Levine: Cubs' Creative Bookkeeping Can Help Add On
By Bruce Levine--
BOCA RATON, Fla. (CBS) -- As the top Cubs baseball brass prepared to leave south Florida and these GMs meetings, many moving parts are still in front of their team that overachieved beyond any realistic expectations in 2015.
President of baseball operations Theo Epstein said on his way back to Chicago that adding depth in starting pitching is still the franchise's top priority. The Cubs have had conversations with agents for the top pitchers on the free-agent market. Zack Grienke, David Price and Jordan Zimmermann are all possible options to come to the Cubs.
The extra payroll money that Epstein and general manager Jed Hoyer have available will be in the area of $25 million to $30 million. That's on top of the $100 million they have committed to the current players on the team and the arbitration increases that are due to a half-dozen Cubs with three years of service time-plus.
Epstein said Wednesday that the Cubs would be able to add one big contract, adding the Cubs would have to be really creative to afford two long-term, big-ticket players. One way to do that is check with the team accountant.
In December 2014, the Cubs signed left-hander Jon Lester to a $155-million contract that began with the 2015 season. The team agreed to pay Lester a $30-million signing bonus to be paid over the first five years of the deal. The Cubs paid Lester $15 million in salary and another $15 million in bonus money the first year. In reality, the team is only on the hook for $9 million, as it goes in the books.
Come again? Because baseball players aren't only the employees but the product of the owner's business, all contracts can be written off 40 percent every year. In the business world, this is called a depreciating asset.
Lester, for example, is a depreciating asset. This means the owners can write off 40 percent to the salaries of Lester and every player on the 40-man roster every time they do their business taxes.
The economic risk for owners and baseball executives is protected by these tax incentives and tax bracket breaks. Those protections -- along with insurance that's purchased for long-term, big-money deals -- gives Epstein and his baseball people more latitude for injuries and poor performance not impeding more future spending.
In the case of the Cubs, 40 percent of the $105 million payroll from 2015 will be returned in some form to the ownership coffers by the time the tax man makes his annual visit. All of this means if Epstein wants to sign Price and Greinke to $30-million contracts per season, the actual cost to owner Tom Ricketts and his family will be $18 million. That dynamic alone can be a game-changer for the Cubs moving forward.
The Cubs and Epstein aren't going on any Dodger-like spending spree because of this information, but this creative bookkeeping does make it a more interesting offseason. The Cubs have a youthful core of position players and new money -- including the benefit from 300,000 more tickets sold in 2015 -- and playoff money at the team's disposal.
The next six weeks will be fun to watch unfold for the Cubs and their exuberant fan base.
Bruce Levine covers the Cubs and White Sox for 670 The Score and CBSChicago.com. Follow him on Twitter @MLBBruceLevine.