Addition of Daniel Murphy Could Put Cubs Dangerously Close to Luxury Tax Cap

The Cubs unexpectedly acquired Daniel Murphy from the Washington Nationals Tuesday for minor league infielder Andruw Monasterio and either a PTBNL or cash considerations. This deal has pushed the Cubs very close to the luxury tax threshold, at least according to my cap tracker. In fact, my estimates — which include some guesswork a little padding here and there — have them $1,000 over the limit.

As of Wednesday morning, I estimated the Cubs had $3.856 million in remaining cap space. By a strange coincidence, Spotrac shows Murphy is still owed $3.857 million this year. Needless to say, the Cubs are cutting it close.

I cannot definitively say whether the Cubs are over the cap because I estimated non-salary benefits (like insurance) at $15 million for the year. That was a conservative estimate and was $1 million higher than some other websites used. If I have overestimated those costs, the Cubs may yet have $1 million in wiggle room.

On the other hand, there are several ways the Cubs could have even less cap space than I estimate. Due to injuries, particularly to Yu Darvish, the Cubs have rotated in players from AAA with greater frequency than in years past. Minor leaguers are paid a pro-rated portion of the major league minimum salary (currently $545,000) for each game they are on the 25 man roster.

In other words, David Bote gets paid $3,364 for each game he suits up for. The Cubs take a luxury cap hit of the difference between that $3,364 and Bote’s minor league salary. Thus, every time David Bote or Dillon Maples gets called up, the Cubs take a $2,000-3,000 per-game cap hit. I prepared an estimate of $2.4 million as the aggregate of all of these appearances based on historical norms.

But this year, the Cubs are exceeding those norms. The difference is small — perhaps a few hundred thousand dollars, maybe a million — and would be trivial in most seasons. This season, however, that small amount could make the difference.

Then you’ve got Chris Gimenez, who makes a pro-rated portion of his $1 million salary for each game he’s in the majors. He suited up for at least 12 games (probably more) earlier in the season, and will likely join the roster for good in September, adding more to the cap.

The estimates included in the sheet linked above do not account for performance bonuses that various Cubs may earn, so those will have to be factored at the end of the season. My gut tells me that the Cubs are probably still under the cap, that they would not have made publicly-stated efforts to remain under it all year only to go over due to a waiver trade. But it is going to be close.

Ed. note: We had not included the penalties for luxury tax overages when this was initially published. See below for more details.

A club exceeding the Competitive Balance Tax threshold for the first time must pay a 20 percent tax on all overages. A club exceeding the threshold for a second consecutive season will see that figure rise to 30 percent, and three or more straight seasons of exceeding the threshold comes with a 50 percent luxury tax. If a club dips below the luxury tax threshold for a season, the penalty level is reset. So, a club that exceeds the threshold for two straight seasons but then drops below that level would be back at 20 percent the next time it exceeds the threshold.

Clubs that exceed the threshold by $20 million to $40 million are also subject to a 12 percent surtax. Meanwhile, those who exceed it by more than $40 million are taxed at a 42.5 percent rate the first time and a 45 percent rate if they exceed it by more than $40 million again the following year(s).