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| Creative Red Sox Accounting 101: Beltre, Kotchman, Hall | 01.06.10 at 2:58 pm ET |
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.
33 Comments for “Creative Red Sox Accounting 101: Beltre, Kotchman, Hall”
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January 6th, 2010 at 4:09 pm
Alex,
This is great information. Those of us who follow these CBT and other lesser-known details appreciate the work you do.
January 6th, 2010 at 4:17 pm
this is just an incredibly informative and well-researched piece of reporting. well done.
January 6th, 2010 at 7:22 pm
Alex,
Excellent article. Would you mind telling me where you found the 22.5% value for the luxury tax? I’ve been trying to find the actual percentage the Sox would pay and I’ve found 22.5% for a first offense (which I do not believe the Sox would qualify for, although it has been a couple years since the Sox paid the tax) and 40% for what the Yankees had to pay last season (although they pay it every year). I also heard 30% mentioned in another article that I read today. If you wouldn’t mind clarifying this for me that would be great.
Thanks!
John
January 6th, 2010 at 7:30 pm
Great piece, Alex. Very informative.
January 6th, 2010 at 7:32 pm
Thanks for the info – a quick question.
Surely if Beltre declines the option then the contract becomes a 1 year $10M contract for luxury tax purposes as well as the actual cost – like incentives are calculated at the end of a season for luxury tax purposes?
Otherwise why would the Sox for example not have also given Beltre a 2nd player option for 2012 for $1M? Or does the 2 year average of $7M also count as $7M against the 2011 Sox luxury tax total? Surely the luxury tax cannot ultimately allow a team to add undesirable options which will be turned down as an easy way to dodge paying the tax?
January 6th, 2010 at 7:33 pm
wow ive never learned so much in one article thanks alex
January 6th, 2010 at 7:48 pm
excellent scribe, alex!
January 6th, 2010 at 7:58 pm
Why the sox would have any interest whatsoever in HALL is totally beyond me..he is an absolute whiff machine…even worse the TEK..and who would think that could be possible.
January 6th, 2010 at 8:39 pm
John,
The luxury tax hits are outlined in the appendix of the Collective Bargaining Agreement. Because the Sox stayed under the luxury tax threshold in 2008 and 2009, their penalty resets to 22.5 percent. The Yankees, by exceeding the threshold every year, stay at 40 percent. If the Sox exceeded the threshold in both 2010 and 2011, they would be penalized at a 30 percent level in 2011. It’s a bit complicated…there are 18 different scenarios for penalties outlined by the CBA.
January 6th, 2010 at 8:43 pm
Brian: good question on the Beltre issue. You’re right that a team can’t dodge completely the luxury tax by this sort of mechanism, but the player option allows the Sox to spread out the hit into 2011 should Beltre decline the option. Tried to offer some clarification here: http://fullcount.weei.com/sports/boston/baseball/red-sox/2010/01/06/beltre-and-the-2011-payroll/
As for 2012…that’s a whole different ball of wax. Suffice it to say that option years in deals signed for the 2012 season are going to get a bit..complicated.
January 6th, 2010 at 9:38 pm
Thanks for the clarification Alex, and also for the great article.
January 6th, 2010 at 9:58 pm
“Why the sox would have any interest whatsoever in HALL is totally beyond me..he is an absolute whiff machine…even worse the TEK..and who would think that could be possible.”
Because we needed an affordable utility guy who can play the left side of the field. Hall plays every position except first base (Which we have three guys on the roster capable of playing) catcher and pitcher. A backup doesn’t need a good bat, they need to be able to play the position when needed. Meanwhile, a good bat in backup duty is a waste of a good player, like Carlos Pena when we had him.
January 6th, 2010 at 11:02 pm
Very Informative Article! Any news as to their(Red Sox) ability to maintain arbitration rights to secure draft choice compensation? It would increase the value of this deal but may decrease Beltre’s value.
January 6th, 2010 at 11:05 pm
If Beltre really did turn down multiple offers at 3/24, then what a sign that is for the Red Sox and their fans…It means the guy wants to come here and really put up some monster numbers…Hopefully he comes in here juiced to the gills and ready to knock the cover off the ball…This team could be incredible…
January 6th, 2010 at 11:49 pm
Jonathan,
Yeah well, it is kind of nice if your utility man can hit a little bit, but Hall is the proverbial black hole. In fact, he’s similar to Beltre in that he had a big year 5 or so years ago and whose numbers then fell in the well after steroid testing was toughened. Only worse yet.
