Projecting Payrolls: Chicago Cubs

Although substantial time has passed since the last installment in this series, only the reliever market has moved in a significant way. As such, we move on to the 12th piece while the biggest fish remain unhooked. Below find the links to the earlier posts in this series.

Philadelphia Phillies
Los Angeles Dodgers
Los Angeles Angels
Atlanta Braves
New York Yankees
Chicago White Sox
Boston Red Sox
Minnesota Twins
Milwaukee Brewers
San Francisco Giants
St. Louis Cardinals

If you have questions about financial information made available to the public and the assumptions used in this series, please refer to the Phillies piece linked above.

Today, we look into a club coming off of its best four-year stretch in franchise history and flush with cash, yet one who also appears to be fully intent to sit out free agency this winter: the Chicago Cubs.

Team Leadership

Concluding 65 years of ownership by the Wrigley family, the Tribune Company purchased the Cubs in 1981. The franchise had, incredibly, missed the playoffs for 35 straight seasons prior to the transaction. The team went on to make the postseason six times under Tribune ownership, including three times from 2003-08. The final two years of Tribune ownership were executed under the direction of Sam Zell, a real estate mogul who purchased the Tribune in late 2007. Then, in October 2009, the Ricketts family famously acquired the Cubs for $845 million. Ownership of the franchise is managed by team chairman Tom Ricketts, who authorized an aggressive tank followed by the most successful time period in Cubs history.

While the Ricketts family initially kept general manager Jim Hendry in place running the baseball operations department, they made the splashiest of splashy moves in 2011, relieving Hendry of his duties and replacing him with new President of Baseball Operations and renowned curse breaker Theo Epstein. Epstein got his band back together, bringing in former proteges Jed Hoyer and Jason McLeod to be his general manager and vice president of scouting and player development, respectively, both after two years in San Diego. The results have been undeniable: the club averaged a putrid 67 wins per year during the first three years of the Epstein regime and flipped the switch in 2015, averaging 97 per year over the next four years.

Historical Payrolls

Before hitting the numbers, please recall that we use data from Cot’s Baseball Contracts, we’ll use average annual value (“AAV”) on historical deals but actual cash for 2019 and beyond, and deferrals will be reflected where appropriate. And, of course, the value of examining historical payrolls is twofold: they show us either what type of payroll a team’s market can support or how significantly a given ownership group is willing to spend. In the most useful cases, they show us both. We’ll focus on a 15-year span for the Cubs, covering 2005-18 for historical data as a means to understanding year 15: 2019. This period covers two competitive windows and two ownership groups for the Cubs, and it’s not terribly difficult to see where the Ricketts-authorized tank began. We’ll also use Opening Day payrolls as those better approximate expected spending by ownership.

Payroll spiked from 2008-10 as the Cubs paid to keep their 2007-08 winners together. Publicly available reported revenue increases climbed to fuel the spending, growing from $179 million in 2005 all the way to $239 million in 2008. Of course, take all publicly available revenue figures with a significant grain of salt as only ownership and the front office truly know the finances. However, revenue largely stagnated in the following half decade, reaching only $266 million in 2013 during the tank.

What followed is difficult to describe as I’ve never seen anything like it. Revenue climbed to $302 million in 2014, $340 million in 2015, $434 million in 2016 (!), and $457 million in 2017. While 2018 revenue hasn’t yet been reported, it is entirely possible that revenue has increased more than $200 million over just five years. Striking. Seen in that light, the 2016-18 payrolls are hardly surprising.

Ricketts ownership and the Epstein-led front office have been keen to stay under the luxury tax threshold during their time in charge, exceeding the threshold only in 2016, incurring a tax of just under $3 million before staying under the threshold in each of the next two years. The Cubs have simultaneously been major players in the international market, throwing a $30 million guarantee at outfielder Jorge Soler in 2012 and following with a boisterous international class in 2013 that included young stars Gleyber Torres and Eloy Jimenez and a massive 2015 class that yielded just under $19 million in signing bonuses. Major League spending captures a significant portion of Cubs spending, but international amateur spending has been a key facet of Cubs expenditures in recent years.

Future Liabilities

Cubs spending in 2019 will surely hit a new franchise high.

That is a lot of guaranteed money.

The 2019 Cubs are spending $88 million guaranteed on starting pitching, led by $20 million-plus salaries for Lester, Hamels, and Darvish. To say that these commitments are risky is a massive understatement.

• Lester has been a paragon of stability, but he has seen his FIP rise each year as a Cub, from 2.92 in 2015 to 4.39 in 2018. He’ll enter 2019 with 2,520 combined regular season and playoff innings on his odometer. He just turned 35.
• Hamels pitched a year and a half to the tune of a 4.87 FIP prior to joining the Cubs at the trade deadline in 2018. He was rejuvenated with the Cubs, but he’ll enter 2019 with 2,653 combined regular season and playoff innings on his own odometer, also having just turned 35.
• Darvish largely enjoyed success since arriving from Japan before a disastrous debut season with the Cubs that ended in May due to an elbow injury.
• Tyler Chatwood bombed in his first year as a Cub, losing his rotation job and throwing fewer than 10 innings for the club after the trade deadline.
• Jose Quintana posted a career-worst FIP of 4.43, fueled in large part by a career-worst home run rate.

