DALLAS -- For the last several years, the Red Sox consistently have spent more aggressively than any team in the majors save for the Yankees. As such, the expectation every offseason is that the team is going to wade into the ocean of available talent and explore the players who can make the biggest splash, no matter the cost.
Last year offered a dramatic illustration of the point when the Sox made commitments in excess of $300 million in order to secure the services of Adrian Gonzalez and Carl Crawford. Those two acquisitions reinforced the notion that the Sox can flex financial muscle like few others.
But there is a caveat. The Sox can spend more than most, but they cannot spend, dollar for dollar, with the Yankees. And so, a team that typically spends up to and (including this year) over the luxury tax threshold needs to reset every now and again.
And there are compelling arguments to be made, as the winter meetings get ready to commence in earnest in Dallas on Monday, that this is a year when the Sox should step back and take a more conservative approach to their payroll for a few reasons, something that could leave the Sox, as general manager Ben Cherington suggested, looking to fix what’s under the hood rather than trying to buy a new car.
First, despite last season’s collapse, the team believes it has a strong core that should permit it to contend. Cherington’s metaphor suggests the Sox believe they can be very good without major change.
Secondly, the last couple of seasons have offered reminders of the value of maintaining more in-season financial flexibility. The team invested nearly all of its payroll prior to the start of the season, affording less latitude to make mid-year adjustments.
Even while building a strong roster foundation, injuries in the middle of the year are all but inevitable. The more financial flexibility a team has, the more it can react to those injuries and try to find a midsummer fit on the trade market. And few teams have the ability to take on sizable contracts mid-year; those that do thus have a shot at relatively low-cost acquisitions.
A recent example came in the form of Roy Oswalt. The Astros decided in the middle of 2010 that they needed to shed payroll, and made their best pitcher available. The Phillies gave up two good-but-not-great prospects and a serviceable big league pitcher (J.A. Happ) for a year and a half of Oswalt; the Astros kicked in $11 million of the roughly $21 million left on the right-hander’s contract. The Sox, however, were not in position to make an aggressive play for Oswalt at the time. Similarly, when the Indians put Kerry Wood up that year for auction (with little prospect cost attached), the Sox deferred to the Yankees.
Payroll flexibility in the middle of this season could be particularly important given the uncertainties that will surround the Sox’ pitching staff. The team will be making decisions on the fly in spring training, potentially including who will be the closer and whether to convert pitchers such as Daniel Bard and/or Alfredo Aceves from the rotation to the bullpen. Unless the team achieves a remarkable form of alchemy, the team might need to have the option of mid-year trades to correct course on the fly.
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.
That being the case, the Red Sox have yet to sign a single player to a major league free agent deal this winter, yet already the team finds itself in a challenging financial predicament.
Jonathan Papelbon is gone. J.D. Drew is out the door. Jason Varitek and Tim Wakefield -- among others -- may be close behind.
On the surface, the departures of those four players alone would appear to free up more than $30 million in payroll compared to the 2011 season. That, in turn, would put the Sox in a solid position to spend on their offseason needs -- chiefly, figuring out a way to add two or three quality arms (some combination of starters and relievers, depending on what ultimately happens with Aceves and Bard) to a pitching staff that proved woefully, devastatingly thin down the stretch.
But the reality is that the Sox have little room to maneuver if they wish to avoid getting dinged by Major League Baseball for a third straight year of luxury tax penalties. And though the team will examine the cost of virtually every player (particularly every pitcher) on the market, the Sox appear likely to operate as if it is facing meaningful payroll constraints.
An industry source told WEEI.com over the weekend that the Sox have interest in free agent right-hander Hiroki Kuroda this winter, but that the interest is conditional on the Sox being able to move around other funds. The same is likely true of other prominent pitchers (Roy Oswalt, Mark Buehrle, perhaps a closer like Ryan Madson) whom the Sox might consider.
While that stance might seem, on the surface, absurd given the departing money, it reflects the fact that the Sox have a few players whose salaries (as calculated for luxury tax purposes) are about to jump.
Adrian Gonzalez, one of the great bargains in the majors last year at $6.3 million, will see his seven-year, $154 million deal take effect. Jacoby Ellsbury is likely to at least triple his $2.4 million salary of a year ago. Clay Buchholz’ four-year deal, worth approximately $30 million, means that he will count for roughly $7 million more against the luxury tax threshold than he did a year ago.
Assuming that the Sox re-sign David Ortiz -- who could sign a deal with an average annual value of at least the $12.5 million he made last year, and potentially more, since he could accept arbitration and claim a raise of a couple million dollars on a one-year contract -- the Sox will already have roughly $170 million in commitments as calculated for luxury tax purposes, which is based (or at least was in the last collective bargaining agreement) on average annual salary (AAV).
The current breakdown of players on the 40-man roster looks like this:
-- The Sox have 12 players signed to big league deals for approximately $126 million. (That figure reflects roughly $24 million in commitments to three players who will not be on the Opening Day roster: John Lackey, who will miss the year after Tommy John surgery; Daisuke Matsuzaka, who will be out until at least mid- or late 2012 while recovering from Tommy John; and the $2.1 million AAV for Jose Iglesias, who will start the year back in the minors.)
-- Ortiz could push that figure up by more than $12 million.
-- The team has nine arbitration-eligible players, led by Ellsbury, but also including others such as Daniel Bard, Alfredo Aceves and Jarrod Saltalamacchia. As a group, they’re likely to cost the Sox somewhere around $17 million to $20 million.
-- The roster likely will feature some players who are not yet eligible for arbitration who will earn close to the league minimum of $480,000. At the start of the year, perhaps three positions will be occupied by such players for another $1.5 million or so.
-- The calculation of payroll for luxury tax purposes also includes the salaries of other players on the 40-man roster as well as medical benefits and performance bonuses. Those elements typically add another $12 million or so to a team’s payroll calculation.
The result? Without a single acquisition, the Sox already have a payroll (as calculated for luxury tax purposes) of roughly $170 million. That leaves about $8 million (give or take a couple million) to spend before hitting the luxury tax threshold.
And so, for the team to both add one of the better pitchers on the market and avoid the luxury tax, the team would need to shed some payroll through trades and/or non-tenders of players currently on the 40-man roster.
In short, the Sox may not be in a position where they can simply add payroll. As such, when Cherington gets under the hood of the 2012 Red Sox, he likely will be doing more tinkering than making major overhauls.