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The 2012 Luxury Tax Threshold - Red Sox Offseason

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pedroiayouk1520

The 2012 Luxury Tax Threshold - Red Sox Offseason

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11/25/11 4:44 PM

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The new CBA announced that the Luxury Tax Threshold will remain the same in 2012 and 2013 ($178M). Since the offseason is just getting started and the Sox' positional needs are very clear, I thought I would post an estimated 40-man roster AAV (as of today) to see how much spending flexibility the Sox will have this offseason. Obviously players will move on and off the roster between now and opening day, but I figured this would be helpful to give us a better idea of what the Sox spending strategy might be.

I used Cots contracts for AAV and MLBTradeRumors for estimated arbitration salaries. Also, the MLB minimum has been increased to $480,000. Benefits are also included in the threshold calc and has historically been close to $10.2M. I'll also include Lackey/Matsuzaka/Hill since 60-Day DL players are also included in the calc. The one part of the calc I am not sure of is players 26-40. Should they be included using their minor league salaries or the MLB minimum?

Below is my estimate, meaning that the Sox have about $13M to add without going over the threshold for 2012 (taxed at 40%). Of course the Sox could simply go over the threshold, but the current ownership has consistently based their budgets right around the threshold. If anyone thinks any #s are incorrect, let me know because I am simply posting this to give us fans a good idea of what the Sox are working with this offseason.

Players	2012
Carl Crawford	$20,285,714
Jacoby Ellsbury	$7,900,000
Josh Reddick	$480,000
4th OF
Darnell McDonald	$500,000
Ryan Kalish	$480,000
Che-Hsuan Lin	$480,000
Kevin Youkilis	$10,031,250
Will Middlebrooks	$480,000
Marco Scutaro	$6,000,000
Jed Lowrie	$1,200,000
Mike Aviles	$1,500,000
Jose Iglesias	$2,062,500
Oscar Tejeda	$480,000
Dustin Pedroia	$6,666,667
Adrian Gonzalez	$22,000,000
Lars Anderson	$480,000
#6-Type Hitter
Jarrod Saltalamacchia	$1,600,000
Backup Catcher
Ryan Lavarnway	$480,000
Luis Exposito	$480,000
Jon Lester	$5,950,000
Clay Buchholz	$7,486,250
Josh Beckett	$17,000,000
#4 SP
#5 SP
Felix Doubront	$480,000
Kyle Weiland	$480,000
Junichi Tazawa	$480,000
Stolmy Pimentel	$480,000
Drake Britton	$480,000
Frank Morales	$1,000,000
Scott Atchison	$500,000
Michael Bowden	$480,000
Matt Albers	$1,300,000
Bobby Jenks	$6,000,000
Alfredo Aceves	$1,700,000
Daniel Bard	$1,600,000
Top Relief Pitcher
John Lackey (+)	$16,500,000
Daisuke Matsuzaka (+)	$8,666,667
Rich Hill (+)	$700,000
Benefits	$10,200,000
	$165,069,048

Last Edited By: pedroiayouk1520 11/25/11 5:53 PM. Edited 1 time.

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jamalisamra20

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11/25/11 5:42 PM

Not to nitpick but why do you have Lin scheduled to make more than WMB when they were both added to the 40 man at the same time?

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pedroiayouk1520

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11/25/11 6:02 PM

jamalisamra20 wrote:
Not to nitpick but why do you have Lin scheduled to make more than WMB when they were both added to the 40 man at the same time?

Just fixed that, thanks. Its also interesting to note that if Ortiz accepts arbitration, the Sox will already be over the threshold. I wonder if they would just say screw it and pay a 40% premium on the rest of the offseason acquisitions. Scutaro (6M) is probably the only player whose salary could be dropped and they could probably get a decent 7th inning reliever for him if they decide to give SS to Aviles/Lowrie, allowing Aceves to move to the #5 spot in the rotation. FanGraphs projects Lowrie, Aviles, and Scutaro to all put up comparable numbers and making them battle for the position would only improve performance. Maybe have Reddick and Kalish battle it out for the RF spot with Lavarnway/Salty at C? That would be a solid 7-9 in the lineup, especially if Papi accepts arb or the Sox sign someone like Cuddyer/Beltran/Willingham.

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joshv02

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11/25/11 7:42 PM

Good stuff.

