Peter Abraham wonders if the Red Sox are going to go after high priced players this winter:
So we’re talking to Theo Epstein Monday afternoon and he mentions that restructuring Tim Wakefield’s deal will save the Sox $1.5 million on the CBT, which is GM-speak for the payroll luxury tax, or collective bargaining tax.
“That’s important because there’s some things we want to do this winter and we don’t have a ton of room under the CBT,” Epstein said.
The tax threshold for 2010 will be $170 million. Are the Red Sox actually planning to approach that?
I mean, zowie. They were around $125 million this season.
Peter goes on the show that it would take a lot of spending for the Red Sox to get that high, or a lot of trading for high priced players. I’m guessing that the CBT remark was a joke by Theo.
Posted by David Pinto at 12:39 pm | Management | Permalink | 4 Comments
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November 10th, 2009 @ 4:56 pm
Let’s be clear about the Competitive Balance Tax since most people are not clear about it.
1. It applies to the 40-man roster.
2. There is a set amount added to every team for pensions, etc. This is roughly $10MM, though I haven’t seen an exact figure in a few years since it was $8MM.
3. A team’s payroll is not used to determine where the team stands in terms of the tax threshold. What is used is the average annual value of contracts. So, while a guy like Alex Rodriguez may have been paid $33MM this year by NY ($32MM salary plus $1MM signing bonus), for tax purposes Rodriguez’s contract is worth $27.5MM ($275MM over 10 years).
Based on the numbers we know, Boston has $96.3MM tied up in 11 players for 2010. Halladay, who Abraham mentioned, would add $13.33MM. And jason Bay would add $18MM based on Abraham’s speculation. That puts the Red Sox’ CBT payroll at $127.6MM. Add the set fee that all teams are charged, and Boston’s payroll is around $137MM.
The CBT threshold is $170MM. That means Boston would have $33MM to spend on 27 roster spots. Yes, plenty of those guys will earn the league minimum of just over $400K, but Boston also has four arbitration-eligible players in Papelbon, Okajima, Hermedia, and Ramon Ramirez.
Let’s say the four of them earn a combined $20MM. That puts Boston at $157MM, or $13MM short of the CBT threshold with 23 roster spots not accounted for in the calculation.
When you look at the numbers, Boston could easily be much closer to paying the CBT than people seem to realize. Add on the fact that there is a belief that the Red Sox work to avoid paying it — remember, Henry apologized to fans last time they paid — along with the fact that paying the tax diminishes the underdog brand which the team has deftly created, and the team seems to be monitoring its payroll situation wisely.
I don’t think Epstein was kidding.
November 10th, 2009 @ 5:03 pm
@NaOH: Lye, Thanks for the information. I thought there was more to it than just salaries, but couldn’t find anything in my quick search. Abraham seemed to include arbitration raises in his calculation, so is he wrong on that front?
November 10th, 2009 @ 5:46 pm
Abraham listed Boston as committed to $109MM, including whatever figures he presumed for the four arbitration-eligible players. I don’t see how that’s correct. I used the AAV of contracts found at Cot’s, and that shows Boston (for CBT purposes) at $96.3MM for 11 players.
The four arbitration-eligible players made just under $11MM on 2009, so it’s reasonable to think the cost of those players will approach $17MM. Add that to the $96.3MM of AAV in pre-existing contracts, and the Red Sox are at $113.3MM for 15 players. That puts me a touch higher than Abraham was suggesting.
Of course, the other players that Abraham mentioned wouldn’t be inexpensive. Halladay’s deal is worth $13.33 in AAV, and he speculates about Bay getting $18MM. Such deals/acquisitions would put Boston at about $145MM. And there’s still the ~$10MM amount added to every team.
So Boston, were they to re-sign Bay for an AAV of $18MM and acquire Halladay, would be around $155MM with numerous roster spots still to be paid, though inexpensively. And let’s shoot low and just guess that those inexpensive roster spots add up to $5MM. That puts Boston at $160MM.
And let’s not forget that the AAV of pre-existing deals can be lower or higher than the amount actually paid by the team. The Matsuzaka and Youkilis contracts have AAVs more than Boston will pay them this year. A-Rod, in contrast, has had an AAV lower than what NY has paid him because his contract is front-loaded.
The other thing to remember with how the money paid can differ from the CBT assessment is that a player acquired in July has his entire contract value assigned to the receiving team. Boston is typically active at the non-waiver trade deadline, and the team’s proximity to the threshold could impact their approach.
Just to use the 2009 Victor Martinez acquisition as an example… Boston paid him about $1.9MM in salary, but the $3.1MM AAV of his contract was assigned to Boston. For teams near or over the threshold, this is an important distinction.
All in all, I think Abraham had a couple of mistakes. For one, he didn’t include the ~$10MM added to each team’s CBT calculation, plus he seems to be looking at what players are paid, not the AAV. On top of that, it seems as if he didn’t take a long view and think about in-season acquisitions and instead focused on what the payroll will be on Opening Day.
November 10th, 2009 @ 10:32 pm
Damn, NaOH. You no lye!