How the Quarter-Billion Dollars the Cubs Spent in Free Agency Could Actually Be a Bargain

The Cubs just committed about $275-ish million¹ in free agency to four players (Jason Heyward, Ben Zobrist, John Lackey, and Trevor Cahill) with the hopes that the return on their investment will come in the form of wins. And while the team is only scheduled to earn approximately two more than the 97 victories they tallied in 2015, the real goal is to add eight more to the postseason side of the ledger. Is that really worth it though?

For the purposes of this exercise, I’m going to need you to suspend practical notions of “worth” and “value” and look at this in terms of a multi-billion-dollar enterprise. The financial figures we discuss when any major professional sport is at hand make the conversation seem almost like water-cooler talk about the latest episode of The Walking Dead. There’s a suspension of disbelief that must occur, after which we can discuss the irrational rationally.

We now know all the specifics of Heyward’s monster deal, though I’m not aware of exactly how signing bonuses for he and the other new additions factor into the budget. Arbitration raises will impact things too, but for now I think we’re safe estimating a 2016 payroll of around $160 million. That sounds high — it’s the Cubs’ largest ever and about $20 million over what I had figured they’d spend — but it only would have been seventh-highest in MLB last season. So there’s that. Still, we’re talking a massive increase over the bargain-bin rosters we’d growth accustomed to, so how can they possibly justify the jump?

The short answer is to win. If the Cubs win a World Series while the four players above are still in their employ, I can’t imagine anyone outside of those scribes stretching column inches for the Sun-Times being upset about it. So that’s the emotional value of success, but I want to look at the monetary value. This is, after all, a business. And in order to maintain a successful business model, you need to make money.

I’m sure you’ve heard by now that the estimated incremental value for a win in Major League Baseball is about $8 million. I use that figure all the time, but I wanted to take a moment here to provide some context for the data. Dave Cameron of FanGraphs pioneered the concept of applying dollar values to incremental wins, though some of his theories have since been challenged by Lewie Pollis of Beyond the Box Score.

Regardless of the methodology you choose to follow, it makes sense that the goal of any team is to capture as many of the approximately 1,000 marginal wins² as possible. By taking MLB’s total payroll and dividing it by the number of incremental wins, we arrive at an average value per win. The numbers have changed since Cameron first developed his calculations, but the concept remains sound. Given the escalation of payroll over the last few years, FanGraphs now puts the value of a win at $8 million.

In order to make the playoffs, it’s generally thought that a team needs to capture 45 or so of those available marginal wins. While it took the Cubs 97 wins to sneak in with that second Wild Card this past season, it makes sense that 93 should get you in. As it now stands, and this is only on paper and several months before the season starts, the Cubs roster is projected to produce 51.6 wins above replacement. You mathy folks have probably already figured that that equates to nearly 100 wins.

If we operate under the assumption that each incremental win really is worth $8 million, that projection would equate to about $413 million dollars. Not bad. I mean, I’d be totally cool with a 159 percent return on my investment. But those are sort of the zombie-apocalypse numbers, right? In addition to feeling a little made-up, it’s not as though Rob Manfred is going to deliver the Cubs a check for the incremental value they produce.

But winning does produce real gains, particularly when you talk about all the extra revenue generated by making the playoffs, as Jason Barmasse wrote for sports-business site Fields of Green. Barmasse was summarizing the findings of Vince Gennaro, whose book, Diamond Dollars, explained how much more winning teams can expect to earn from a playoff run. A 100-win team, for instance, should expect to earn approximately $175 million from the regular season and an additional $50 million from a playoff run.

Both the regular-season per-win values and the revenue boost from a playoff appearance trend upward as the number of wins increases, so each win can be worth significantly more money. According to Gennaro, a playoff season for a 100-win team is worth $225 million. And while that’s still a theoretical figure, it’s projecting actual revenue a team can expect to bring in rather than a relative value from WAR.

Under these estimates, even a seemingly minor jump from 97 to 100 wins would be worth an additional $28.14 million in a single season. The Cubs will spend far more than that in increased payroll over last season, but their total outlay will still fall well below the revenue they’re expected to generate. Actually, if you buy what Gennaro is selling, the Cubs would generate $165 million by making the playoffs with 93 wins (the total achieved by capturing those 45 incremental wins we discussed earlier). What his figures don’t include, however, is how much would be generated by a World Series run.

The Cubs are quite a different animal here too. I’m not sure there’s a way to express this mathematically, but I believe the Cubs are uniquely positioned to far exceed any standard modeling for expected revenue from playoff runs, particularly those that might lead to the ultimate victory. And when you consider that they are poised to realize their goal of repeated playoff contention, the potential cash flow in the coming seasons would easily dwarf expenditures. Just think of those decades of pent-up frustration being released in the form of impulse purchases of all manner. Every team sees a bump, but the lift the Cubs would get is unprecedented.

Increasing the payroll is by no means purchasing a guarantee of victory; I looked at that a couple days ago. But by using theoretical WAR values and actual revenue expectations for winning ballclubs, I think we can all agree that the money the Cubs have spent is far from a waste. Well, as long as they win. As with any investment, though, there’s no way to guarantee positive results. All you can do is make the most sound investment possible based on the information and resources available to you at the time.

So when it comes to my fandom and the returns I hope for it to yield, I’m more than happy with the way the Cubs have directed their investments this season. But even after breaking down dollars every which way, I can’t put a price tag on what a Cubs World Series would mean. There’s an intrinsic value there that far outstrips all the millions I just finished writing about. To that end, I don’t care how much they end up paying for it³, a title will be a helluva bargain.


¹Technically, the Cubs have only committed $175-ish million due to the structure of Heyward’s contract, which is really only guaranteed to pay him $78 million over three years ($15M in 2016, then $21.5M in 2016 and ’17, with a $20M signing bonus). The full details are laid out in a link above, but I’ll provide it again in case you chose not to read earlier.

²This assumes a replacement-level win percentage of approximately .300, which equates to 48 wins. Considering a baseline of 81 wins per team, we get a difference of 33 wins, which leaves us with 990 wins when spread across the league.

³Please don’t conflate this with the idea that I want the Cubs to become the Dodgers or anything, just speaking in terms of return and value and whatnot.

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