1. Players in the minor leagues do not make the major league minimum salary. They typically make the minor league minimum salary, until they are in the majors. The split contract will call for a salary of about $80k for AAA players. That is usually included in the benefits figures. So, back out Lin, Middlebrooks, etc.

b. Lackey's salary should drop (for lux tax purposes) will likely drop to 13.75mm, but this is for a team option that won't kick in right away (and won't be exercise for even longer). I'm not sure how to treat that today, but I'd assume 13.75mm for now.

iii. I think these arb numbers a a tad high overall, but they aren't unreasonable.

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pedroiayouk1520

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11/25/11 11:34 PM

joshv02 wrote:
Good stuff.

1. Players in the minor leagues do not make the major league minimum salary. They typically make the minor league minimum salary, until they are in the majors. The split contract will call for a salary of about $80k for AAA players. That is usually included in the benefits figures. So, back out Lin, Middlebrooks, etc.

b. Lackey's salary should drop (for lux tax purposes) will likely drop to 13.75mm, but this is for a team option that won't kick in right away (and won't be exercise for even longer). I'm not sure how to treat that today, but I'd assume 13.75mm for now.

iii. I think these arb numbers a a tad high overall, but they aren't unreasonable.

Okay, so you're saying that the salaries of players 26-40 are essentially part of the $10M benefits? If so, that saves us $6M total right there. As for options, I'm not exactly sure how they work (Pedroia, Youk, and Lester might be slighly off in AAV calc since they have options, but it would be minimal amounts). Overall, the Sox probably have about 12-20 mil that they can add.

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Boomerangs

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11/25/11 11:36 PM

It keeps coming back to a recurring theme. How are the Sox going to fill their definite holes in starting pitching if Ortiz comes back? Please correct me if I'm wrong, as I really want to know, but aren't arbitration awards largely non protected? If Ortiz accepted it couldn't he get cut at some point saving the club a bunch of cash? If he negotiated and accepted an alternative deal with some team he would typically have more guaranties in his contract. Is that correct?

Ergo, their willingness to offer arbitration to him in the first place. Will Ortiz accept what looks to be maybe his best option, up to a $14 mil arbitration award? Or would he want that multiyear, guaranteed deal? Again, if I'm wrong please correct me.

I vaguely remember this issue with Tek a few years ago. He turned down what looked to be a $10 mil arb award didn't he, saying it was not guaranteed. Is that correct?

I also wonder if we have really thought through the potential HGH implications with the new CBA procedures with all the FA players. Big issue. I think I'd start really thinking about going young and invest in guys who look absolutely clean. It's not worth the risk. Who knows, maybe it's 10-25% of mlb? We do not know the potential impact of HGH testing or what else is found from regular blood tests. IMO, some guys clearly look like they are users. We do not want to get caught in that game of musical chairs.

I think I'm offering whatever cash we have available to a solid starter like Buerhle, assuming he's clean in the eyes of management, and hold my cards until the dust settles on the HGH testing regime.

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pedroiayouk1520

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11/25/11 11:54 PM

Boomerangs wrote:
It keeps coming back to a recurring theme. How are the Sox going to fill their definite holes in starting pitching if Ortiz comes back? Please correct me if I'm wrong, as I really want to know, but aren't arbitration awards largely non protected? If Ortiz accepted it couldn't he get cut at some point saving the club a bunch of cash? If he negotiated and accepted an alternative deal with some team he would typically have more guaranties in his contract. Is that correct?

Ergo, their willingness to offer arbitration to him in the first place. Will Ortiz accept what looks to be maybe his best option, up to a $14 mil arbitration award? Or would he want that multiyear, guaranteed deal? Again, if I'm wrong please correct me.

I vaguely remember this issue with Tek a few years ago. He turned down what looked to be a $10 mil arb award didn't he, saying it was not guaranteed. Is that correct?

I also wonder if we have really thought through the potential HGH implications with the new CBA procedures with all the FA players. Big issue. I think I'd start really thinking about going young and invest in guys who look absolutely clean. It's not worth the risk. Who knows, maybe it's 10-25% of mlb? We do not know the potential impact of HGH testing or what else is found from regular blood tests. IMO, some guys clearly look like they are users. We do not want to get caught in that game of musical chairs.

I think I'm offering whatever cash we have available to a solid starter like Buerhle, assuming he's clean in the eyes of management, and hold my cards until the dust settles on the HGH testing regime.

The HGH testing should be interesting. I'd expect that a small percentage of guys use it since it wasn't even tested. However, I think the testing will just force these players to stop using unless they have the brains of Manny Ramirez. If any player actually tests positive for HGH, they should just be banned because the whole "I thought it was a vitamin pill" has just gotten rediculous.

