Salary Cap and Free Agent Money

by Moshe W.

Hi readers. This is the first of (hopefully) many regular contributions to the Cub Reporter.

My main contribution to this site, in addition to posts on financial issues, is creating and maintaining a google spreadsheet called the Cubs Financial Tracker containing lots of useful financial information about the Cubs in one location. I thought I would use my first post to show you how my spreadsheet can answer two common questions Cubs fans have been asking this offseason.

            1. How much cap space do the Cubs have in 2018?
            2. How much money will the Cubs have to spend next offseason—on, say, Bryce Harper?

Let’s start with cap space. According to my Cap Space sheet, the Cubs are $68m under the $197m luxury tax cap (aka the CBT) as of December 2, 2017. This number is subject to the accuracy of arbitration salary estimations, but my 2018 arbitration estimates are from mlbtraderumors, who have an excellent history of accuracy. This sheet will be updated as new signings are announced.

Many of you may notice that my cap numbers don’t match up to Spotrac. For example, Spotrac states that Jason Heyward has a cap hit of $28.2m in 2018. Yet unless I am missing something very important in the CBA (and please tell me if I am), I think Spotrac is incorrect because they are not using the proper Average Annual Values (AAV) of the Cubs’ multi-year contracts. For the moment, I am confident in my $68m calculation.

The Cubs probably won’t spend all that money. Last season, the Cubs kept some cap space in reserve for mid-season acquisitions. The Cubs ended up using that money on Jose Quintana. I expect the Cubs will do the same this year, so expect about $8m of that cap space to remain un-used. That still leaves $60m to spend. 

Another question remains. If the Cubs spend to the cap this year, will they have any money for next year’s free agent bonanza? My numbers say yes. My spreadsheet shows that if the Cubs flex their financial muscle—and blow past the salary cap like the large market team they are—they can add an average of $42m in annual payroll between 2019 and 2021. That would be enough to throw $40m a year at Bryce Harper with change to spare.

I arrived at these numbers using my Revenue Projections sheet. In a nutshell, I know the Cubs spent (and could afford) a ~$190m payroll in 2016.  I also know baseball teams typically spend 50% of their revenue on player salary. So, I researched and estimated all the new revenue streams the Cubs have added and will add. Things like ticket price increases, new premium clubs at Wrigley, and of course the new TV deal in 2019. Using these numbers, I estimated just how large future payrolls could grow.

The answer to that question is the final row: Available Payroll. Available Payroll is the amount the Cubs can afford to spend on new free agents (over and above all current commitments), if they spent 50% of every dollar they earn from 2019-2021 on free agents and luxury tax penalties. [The sheet does not calculate beyond 2021 because the luxury cap has not been set yet.] The numbers show the Cubs started the offseason with $91m in available payroll in 2019, $123m in 2020, and $117m in 2021. If the Cubs add $68m in new, long term, free agents in 2018, that still leaves $22m (2019), $55m (2020), and $49m (2021) in available payroll. That averages out to $42m a year in new free agents.  You may also notice that all of this money is available even after accounting for arbitration salaries for Kris Bryant and company.   

So, rest easy my fellow Cubs fans; the team has plenty of money to spend. I now let you return to your discussions of which free agent to spend it on.