Projection systems expect the Cubs rotation to be wildly successful in 2019, especially when the arbitration-eligible Kyle Hendricks is added to the fold. Still, Cubs fans are at least a bit anxious after the across-the-board struggles from 2018.

A trio of lefty hitters figure prominently on the balance sheet, two of whom will be around for years to come. Rizzo and Heyward have been lineup mainstays for years, though Rizzo has obviously been substantially more productive on the field. Unlike Rizzo and Heyward, Zobrist finds himself in a walk year in a season in which he turns 38.

The remaining notable deals are all for relief pitchers, at least four of which find themselves staring down free agency come November. In a highly competitive 2019 National League Central division, the team will need strong production from multiple arms in the group of Morrow, Cishek, Strop, Kintzler, and Duensing.

Finally, Heyward’s signing bonus stands out as the only deferred money for the franchise. But it’s a big number: $20 million payable after his contract expires. Presumably franchise revenue will be so astronomical in the mid-2020s so as to see this amount as largely rounding error, but $5 million is still $5 million.

As a result of stellar drafting in the early part of this decade and a trio of impact trades, the Cubs feature significant talent in the arbitration ranks, including multiple Most Valuable Player candidates and Cy Young contender.

All seven players listed above figure to play key roles for the team in 2019, though Russell finds himself mired in a mess of his own making. As the arbitration chart shows, each player is controllable for at least one year beyond 2019 as well with offensive stars Bryant, Baez, and Schwarber each controllable through 2021.

What Does Team Leadership Have to Say?

So, so, so much.

While ownership, the front office, and manager Joe Maddon have spoken at great length about the budget this offseason, comments from Tom Ricketts in recent days likely shed the most light on the spending plans. In response to questions about expected payroll, Ricketts suggested that “when you make any free-agent signing — not to pick on Darvish, but any of them — you know that you can’t spend that dollar twice and you have to budget that into the future, so that’s going to limit what you can do in the following year. And one of the things this year that we knew going into the offseason was that we weren’t going to have as much flexibility as years past.” When Ricketts moved on to discussing the team’s local tax burden, it seemed that the budget has very little, if any, room.

As we will detail below, it’s close to inevitable that the Cubs will incur a luxury tax in 2019. However, Ricketts more or less stated that the budget is tapped out, jiving with what the front office has said for months now.

In the face of big moves by the rival Cardinals and Brewers, the Cubs appear content to have their offseason largely dictated by their budget.

Are the Cubs a Player for Bryce Harper or Manny Machado?

Ummmm…honestly, I don’t know. Almost certainly not. But crazier things have happened.

The Cubs haven’t been connected to Machado at all this offseason, and given their impressive collection of infield talent, this doesn’t come as a huge surprise.

But Harper? The Cubs have been connected to Harper for years. This article humorously chronicles some of the 2017 nuggets that suggested Harper would — or wouldn’t — join the Cubs. These rumors have become par for the course. Many of the rumors have centered around the close relationship between Bryant and Harper, both Las Vegas natives.

After the Cubs surprisingly bowed out of the playoffs in quick fashion, Epstein lamented that “the offense broke,” leading to significant speculation that the Cubs would seek to add a significant bat.

Nevertheless, budgetary constraints combined with Maddon clearly stating that a Harper signing is “not going to happen” seemingly slammed the door shut on any pursuit.

Despite all of the above, Chicago Sun-Times writer Gordon Wittenmyer commented in December that sources indicated that the Cubs front office requested that Harper and his agent, Scott Boras, come back to the team before Harper decides to sign elsewhere in order to give the Cubs a chance to make a final play for the young star.

What Will the 2019 Payroll Be?

Well, it’ll be a new team record, that’s for sure. But just how high will it go?

Currently, team payroll comes in at $202.1 million before accounting for the luxury tax. If spending sticks approximately where it currently stands, the team figures to incur a luxury tax of approximately $4.4 million based on a luxury tax payroll figure of just under $228 million and a 20 percent tax on the overage.

So how much room is there for additional expenditures? I suspect that ownership would push total spending up around $220 million given the need for an in-season acquisition or two. Given that, don’t expect to see additional expenditures prior to the start of the season save for a possible minimal commitment to a backup catcher or a reliever.

Projected 2019 Payroll: $210 million

Projected 2019 Payroll Space: $2.9 million

If you’d like to go even further down the rabbit hole of Cubs payrolls, I refer you to my series of articles that have appeared on The Athletic going into tremendous detail on team spending.