As for Buehrle, I'd rather the Sox not sign any pitchers to long-term deals. The reason why the Sox are so close to the luxury tax without the offseason even starting is because Theo locked up so many players to long-term deals. Beckett, Lackey, Buchholz, and Lester are all signed through 2014 and I'm sure they'd like to find a spot for Ranaudo at some point. Next year's free agent market is expected to have a ton of young SPs too if the Sox do need it.

Another note is that the luxury tax threshold stays the same in 2013 and the tax increases to 50%. The only contracts that will be off the Sox' hands after 2012 will be Scutaro, Jenks, and Matsuzaka (that opens up $21M). If the Sox go out and sign guys like Buehrle, Jackson, and Beltran to multi-year deals, it just guarantees that they'll be paying at least a 40% premium for those contracts.

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OCD SS

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11/26/11 5:05 PM

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I made this point in the rumors thread, but perhaps it applies here as well:

...The fact that the Red Sox kept their payroll near the CBT threshold has always felt like a choice they made about an efficient (and profitable) allocation of resources, rather than something that they had to do because of hard limits on their budget as a factor of income vs expenditures. In other words JWH really hated to fork over money to revenue sharing when that money could be better spent elsewhere while still improving the team (i.e. on bringing talent into the Sox minor league system). Given the likely (and largely unreported & unverifiable) revenues that NESN generates by showing the games of a winning Red Sox team, I think the overall business model of H/W/L aims at competitiveness while maintaining profitability, aiming for such a result over the long term. Such long term results require that the Sox continue to infuse young talent into the farm, while spending is only a function of what is available to buy at an efficient price.

The new CBA dramatically reduces other avenues for winning teams to spend money. The draconian penalties for spending over the prescribed limits, as well as the reduction in spending that will likely be imposed on the Sox really leave them with nowhere else to spend their money as a way to improve the team in the short term, and the cost of spending ml talent at this point looks like it will be more expensive to the long term future of the club since that talent will be much harder for the team to replenish.

The only avenues for spending left for the Sox are either on the FA market (with the attendant CBT penalties) or routed as profit into the accounts of ownership. The only problem with the later is that it doesn't improve the team, and such a lack of improvement will probably hamper long term winning (and therefore revenues and profitability). So unless the team has (already) found a loophole that will allow them to keep bringing in minor league talent in the face of these spending limits, or if the players you are targeting in trade happen to be available for little more than flotsam/ jetsam, I don't think the Sox can afford to be sending potential ML players off the farm when comparable players are available for simply cash, even if there's going to be a tax attached to that spending.

Off course only time will tell...

"I'd like to f*ck Sandra Bullock" - Pedro, explaining his secret ambition to Sports Illustrated for Kids.

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80GradeMouth

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11/27/11 9:10 PM

I vaguely remember this issue with Tek a few years ago. He turned down what looked to be a $10 mil arb award didn't he, saying it was not guaranteed. Is that correct?

Though it is correct that a contract awarded through arbitration isn't guaranteed, it becomes guaranteed for the entire season if the player is still on the roster when the season starts. If David Ortiz were to accept arbitration the chances that he would be released before the season started would be nill unless he were to suffer a serious injury.

I also wonder if we have really thought through the potential HGH implications with the new CBA procedures with all the FA players. Big issue. I think I'd start really thinking about going young and invest in guys who look absolutely clean. It's not worth the risk. Who knows, maybe it's 10-25% of mlb? We do not know the potential impact of HGH testing or what else is found from regular blood tests. IMO, some guys clearly look like they are users. We do not want to get caught in that game of musical chairs.

The problem is that, HGH doesn't enhance the performance of baseball players. Given this how could you possibly identify those who who might test positive for HGH? Somehow I doubt that the advent of HGH testing will deter free agent signings in any meaningful way as you suggest.

So in answer to your question, if the Red Sox sign Ortiz, they will not be able to spend meaningfully to fill any of their other needs. However keep in mind that Ortiz was worth 4.5 WAR last year according to fangraphs. The Red Sox do not have a young player in their system, capable of producing anything close to that as a DH so if they let Ortiz walk they will have to find a way to replace that production. I don't think they can do that unless they give a player more years, and/or take on more risk than they would be if they resigned Ortiz.

Last Edited By: 80GradeMouth 11/27/11 9:23 PM. Edited 3 times.

