The Competitive Balance Tax Threshold Shouldn't Be Holding the Cubs Back

The competitive balance tax structure specified in baseball's collective bargaining agreement is unique in major American pro sports. Other leagues on MLB's level use a salary cap. This is most notable in football, with NFL free agency starting several days ago. First off, can we talk about how active it has been? Breaking news every 10 minutes, wild signings, constant rumors, and players switching to their rivals. It feels like I am constantly getting texts from friends about the latest move, and what it means for the Bears, or their favorite team. Imagine if baseball was like this!

Instead, two weeks from Opening Day (one week for the Dodgers and Padres), three of the biggest free agents of this offseason have yet to sign. It’s infuriating, especially when I see how fun free agency is for football fans, as well as basketball fans later in the year.

How does this relate to the luxury tax in Major League Baseball? The luxury cap is just like it sounds. You can’t go over it. If you do, there are severe fines, as well as loss of draft picks, voiding of contracts, and the stoppage of any moves until they are under the cap again. There is also a salary floor, but that doesn’t pertain to this discussion. In baseball, there are different levels of the luxury tax. Each level you surpass, as well as the number of successive seasons in which you stay there, help determine the punishment. However, it is nowhere near as harsh as the NFL. Why not take advantage of that?

There are currently nine teams above the first luxury tax threshold. These teams include the Mets, Dodgers, Yankees, Braves, Phillies, Astros, Blue Jays, Rangers, and Cubs.

Five are past the second threshold, with three past the third and beyond. 

As of right now, there are four teams over the NFL cap limit. They're barely over it, and will work to get under it in the coming days. MLB teams don’t care as much about staying under their limit--well, depending on the owner. Let’s look at where the Cubs stand among these teams. 

According to FanGraphs, the Cubs are currently $55,715 over the first luxury tax threshold. This means they are, quite literally, a fraction of a player over. If they are over already, why not add on more? It seems like the obvious option, right? The fans would say yes, although Tom Ricketts disagrees. A few weeks ago, he was interviewed in Mesa and asked about the luxury tax, to which he implied that they probably won’t go over it until (possibly) the trade deadline. The same question was asked to Jed Hoyer at Cody Bellinger’s introductory press conference, where he laughed and said he couldn’t answer that. This squad has the highest payroll they've run since 2019. Since then, everything has been disrupted by the COVID-19 pandemic. 

The Cubs drastically increased payroll coming into 2023, with the big addition being Dansby Swanson and his $25.2 Million AAV. They were able to stay under the luxury tax, again using the excuse that they would go over at the deadline if needed. The deadline came, and they needed to add talent. Their bullpen was suffering, as a lack of depth and overall talent was costing them games. There were multiple players available, but instead, they chose to trade for Jeimer Candelario.

Don’t get me wrong, that was a fantastic decision at the time. While it didn’t work out in the end, it was very smart from Jed’s July point of view. Even then, he should have made a move for the bullpen. The problem was thinking of Candelario as an alternative to a trade for relief help, rather than as a supplement thereto, and that error was rooted in a fixation on the tax threshold. If he says the same thing, that they are willing to go over, should we trust him? 

One of the tough parts is that everyone’s luxury tax numbers are different, so they could be just under. If they are over, as FanGraphs says, there is no reason to not make a move and sign someone like Jordan Montgomery. Asking for the Cubs to pass over the first threshold isn’t outrageous or extraordinary. If we are already over, why not spend some more to improve the team? 

This upcoming free agent class is stacked--another reason why I hope the Cubs are planning on exceeding the first (and second) threshold. The thresholds are $20 million apart, so clearing one but not being willing to exceed the next doesn't leave a ton of room. It doesn’t have to be Jordan Montgomery. There are many starting pitchers available via trade, although that would require giving up prospects, which Hoyer doesn’t seem to want to do. 

The Chicago Cubs are the fourth-most valuable franchise in baseball, according to Forbes. They are valued at $4.1 billion, with a yearly revenue of $451 million. The Cubs not only have one of the biggest fan bases in baseball, but also get to play at a newly refurbished cash machine, Wrigley Field. Not only do Cubs fans travel extremely well, but they're also able to fill Wrigley day in and day out. While having a competitive team helps, Crane Kenney knows the seats will be filled almost no matter how good (or middling) a team they put on the field.

This is no longer the pandemic, when there was a worry about where money would come from. The revenues are flowing. So why doesn’t Ricketts realize he owns one of the great sleeping giants in all of sports, and use it to his advantage? Some could argue he is willing to spend, and that it’s been Hoyer’s choice to take a more sustainable but less aggressive approach. Whoever is at fault, the Cubs need to start spending money at a level commensurate with their market size and circumstances. That can start right now, with going over the luxury tax and showing their fans that they truly care.

If Hoyer and Ricketts are truly willing to go over the first luxury tax threshold at the trade deadline, why not surpass it now and give the team a better chance of winning? It would only make sense. Unfortunately, I have to assume that they want to be sure this is a winning ball club before investing more in the on-field talent. If the Cubs are somehow underperforming and not going to make the playoffs, Hoyer can do the opposite of what I’m asking and reduce their payroll even more. Trading even Nick Madrigal or Patrick Wisdom would get the team under the first tax threshold.

As frustrating as it is, the Cubs are not the team to spend freely and not care about potential financial losses, just trying to win as much as they can. They aren’t the Dodgers, who spent Dr. Evil money (not freshly unfrozen, confused Dr. Evil, but him after he learned about inflation) on two players this winter. It’s still unfathomable to think about that. One billion dollars on two players. It’s absolutely insane.

Instead of playing scared, Ricketts should spend on talent to make this a winning ballclub for 2024 and beyond. The Dodgers did, and they will most likely surpass 100 wins this upcoming season. 

When Hoyer hired Counsell, one of my first thoughts was that he brought in Counsell so that the budget could be low. Counsell was known for doing a lot with a little, which fits Hoyer’s plans perfectly. Before taking the Brewers' managerial job, Counsell was a front office guy, himself. He thinks the way his new boss thinks.

Thankfully, they have spent a decent amount of money this offseason, but I feel there is still some truth to this statement. The NL Central is wide open, and the Cubs have an easy chance to seize control of the division. While I’d say they're close to being favorites as of right now, adding another starter would solidify that status. 

We all know that Hoyer loves value, and I love that. He very rarely loses a deal that he makes, as he doesn’t want to overpay for someone. His signings of Shota Imanaga and Héctor Neris were seen as bargains for the Cubs, proving once again that he knows what he’s doing. I don’t care how good at finding value he is, though: there is no excuse to not spend more money if you are the Chicago Cubs. Again, you are worth $4.1 billion. The team doesn’t have to have the fourth-highest payroll. I’d say sitting between fifth and seventh is understandable, and I’d be ok with that. If a free agent is asking for double his value, and the front office doesn’t want to overpay for him, I understand that. What I think Hoyer needs to learn, though, is that sometimes it’s ok to overpay a little for someone, as it’s better to have someone on a slightly expensive contract than not to have them at all.