January 7th, 2010 at 12:36 am
thanks for the info… very helpful
January 7th, 2010 at 1:04 am
As a yankee fan I have 1 question about the Beltre signing and the motives that everyone is over looking. If he is offered by multiple teams off an off yea 3 years at 24 million..which by my basic math is 8 million. How is it a good nove to give a guy off his worst year a million more than anyone else I offering. He’d be a fool not to take the offer, and than land a bigger deal by having a healthy productive year. He is usiing you guys as a step ladder to a bigger deal. So he’s getting more money per year…and a chance to land a bigger contract off an average healthy year by him, doesn’t say much about his willingness to play for y’all, just his willingness to make more of the almighty dollar.
January 7th, 2010 at 1:12 am
Love the article, and I love the detail; but how do you feel about Cameron AND Ellsbury in the outfield? Am I the only one that thinks Ellsbury’s speed is completely wasted in left field @ Fenway and we should get better power numbers at corner outfielder than he’s likely to produce? Ells is one of my favorite players, but I just have trouble understanding the move.
January 7th, 2010 at 1:17 am
And I failed to mention that it was a well contructed and written article, im not trolling just asking an honest question and how wondering how yall felt about it from that perspective…please forgive the bad typing, im on a phone, my computer crashed a few days ago
January 7th, 2010 at 2:00 am
My 2 cents on this great article and comments. Mike, this OF should hit about 75HR & 125 doubles. 200XBH is good, considering the goal is the best defensive OF in baseball. They also add speed and aggressive baserunning, along with 90+SB. Ells in Fenway’s LF at this point is a good thing, preserving his dirt-dog body a bit for the long haul, allowing him to focus more on his OBP, and stealing more bases. Finally, they play 81+G in big left fields outside of Fenway, where Ellsbury’s speed will not be wasted, and where Manny & J.Bay often faltered. IMO, this may prove to be the best OF in baseball BECAUSE Ells is in LF and Cameron is in Center, anchored by one of the top RF in the game in JD.
And Josh, thanks for not being a troll. Bora$$ wanted 5/$75. Several teams had talked long term deals, and Boston would not go there. Beltre is not injury prone. He is only 30, and his injuries in 2009 were very specific, already healed, and he is more likely at Fenway to exceed his best offensive years in Seattle than otherwise, and what defenses and hustle. The Sox wouldn’t sign him long term, but gave him a bit more $$ per year, for one year of an easily projected career year. He & his agent are definitely using the Sox to leverage a big contract in 2011. And the Sox are definitely using Beltre to create the tightest infield in baseball while the market for AGon/Votto/MCab/Pujols develops, and their top 1b prospects (Anderson/Bates/ Rizzo) mature, giving them max options in 2011-12. It’s a great deal.
January 7th, 2010 at 3:00 am
Main question here: How are they going to afford Chapman?
if they pass on this guy this whole offseason is a bust IMO,
i really hope they bite they bullet and get him even if he is 20% more than what they actually pay…. besides its only one year
January 7th, 2010 at 10:37 am
Quick question – can you address how incentives/bonuses are considered in calculating the AAV? For example, I read reports that Beltre’s contract may contain incentives regarding AB’s in 2010 that could escalate the $5 million option for 2011 (not sure if these reports were accurate or not). Or, as another example, doesn’t Holliday’s recently signed contract include a huge bonus if he finishes in the top 10 for MVP voting in the last guaranteed year of the contract? If incentives/bonuses aren’t included in the calculation for AAV, would something prevent a team and player from creating a contract with an unrealistically low base value and adding easily obtainable incentives?
January 7th, 2010 at 2:50 pm
JP,
I’m not 100% sure, but I believe only guaranteed dollars and years are taken into account for the life of the contract. If a club option is exercised, it is treated as a 1 year deal for however much money and that is how AAV is addressed.
Holliday’s contract includes a vesting option as you said. If this vests, it would be handled just as a normal club option would be.
While this is something of an assumption, I believe the biggest reason to not give out low base salaries with many easy incentives is incentive money pushing the value of the deal over the AAV figure would be charged in the subsequent season. Similar to Beltre’s deal where the Sox will be charged a $7M hit this season and $3M hit next season because of Beltre’s $9M salary this year and $1M buyout. There is also the issue of the player agreeing to the contract.
I hope this helps,
John
January 7th, 2010 at 3:04 pm
James,
First of all, 29 teams will not get Chapman this year, is the off season a bust for all of them?
Secondly, it likely is not just for one year. I’m assuming that we would see something similar to the Iglesias deal where the contract would be around a 4 year deal with a large bonus. Igelsias received a 4 year $8.25M deal with a $6M signing bonus. The AAV of the deal is just over $2M because the bonus is spread across the length of the deal.
Also, for luxury tax purposes, his contract would only count against the tax if he is on the 40 man roster, he certainly doesn’t project to begin his career in the majors, so it’s possible that he could be a non factor for the tax. The Sox have the money to go out and sign Chapman, as do most teams in baseball, it’s a question of who values him more/who does he want to play for.