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pedroiayouk1520

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12/05/11 1:19 PM

Both Boston.com and WEEI posted articles about this today. Both pointed out that the Sox have about $20M to spend if they intend on staying under the threshold.

http://www.weei.com/sport...y-red-sox-might-not-have

http://www.boston.com/spo...1/12/how_much_money.html

This is the part that I found most interesting:
Finally, the Sox stand at an interesting luxury tax crossroads. If the team cruises past the luxury tax threshold this coming season, the tax will shoot up from the 30 percent rate that the team will pay on its excesses in 2011 to 40 percent next year; if the team went over the threshold in 2012 and 2013, the tax rate would go up to 50 percent.
On the other hand, if the Sox stay under the luxury tax this year (or any other year under the recently approved CBA, the tax rate will drop to 17.5 percent for the next time the team goes over the luxury tax threshold. So, avoiding the luxury tax this year -- something that (assuming that the way that payroll is calculated for luxury tax purposes remains unchanged in the new CBA) may prove nearly impossible given where the team's payroll already stands and its needs this offseason -- could help the team save millions in future years.

Also, payroll flexibility absolutely killed us the past 2 trade deadlines (both times we missed the playoffs)...just sayin

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beasleyrockah

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12/05/11 2:56 PM

80GradeMouth wrote:
I vaguely remember this issue with Tek a few years ago. He turned down what looked to be a $10 mil arb award didn't he, saying it was not guaranteed. Is that correct?

Though it is correct that a contract awarded through arbitration isn't guaranteed, it becomes guaranteed for the entire season if the player is still on the roster when the season starts. If David Ortiz were to accept arbitration the chances that he would be released before the season started would be nill unless he were to suffer a serious injury.

I also wonder if we have really thought through the potential HGH implications with the new CBA procedures with all the FA players. Big issue. I think I'd start really thinking about going young and invest in guys who look absolutely clean. It's not worth the risk. Who knows, maybe it's 10-25% of mlb? We do not know the potential impact of HGH testing or what else is found from regular blood tests. IMO, some guys clearly look like they are users. We do not want to get caught in that game of musical chairs.

The problem is that, HGH doesn't enhance the performance of baseball players. Given this how could you possibly identify those who who might test positive for HGH? Somehow I doubt that the advent of HGH testing will deter free agent signings in any meaningful way as you suggest.

So in answer to your question, if the Red Sox sign Ortiz, they will not be able to spend meaningfully to fill any of their other needs. However keep in mind that Ortiz was worth 4.5 WAR last year according to fangraphs. The Red Sox do not have a young player in their system, capable of producing anything close to that as a DH so if they let Ortiz walk they will have to find a way to replace that production. I don't think they can do that unless they give a player more years, and/or take on more risk than they would be if they resigned Ortiz.

While this is true, do the Red Sox NEED someone to replace the production? The offense will still be elite without Ortiz, and Lavarnway is a better internal option for DH than any internal option is for a rotation spot. If this is all true, and the Red Sox won't exceed the tax, signing Ortiz is a terrible move. Letting go of a still productive player (especially someone as loved as Ortiz) is never easy, but if they aren't willing to spend tough decisions must be made. I'd rather go the low cost route at a position of strength than gamble on low percentage stop gaps at a position of obvious need.

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80GradeMouth

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12/11/11 1:38 AM

The offense will still be elite without Ortiz, and Lavarnway is a better internal option for DH than any internal option is for a rotation spot.

Though it's a moot point now as Ortiz has accepted arbitration, I wholeheartedly disagree with this statement especially if you count Bard or Aceves as internal options.

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beasleyrockah

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12/11/11 4:56 AM

80GradeMouth wrote:
The offense will still be elite without Ortiz, and Lavarnway is a better internal option for DH than any internal option is for a rotation spot.

Though it's a moot point now as Ortiz has accepted arbitration, I wholeheartedly disagree with this statement especially if you count Bard or Aceves as internal options.

Are we comparing Lavarnway's hypothetical production at DH to Alfredo Aceves' pretend production in the rotation, or saying that the Red Sox offense wouldn't be elite without Ortiz? Bard could be a good starter, but it's far from certain, and it could very well be a disaster. The same can be argued about Lavarnway, but the difference is if he falls on his face (highly unlikely imo) the offense will be fine. Aceves will probably be a replacement level starter, maybe a little better. I don't see why it's smart to pencil him in as the #5 instead of the necessary depth and important swing role.

