For all of the handwringing about the Red Sox’ approach to the luxury tax, the reality is that the team is already projected to push past the $178 million threshold for the 2012 season for the seventh time in nine seasons.
Indeed, right now, even as they contemplate what to do with the roughly $5 million in remaining savings (as calculated for luxury tax payroll) from the trade of Marco Scutaro ($7.67 million from Scutaro, minus the $3 million spent on Cody Ross), the Red Sox appear to be committed to spending somewhere in the vicinity of $185 million to $190 million in the coming season.
In other words, the Sox appear likely to spend about as much in payroll in 2012 as they did in 2011, when they carried about $189 million in payroll and were hit with a luxury tax bill for approximately $3.4 million.
Red Sox GM Ben Cherington more or less suggested as much in his appearance on WEEI’s The Big Show on Wednesday. He noted that there was “no mandate” from team ownership to stay below the $178 million luxury tax threshold in 2012, while acknowledging that the team has a budget that it must consider before adding any players.
“There’s a difference between saying we have gone over the luxury threshold and that there’s no mandate not to do that this year, there’s a difference between saying that and saying we don’t have a budget. We do have a budget,” said Cherington. “At some point, you have to start making choices as to how you allocate the resources you have.
“It is not to suggest that our ownership is not willing to go over the tax threshold, because they have in the past and there’s no mandate not to do that this year. That doesn’t mean that there isn’t a budget -- just as every team has a budget. We’re working within that budget, and that budget is significant. It’s plenty to put a very good team on the field. We’re going to be a very good team. We’ll keep working at it. We have the means to do things, whether it’s now or in spring training or during the season. We’ve got to wait and let those things come to us and find the value that makes sense for us and for the team.”
Math time comes in a moment, but first, a caveat: The Red Sox are not dealing with a fixed payroll situation. Some of the projected numbers will expand and contract a bit based on what happens through arbitration and roster decisions that the Sox make.
For instance, the Sox could trade an out-of-options pitcher who is on the 40-man roster in order and slated to earn $500,000 to $1 million or so in order to free a spot for someone like Aaron Cook, who would earn a $1.5 million salary plus bonuses that could more than double that base figure.
Those sorts of decisions will happen throughout spring training and even into the season. The result is that the Sox are not in a fixed position as to where their payroll currently stands. Nonetheless, with $4.67 million of “Scutaro money” unspent, here’s how the Sox stand.
After the Scutaro trade, the Red Sox have 23 players under major league contract for a total of approximately $151 million. Since that group includes both John Lackey and Daisuke Matsuzaka (both out for much of 2012 while recovering from Tommy John surgery) as well as Jose Iglesias (who will open the year in the minors), along with a couple of out-of-options pitchers who represent potential trade candidates (Andrew Miller, Franklin Morales, perhaps Matt Albers), that represents 18-20 likely roster spots for Opening Day, at a cost of somewhere between $149 million and $151 million.
The Sox have two more players -- David Ortiz and Alfredo Aceves -- who will be on their roster for 2012 but whose salaries await definition through the arbitration process. At a minimum, barring an unexpected multiyear deal that would change Ortiz’s average annual value (the figure that is used to calculate payroll against the luxury tax threshold), those two players will cost the team $13.6 million if the team wins arbitration cases against both. At most, if both Ortiz and Aceves win their arbitration cases, the Sox will be on the hook for $18.1 million in salary to those two players.
At that point, the team is looking at anywhere between roughly $162 million and $169 million in outlays for 20-22 members of the roster.
In addition, the Sox will probably have two or three players who are not yet arbitration eligible on their Opening Day roster. Mark Melancon is a given. Darnell McDonald is also a strong candidate to open the year with the Sox, particularly given that Carl Crawford may not be ready at the start of the year. And there’s a good chance that the Sox will open the year with one pitcher from the group of Scott Atchison, Michael Bowden, Felix Doubront and Junichi Tazawa on the roster (of those four, only Tazawa has options remaining).
Figure that the Sox spend roughly $1.7 million on three players from that group for the Opening Day roster. Now you’re at 23-25 players at a cost of roughly $164 million to $171 million.
Most likely, the Sox will add one or two of the free agents whom they signed to minor league deals. Aaron Cook and Vicente Padilla (each of whom signed deals that would pay them a prorated $1.5 million for whatever portion of the season they spend in the majors, with millions in incentives possible), both of whom signed to compete for rotation spots (with Padilla also a bullpen candidate), represent the likeliest candidates to be added to the roster.
