pool, it is then distributed out, small market first, throughout all teams. But, according to the CBA, if you are over the CBT for a second year you will only receive 75% of the share you were to be awarded. If you’re over a third year, you only get 50% back. In using Brett Taylor’s understanding, the Cubs should receive between $30 and $40 million in return for the Market Disqualification Refund.
If the Cubs are over the CBT in 2020 and scheduled to receive $40 million, they would only get $30 million back. This essentially makes the CBT an $11.8 million penalty for 2020. If they remain over the CBT again, it becomes a $23 million penalty.
So as far back as the 2017 season, Theo knew that this was coming about. This adds some clarity to several of the front office’s remarks over the past several years on how salaries impact future payroll and not just the current year. This is also why the Cubs haven’t added top-tier free agents in the past two offseasons. Doing so would just put them in larger dire straights.
This is why the Cubs have shopped virtually everyone this offseason. They don’t want to follow up a great five-year run with a tear-down rebuild, but they are caught trying to reduce salary in a system where every GM knows what’s going on. So, unless you’re trying to just unload someone for virtually nothing, teams are savvy enough to press back understanding that they too will eventually come up against the CBT.
“It’s pretty clear in talking to everyone in the organization, including ownership, that no one wants to follow a good run of five or six years and be out of it for five or six years,” Epstein said. “We wanted a smoother transition.
“There’s going to be change whether you like it or not, so better to make it — if possible — on your terms, and try not to have a real falloff where you have to put your fans through a long period of non-competitiveness.”
It is these reasons that I think the Cubs should look to deal talent other than guys like Kris Bryant to get under the CBT. Especially since it only takes one season to reset the clock.
As we sit here, the Cubs have a payroll of $214 million (estimated) and are up against the tax of $208 million. Guys that the Cubs should be actively doing whatever they could to get off the roster are guys like Tyler Chatwood and Jose Quintana. The other, and it pains me to think about it is, Kyle Schwarber.
Chatwood is earning $13 million in 2020 and has a tax number of $12.67M. The Cubs could trade him for a low-level A-ball player or two and the return value becomes incredible. Moving the $13 million essentially becomes a $24.8 million swing to the Cubs bottom line. The same holds true for Qunitana, who has a ridiculously low tax number ($10.5M) and would essentially net the Cubs $22.3 million. The plus side is, the Cubs could return bigger value in return as Quintana is a viable backend starter for nearly every team in baseball.
Schwarber comes with some additional crinkles. While he only gets the Cubs under the threshold by about $1 million, and the Cubs will likely need to make another move or two as well, he presents the opportunity to cash in on high-level prospects.
The Cubs will also have the contracts of Jon Lester ($25.8M towards the CBT) and Daniel Descalso ($2.5M) that will likely come off the books after the 2020 season (both with buyouts). With both Quintana and Chatwood already likely to come off, moving a guy like Schwarber would help with payroll flexibility into the 2021 season as well.
“There’s going to be times when you have to get rid of guys maybe a year before people think you have to,” Epstein said, “or you’re gonna have to reset the roster, or you’re going to run out of financial flexibility and be less active for a couple seasons, and you know you’re not going to be as well thought of.”
This also helps to understand a recent comment from someone within the Cubs front office, who said there was no mandate from ownership to get under the tax. Ownership understood that there was going to be less flexibility in payroll because of the CBT and revenue share, but they’ve always left the keys in the hands of the Cubs’ front office on how to navigate it all. They all knew that this day was coming, hell, a lot of fans understood the day was coming. It was always the timeline that everyone was murky on.
Dropping under the CBT becomes an important task for this front office, and I would expect to see moves happen sooner, rather than later. It becomes a lot easier to move someone like Quintana or Chatwood today than it is in July when there are deadlines and teams know the Cubs are only moving them to get under that threshold. They aren’t out to help the Cubs with their business plan, they are out to improve their organization. While all teams will eventually do what is best for them and if adding a guy like Q or Chatty is best, they will do so, but they also will move on their terms when deadlines are involved.
If you thought the last several months were a roller coaster of emotions, these next four to six weeks will cause you to stock up on antacids. Virtually everyone is on the block, and while they won’t trade them all, the front office needs to focus on the next five years.
“There was always going to be a time when our players reached free agency, so we’ve been mindful of that,” Epstein said. “We’ve worked really hard to try to sign players to extensions. Those offers have been turned down and I respect the players’ right to do that.
“If you’re in that spot where you can’t sign them and you don’t have flexibility to keep adding, then you have to look for ways to transition more on your terms.
“All we’ve done is to be open-minded about it. There haven’t been many transactions. There hasn’t been a lot of turnover. So we’re just transparent about the fact that we’re open to it and considering it.”
So buckle down for a crazy month and a half, because Theo and Jed Hoyer are about to go to work.
