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Creative Red Sox Accounting 101: Beltre, Kotchman, Hall

01.06.10 at 2:58 pm ET
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Once the Red Sox completed the deals for Marco Scutaro (2 years, $12.5 million), John Lackey (5 years, $82.5 million) and Mike Cameron (2 years, $15.5 million), their budget for 2010 appeared just about tapped. When the team suggested that it was prepared to enter the season with Casey Kotchman as its starting first baseman, it was more than idle chatter – with the team scraping against the luxury tax threshold of $170 million for next year, and with a record payroll under contract, the team seemed to have almost no room to maneuver, barring a budget stretch for an affordable superstar like Adrian Gonzalez.

Yet a harmonic convergence of sorts occurred in order to bring Adrian Beltre to Boston. Over the holidays, the Sox positioned themselves to add another Gold Glove-caliber defender (when healthy) while barely making a mark against the salary cap.

The third baseman volunteered to come to Boston on what one talent evaluator described as a “perfect contract,” a deal that was both affordable and short-term in nature as well as structured in a way to minimize the luxury tax hit. The one-year, $9 million framework represented a relative bargain — a contract that was millions less than what Beltre would have earned had he accepted Seattle’s offer of salary arbitration, and the sort of short-term arrangement that will minimize the Sox’ risk.

The $5 million player option for 2011, meanwhile, is in all likelihood cosmetic. Barring a career-threatening injury, there’s almost no way that the player exercises it, given that Beltre just came off of a season in which a) his offensive productivity was the worst of his career thanks to bone spurs in his shoulder that required surgery; b) he played in the fewest games of his career as a result both of that surgery and an injury to his testicle; and c) he still had the chance to choose between the one-year, $9 million deal with the Sox and, according to FoxSports.com, multiple three-year, $24 million offers. Put simply, the chances that he exercises the player option are virtually nil.

The impact of the player option, however, is that it depresses the average annual value (AAV) of the contract, which determines the value of a contract in calculating luxury tax. So, the Beltre contract is viewed as being worth $7 million, rather than $9 million, in calculating the Sox’ 2010 payroll for luxury tax purposes.

Even then, however, the Sox would not have been able to afford to sign Beltre while remaining in their budget. The team still needed to free more payroll in order to minimize its luxury tax hit, since the Sox must pay 22.5 percent on every payroll dollar they spend over $170 million next year.

That being the case, the Sox sought salary relief by moving Kotchman. Without Beltre, the Sox wouldn’t have moved the 26-year-old first baseman; at the same time, without being able to move Kotchman, Sox sources say that the club could not have signed Beltre.

The arbitration eligible first baseman, after making $2.885 million in 2009, was likely to earn roughly $3.5 million for 2010. By moving him to the Mariners, the net impact of signing Beltre — from a luxury tax standpoint — dropped to about $3.5 million.

But the Sox also structured their deal with the Mariners both to address a need for a bench player and to offer further relief against the luxury tax. The inclusion of the versatile Bill Hall and millions of dollars in cash (along with a player to be named from a list of minor leaguers) will offer the Sox further relief.

Hall is in the last guaranteed year of a four-year, $24 million deal that will pay him $8.4 million next season. The Mariners, according to a major-league source, will pay $7.5-8 million of his salary — essentially sending the Sox the same money that was given to Seattle by the Brewers when the M’s acquired Hall last summer.

Hall’s contract is evaluated for luxury tax purposes as being worth $6 million in 2010, based on its AAV. But the full amount of the cash transfer — call it $7.5 million — will be deducted from the Sox’ payroll as determined for luxury tax purposes. That being the case, Hall will actually reduce the Sox’ payroll in calculating the competitive balance tax by roughly $1.5 million dollars. Overall, then, the Sox were able to sign Beltre and add Hall and a player to be named at a cost (for CBT purposes) of roughly $2 million in 2010.

$7 million (AAV of Beltre’s contract)
-$3.5 million (AAV of Kotchman’s likely contract)
+$6 million (AAV of Hall’s contract)
-$7.5 million (cash transfer from Seattle to Boston)

=$2 million

That math explains how the final shaping of the Red Sox roster took place without blowing out the team’s payroll projections.

Read More: Adrian Beltre, bill Hall, Casey Kotchman,
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