In an ideal world, I'd rather allocate the limited funds to the pitching staff than a luxury in Ortiz, no need to defend my opinion further.

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Guidas

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12/11/11 2:50 PM

Ken Rosenthal, voice of reason on this issue. Excerpt:

Lucchino needs the Sox to win; this is on him now. And to win, the Sox just might need to blow past the luxury-tax threshold, painful as the implications might be.

Added note - notice how he says "Lucchino" not "Cherrington."

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pedroiayouk1520

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12/11/11 5:24 PM

At this point, we still don't really know what the Sox' offseason plan is regarding the luxury tax. Pretty much, they are either going to make a bunch of cost-effective moves to patch the holes or its all just a bluff until they post for Darvish and sign someone like Kuroda/Madson/Beltran late in the offseason when the market changes.

I'm thinking that staying under the luxury tax is legit for the next 2 years. The reason I believe that they are serious is because of what happened the past two trading deadlines. Remember last July when the Sox clearly needed SPs in order to make a playoff run? Well Theo didn't make any significant moves for the second straight year because they were right at the luxury tax threshold. Also, I think the Sox can contend without acquiring big-name players this offseason. We already have the core of our roster and have multiple near-ready prospects.

One other thing I found interesting was that Reddick and Lowrie were part of trade offers for Andrew Bailey last week. If the Sox were willing to make that type of trade, it would have meant that the Sox would have had less to offer in a trade for a SP and Kalish would have been plugged into RF. Reading Ben Cherington's mind has been impossible this offseason because Lucchino and Valentine seem to occasionally contradict some of his comments. Whatever move the Sox make next, whether for a RF, SP, or CL, should give us a real good idea of what the actual plan is going forward.

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stats39

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12/11/11 6:47 PM

As far as I can see the Sox need at least 3 capable pitchers and 1 RH outfielder. Without shedding some existing payroll (by multi yearning Ortiz, trading Scuturo ect.), is it even possible to stay under the tax threashold. 8 million dollars for 4 players just won't cut it.

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Curll84

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12/11/11 7:08 PM

My idea would to hold the payroll to about $80-$120M and allow it to balloon higher for 2-year periods. I hate the idea of spending $180M on a fucking baseball team. The cost-to-performance ratio is way, way out of whack unless you win a WS (and spending more simply doesn't bring championships).

I would have loved to see a trade of Youkilis and Beckett, a winning bid on Darvish (lower AAV than Beckett).

Large contracts inhibit the club's ability to make trades and put better players in place of entrenched vets. John Lackey would be a DFA candidate if he didn't make $17M. I love going to Fenway, but I don't enjoy my ticket money going to overpriced products. Basically, I don't want to pay $8 for a McDouble which happens far, far, far too often with large contracts and teams with bloated payrolls. Be it Carl Pavano, Darren Dreifort, Gary Matthews Jr, Aaron Rowand, or Carl Crawford the likelyhood of a "big money" player performing is minimal. I won't start on Renteria (who outperformed his $40M deal), Lugo, or Cameron.

If you can keep $60M in your back pocket to take on bad contracts for a year to lower your prospect cost (Abreu to Yanks for CJ Henry), it is far more cost effective than chasing FAs. And at the trade deadline, $60M of wiggle room is the single greatest leverage you can have.

LegendofJedLowrie.com | RoyalRooters.com

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stats39

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12/11/11 7:13 PM

Great point, but could you not use the same concept, with a 150M payrole.

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BNich0622

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12/11/11 7:37 PM

If they were planning on staying under the threshold the whole time, why did they even pick up Scutaro's option?

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grandsalami

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12/11/11 7:44 PM

BNich0622 wrote:
If they were planning on staying under the threshold the whole time, why did they even pick up Scutaro's option?

use him as a trade chip and actually get something in return for him?

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beasleyrockah

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12/11/11 8:01 PM

I think Red Sox tickets should be free, everyone should play for the love of the game, and after we all can go out for dinner.

The Red Sox don't have high ticket prices because they have a high payroll. The Red Sox brand is in high demand, which allows for the high prices, which calls for the high payroll. The Red Sox can't charge the highest prices in baseball and operate like a midmarket team. The trade deadline is a seller's market, and there are very few straight salary dump moves made (Wandy Rodriguez still commanded top prospects this year). Why save tons of funds for overpaid players to play less than half the season? That's cost effective? Complete ass backwards ideological bullshit.

Last Edited By: beasleyrockah 12/11/11 8:06 PM. Edited 1 time.

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