Although trade season got off to an early start this year, we typically view July 1 as the unofficial kickoff to the player swap meet. Trade rumors will be swirling for the next month. Regardless of who the Cubs may target in trade, they will try to avoid going over the luxury tax cap. This provides an upper limit on the average annual value (AAV) of players the Cubs will look to acquire.
As of today that limit is $23 million. By the trade deadline, however, it will rise to $32.7 million.
The luxury tax, technically called the Competitive Balance Tax (CBT), levies monetary penalties for exceeding a specific payroll limit. As of opening day, the Cubs were $11.3 million below this year’s cap of $197 million. Yet the Cubs are not limited to players making $11 million or less. Rather, two factors affect how much salary the Cubs can absorb without exceeding the luxury cap: 1) the AAV of the salary and 2) the number of games remaining in the season as of the trade date.
For luxury tax purposes, only the AAV of a player’s salary counts towards the cap limit, not the actual amount due in that specific season. For example, the Cubs signed Drew Smyly to a two-year contract this offseason. He is being paid $3 million in 2018 and $7 million in 2019, so his AAV is $5 million per year. Thus, Smyly costs the Cubs $5 million toward the luxury tax total for both 2018 and 2019, despite the fact that he is paid different amounts each season. The same will apply to any players acquired via trade.
Also, the luxury tax hit grows smaller as the season progresses because players are paid per game. When calculating the luxury tax hit of a traded player, the AAV is divided by the fraction of games played for each of the two teams. As of this morning, July 2, the Cubs have played 82 games, one game over half of the 162 games in the season. Thus, a shade less than 50 percent of a traded player’s AAV would be added to the Cubs’ cap total in 2018 (the remainder would be the responsibility of the original team).
In practical terms, the $11.3 million in cap room can therefore support players earning $23 million or less in combined salary. Each game, the fraction of the player’s salary the Cubs would absorb continues to fall, resulting in that much more room for the Cubs under the luxury cap. At the trade deadline, the Cubs will be able to absorb up to $32.7 million in additional salary without exceeding the limit.
So as you dream of potential Cub trades, keep these values in mind.
Speaking of trades, that’s exactly what the Daydream Cubs would love to make…
Bonus Feature – Daydream Cubs: 1989
As you may recall, Rule 4 of my little fantasy prohibit trades. But if trades were allowed, the Daydream Cubs target Robin Ventura in ’89. Ventura was drafted in the first round in 1988 (and was therefore unavailable under Rule 7). While Terry Pendleton still has three more good seasons in him, Ventura would be the perfect long-term replacement at third base.
The Daydream Cubs have some serious prospects to offer the White Sox for Ventura in the form of Mark Grace, Albert Belle, and Marquis Grissom. As is, the Daydream Cubs of 1989 remain a juggernaut.
The team bids a fond farewell to Frank Viola (our very first draft choice) and replaces him with Randy Johnson. The roster move is necessary to keep payroll under the real-life Cubs’ payroll. The rotation now has three future hall of famers. Yet it is non-Hall member Brett Saberhagen who shines above all others this season. Kenny Rogers, who will join the rotation in years to come, debuts on the bench.
1989 Draft: (#) Player’s real-life selection round, AS= All-Star; HoF = Hall of Famer; GG = Gold Glove
- Round 1: John Olerud (3) – 1B: AS (x2), GG (x3)
- Round 2: Tim Salmon (3) – RF: RoY
- Round 3: Jeff Bagwell (4) – 1B: HoF
- Round 4: Trevor Hoffman (11) – RP: HoF
- Round 5: Jim Thome (13) – 1B: HoF
- Round 6: Mark Grudzielanek (17) – SS: AS (x1), GG (x1)
- Round 7: Jeff Kent (20) – 2B: AS (x5), MVP (x1)
1989 is an absurdly deep draft, providing six future starters. Three, count ’em, three Hall of Famers are available in the later rounds. 1989 also provides a rare set of middle infielders, which the Daydream Cubs desperately need.