January 17, 2018


The hot stove league is colder than the outside temperature.

There have been many reasons and theories floated about on why several marquee free agents have not signed contracts a month or so before pitchers and catchers report to spring training.

Player agents think "collusion" by owners in trying to cut down player salaries.

Teams retort that they are being cautious about spending, especially the big market spenders like the Yankees and Dodgers who have been aggressively managing their rosters to get under the luxury tax threshold. The CBA's luxury tax is a soft salary cap - - - it does not stop a team from over spending that amount, but it comes with increasing severe penalties including loss of draft picks.

Under the current trend, baseball draft picks are more important than signing a old free agent. General managers believe in the mantra of "controllable" players - - - young stars that the team can hold onto for six seasons. A team with a core group of players in their mid-20s (like the 2016 Cubs) can win a championship at league minimum salaries. The league emphasis now is on drafting and developing home grown players, and pushing them through the minor league system faster.

Owners are getting leery of having large amounts of "dead money" on the books. A veteran free agent wants more years to their final contract than their performance. Teams used to view the extra two years on a long term deal a player "bonus." But with the tax ramifications and the looming prospect of broadcast revenue going down (as cable viewership and advertising rates to drop by 2020), owners do not want to be spending tens to hundreds of millions of dollars on players who are no longer on their roster.

Some teams are also gearing up for tax code changes. Two have been touched upon briefly in the media: new depreciation rules and entertainment deductions. Under the Bill Veeck Rule, baseball teams were allowed to depreciate player contracts (Veeck convinced the IRS that a player's performance level will drop over age like a piece of equipment) as well as deduct the actual salary paid to the player. This double deduction was a tax windfall to teams, especially with big money deals. But that is apparently going away under the recently passed tax bill. On the revenue side, limits on corporate entertainment expenses will adversely impact sky box sales and corporate season tickets given to clients or vendors. Teams cannot budget renewals of those big ticket items if corporations will not be able to deduct the cost.

And then there is future spending concept.

Next year's free agent market is much better than 2018: Bryce Harper, Manny Machado, Clayton Kershaw, Dallas Kuechel, Charlie Blackmon, Daniel Murphy, Adam Jones, Gio Gonzalez, Andrew Miller, Nelson Cruz, Elvis Andrus, Andrew McCutchen, and Craig Kimbrel could be available.

As Yahoo Sports reported, Cubs team chairman Tom Ricketts and president of baseball operations Theo Epstein talked about that dynamic during the Cubs Convention this past weekend. "It's a number of factors. Every team has to make decisions in their own best interest, and that's what's going on," Epstein said  when asked why this off-season has been so slow-moving. "But there's some macroeconomic trends in the game that probably after the last collective-bargaining agreement teams are just trying to position themselves the best way they can, probably in some cases with one eye on next season's free-agent market, trying to get their payroll where they want it to be. It's hard to say it's any one reason. It's probably a combination of factors. But I don't know that we've ever seen anything quite like this."

"Next year's free-agent class is different than this year's free-agent class," Ricketts said, putting it mildly. "I think what you're seeing with teams out there would rather have dry powder a year from now. … There's a lot of pieces and parts, but ultimately, I think teams are trying to keep their powder dry."

Perhaps, but the Cubs' front office keeps stating its desire to add a starting pitcher before this off-season is over. Epstein opened the door to that acquisition perhaps not being of the bank-breaking variety, though, indicating over the weekend that it could be a move that simply provides depth for a starting staff realistically no deeper than five guys at the moment. Until then, Jake Arrieta, Yu Darvish and Alex Cobb are still the top free agent starters who have not generated much interest or a bidding war for their services.

The Cubs also have other looming financial commitments if you look further into the future. Kris Bryant (who just set an arbitration renewal record deal), Anthony Rizzo, Kyle Schwarber, Addison Russell and Javy Baez are all slated to become free agents after the 2021 season. The team's top four starting pitchers - Jon Lester, Kyle Hendricks, Jose Quintana and Tyler Chatwood - are all slated to become free agents after the 2020 season. 

Epstein has admitted in the past that he has had to be creative in structuring his payroll because he is working with a tight budget from the business side of the team. Saving money on this year's budget can be used next year. But Epstein is also very fond about "his guys" like Schwarber, Bryant and Russell to let them get away to free agency. He needs to start balancing long term extension offers to the key players. 

So this off-season will probably remain very quiet until the end of January as teams take a much longer term view of their operations and finances.