You have to hand it to the Nationals and GM Mike Rizzo, they sure do know how to structure deferred contracts. They recently signed reliever Brad Hand to a $10.5 million deal, less than 40% of which is due this season. That’s the third time they’ve gotten creative on a high-profile deal this winter alone, with Kyle Schwarber and Jon Lester likewise agreeing to defer some of their salary.
All told, the Nats have guaranteed $25.5 million to those players but will pay out only $13 million in 2021. Schwarber has a $7 million base with a $3 million buyout on an $11 million option for ’22 ($10M total); Lester will earn just $2 million this season and will then be due a $3 million signing bonus in ’23 ($5M total); Hand is due $4 million this season and will have the remaining $6.5 million paid out over the following three years.
This is nothing new for the Nationals, who previously deferred $80 million of Stephen Strasburg‘s pay out past the end of his deal in 2026 ($26.6M each of 2027, 2028, 2029). Max Scherzer will earn even more once his current deal expires, agreeing to terms that will pay him $15 million annually over seven years beginning in 2022 ($105M). That’s wild stuff.
It’s also very smart stuff, particularly when you look at how they’ve put together the smaller deals. None of this circumvents the competitive balance tax, mind you, so the average annual values of the deals still take total guaranteed money over guaranteed years. So that full $25.5 million for Hand, Schwarber, and Lester still counts toward the CBT. But the key is that the Lerner family only has to pay about half of that out this year.
Everyone tends to focus on the CBT figures, which is precisely what team owners want. Tom Ricketts has spoken frequently about the evils of “dead-weight losses” and their deleterious effect on team finances because it gets people on his side. Just like his colleagues, he is essentially engaging in a little misdirection as he coaxes fans to look the other way while the Cubs avoid pursuing magic free agents.
Thing is, there’s no magic involved at all because it’s simple math. As things currently stand, the Cubs are approximately $56 million beneath the $210 million CBT threshold for this season. Just in case you’re not quick with the maths, that’s enough room to do all three of those recent Nats deals twice over and still have room to spare. Again, though, that’s not what matters at all.
As long as you’re under the CBT, those payroll figures aren’t real. What matters to ownership is how much is actually hitting the bottom line, which is where the Cubs’ inactivity should really scare you. It’s not that they made a business decision to let Lester walk over $5 million, it’s that they couldn’t even put together $2 million for him this year. Perhaps even scarier is the idea that they might not be confident enough in their revenue streams to have been comfortable with that $3 million payout two years down the road.
Similar to some of the misunderstanding that followed in the wake of our earlier piece on the non-pursuit of Bryce Harper, this isn’t a matter of the Cubs choosing not to go after a player. Rather, it’s that their financial situation — categorize that however you want on a scale from choice to necessity — didn’t allow them to make an offer. And now we’re seeing that the upper limit of their bidding has dropped to a frighteningly low level.
What’s more, the inability to work out the same kinds of deferred deals as those favored by Washington signals that the Cubs are probably viewing his spending moratorium as more than a temporary issue. Not that their frugality is new by any stretch. Backup catcher Austin Romine‘s $1.5 million contract is the third-largest of the four guaranteed deals the Cubs have given to position players since 2016.
The alternative is that the front office is completely clueless and doesn’t understand how deferrals work, or that the Cubs have lost so much appeal that free agents aren’t willing to sign with them on such terms. The former seems dubious and the latter runs contrary to reports of what both Lester and Schwarber desired, leaving us with just one option. This winter’s austerity isn’t merely something the Cubs are doing as a savvy business strategy and it’s not likely a trend that will end next winter.
I’ll be very happy if that proves wrong, but we’ve seen nothing yet to indicate it will be.