John
January 7th, 2010 at 5:29 pm
Well i am not a fan of 29 other teams …so the offseason IS (IMO) a bust for them cause I really don’t care what they do.
I think the sox should have got Uggla and moved Pedroia to SS,
As far as Bay, I could care less that he’s gone, if you compared the team now to a year ago and said we’ll have V. Martinez in a year and bay will be replaced by Cameron I would have been elated… the mets needed him more anyway
with the loss of Wagner, Saito they definately have room for him (Chapman) in the bullpen (and if Clay B. is dealt in July he’ll be an awesome number 5…or 4 sorry no confidence in Wakefield age 50) so I don’t see why he would not make the team, if not in April then probably in June as middle relief, he seems like a real competitor so its really between Sox, Angels and Yankees, or so it seems
January 7th, 2010 at 6:28 pm
James,
The Globe is reporting that the Yanks have pulled out of the Chapman sweepstakes, although you can never be sure with the Yanks. I don’t see Chapman pitching for a contending major league club this year simply because he needs alot of work with his command. The way the pitching staff is shaping up we have the 5 starters in Beckett, Lester, Lackey, Dice and Buch (in no particular order), and in the pen we have Wakefield (signed a new 2 year deal), Paps, Oki, Bard, MDC, and Ram Ram. The Sox prefer to go with a 12 man pitching staff, leaving only one open spot in the pen, preferably for a lefty. Chapman certainly fits the role being a lefty, but I don’t see him as major league ready, and the Yanks are on record as saying if they signed him, he would start the year in AA.
I see Richardson winning the last bullpen spot in spring training after battling it out with the numerous bullpen arms at have been brought in on minor league deals.
John
January 8th, 2010 at 2:10 am
There just aren’t many guys who can throw 95+, i say grab him and let farrell worry about the command issues, its up to him to impress in spring training as to whether he’ll make the team, Daisuke made the jump straight to the majors and he didn’t have the same gas as chapmain… as a starter the control issue wouldn’t be as big a problem as a reliever
but if they do deal for A-gon where will he play now that beltre is here, move Youk to DH?
January 8th, 2010 at 1:24 pm
James,
There isn’t any room for him in the rotation. I agree that he is very talented and I would love to see the Sox go after him, I’m just saying that he need time in the minors. Also, you really can’t compare Dick K to Chapman, they are extremely different pitchers with extremely different resumes.
As for a potential AGon deal, that could certainly open a place in the rotation if Buchholz is dealt. I wouldn’t be surprised to see Beltre traded if we get AGon, given his team friendly contract. Alot also depends on how Papi does this season. If he is slumping like he did early last season, then Youk could be moved to DH for a couple months until Beltre’s deal is up. Personally, I don’t see an AGon deal happening until next off season at the earliest.
January 8th, 2010 at 3:58 pm
I’m a CPA
but even if I wasn’t maybe the one of the best articles you’ve written Alex. Great job
January 10th, 2010 at 9:28 pm
i think papi will do fine hes tearing the ball up down their and he lost twenty pounds and hes finally healthy
January 28th, 2010 at 4:56 am
agree that he is very talented and I would love to see the Sox go after him, I’m just saying that he need time in the minors. Also, you really can’t compare Dick K to Chapman, they are extremely different pitchers with extremely different resumes.
February 2nd, 2010 at 2:11 pm
I am currently reading it on my Blackberry and will scan it once I get home. I love your site and marketing strategy.
April 20th, 2010 at 5:22 pm
Wow! This is a very poorly written article, albeit complicated. The reasoning does not follow from the facts presented, but it seems that the author was treated to lunch by a Red Sox official and ordered the Lucchino Koolade. How can this be an article about money and third base and December 2009 decisions without mentioning that the Sox hoped to “save” $3 million by offloading Mike Lowell? Sloppy journalism! It is foolish to suggest that Beltre would have gotten more than $9 million in arbitration (he’s had 1 good year and looks as wide-bodied as Shaq out there). It is even more foolish to say that it is nearly impossible to imagine that Beltre would exercise the $5 million option for the second year–his start to date today suggests that few teams would sign him for even that much–look what Pedro Feliz signed for with Houston or what the Sox say Mike Lowell’s real worth is this year ($3 million). Quit taking the Sox’ press room freebies and do some real journalism! To say that “without trading Kotchman…the club could not have signed Beltre” shows a poor command of the past subjunctive tense by the author; the correct snatch of a phrase…”the Sox would not have signed Beltre.” A nuance, for sure, but one that mis-informs the WEEI.com readership–who of course are eminently perspicacious. The author did about a C+ job–the editors much poorer.