Assuming that only one of those pitchers breaks camp with the club, the Sox would be looking at something around $165 million to $172 million in guaranteed contracts. Even if the Sox don’t use the Scutaro money, those commitments would still have the team veering off into luxury tax land, since the combination of medical benefits, minor league salaries for players on the 40-man roster and performance bonuses (all of which count against the luxury tax threshold) would tack on something like $14 million.
As such, the Sox currently look like a team that will feature about $179 million to $186 million in commitments. Assuming that they don’t just stuff a mattress with the “Scutaro money,” the team seems destined to spend $185 million to $190 million on payroll (as calculated for the luxury tax), perhaps a bit more, this year.
The 2011 Red Sox spent more than any non-Yankees team in major league history. The 2012 Red Sox will essentially sustain that robust payroll, while getting taxed at a higher rate (40 percent vs. 30 percent) for every dollar they spend over the $178 million luxury tax threshold.
Could the Red Sox spend more and remain profitable? Almost undoubtedly, but that's a criticism that can probably fall on the majority of Major League Baseball teams. The Yankees can probably afford to carry a payroll that is more than $100 million beyond what they spend while remaining profitable; they choose not to do it because their owners, like those of most baseball teams, believe that they are entitled to run profitable businesses. At a certain point, teams and owners are entitled to ask whether they are getting the necessary returns on their investment and to set budgets accordingly.
The field may be catching up somewhat to the Sox (and Yankees) in payroll, with the Angels, Rangers and Tigers all spending aggressively this offseason, and the Phillies continuing to spend robustly. All that having been said, the Sox still project to have the second-highest payroll in the game and one that is very much on par with -- and potentially, because of the increased luxury tax rate, even greater than -- their spending of a year ago.
There is a tendency for people to want their cake and eat it, too, to want the team to keep Scutaro while signing a Roy Oswalt or an Edwin Jackson as well as a Cody Ross, making the sorts of investments to drive the payroll up into the $200 million range. After all, it’s easy to spend other people’s money.
But as the team sustains record non-Yankee payrolls, is the issue what the Sox are willing to spend or on whom they are spending it?
Concerns about the team’s payroll also obscure the reality of some significant long-term deals that the Sox signed during the 2011 season but that will only come into play in 2012. Put another way: Had the Sox not added two $20 million-a-year players last offseason but instead added one last year (say, Carl Crawford) and waited until this winter to pursue a free agent first baseman from the group of Albert Pujols, Adrian Gonzalez and Prince Fielder, the conversation about the Sox’ spending this winter would have been different.
In 2012, the Sox’ seven-year, $154 million extension with Adrian Gonzalez takes effect. So does the four-year deal for roughly $30 million with Clay Buchholz. Cherington offered a reminder of those sorts of investments on Wednesday.
“Winding back the clock a bit, what we have to remember is that our ownership has made incredible commitments to this team,” he noted in his WEEI appearance. “We made two very significant commitments last offseason, and have made significant commitments in successive offseasons going back two years, that have put us in position to be very competitive, to be an incredibly talented team, to be a team that we feel is going to be very competitive in 2012 but with a substantial payroll.”
The Sox believe they have a very good team, one that was on the cusp of significant accomplishments in 2011 until a historic meltdown cost the team the postseason (and, incidentally, cost the owners millions in additional postseason revenue).
If a $185 million payroll isn’t good enough to field a playoff-caliber team, then the issue might lie less with the size of the payroll than on the players who are being signed and the decision-making that led to their signings.
After all, the Sox have spent past the luxury tax threshold in each of the last two years with nothing to show for it -- seasons in which, incidentally, a Rays team with one-quarter of Boston's payroll has made its way into October from the same division. Undoubtedly, there is something to be said for spending from a bottomless wallet, but there is also something to be said for fighting to get extra bang for the buck and examining every contract on the payroll to make sure that resources are being allocated in the most efficient fashion possible.
That was the tactic that guided the Red Sox as they used the 2002-03 offseason -- Theo Epstein’s first as a GM -- to lay the groundwork for a perennial contender, with undervalued players such as David Ortiz and Bill Mueller and Kevin Millar and Bronson Arroyo (and, yes, Jeremy Giambi and Ramiro Mendoza and Chad Fox) representing no-cost to low-cost acquisitions who represented core pieces around whom the Sox could spend and build.
This winter, though he is working with a payroll that is nearly double the one that Epstein inherited, Cherington is operating from a similar playbook. Time will tell whether the approach will pay off, but the criticism associated with the idea that the Sox face budget constraints may be somewhat misplaced.