|No luxury tax implications of timing of extension for David Ortiz or Jon Lester||03.21.14 at 8:11 pm ET|
There was a time when the Red Sox were very careful to announce extensions after Opening Day. Players who hammered out the parameters of long-term deals in spring training but waited until after the first day of the season to announce them included David Ortiz, Coco Crisp, Josh Beckett, Clay Buchholz and Adrian Gonzalez.
The reasoning was sensible enough. If the extensions had become official prior to the start of the season, then the players’ salaries for the season for which they were under contract would be recalculated for luxury tax purposes. So, for instance, in 2011, Adrian Gonzalez made $6.3 million. Had his seven-year, $154 million extension become official when the Sox traded for him from the Padres or during spring training, his deal would have been treated as an eight-year, $160.3 million pact — meaning a luxury tax figure of just over the average annual value of $20 million a year. By waiting until mid-April to announce the deal, Gonzalez counted for just $6.3 million in 2011 — thus saving the Sox millions in luxury tax penalties that year.
That history created an expectation that, if the Sox reach agreements with David Ortiz (who is making $15 million in 2014 but who counts for $17 million against the luxury tax) and Jon Lester (who is making $13 million in 2014 on a team option, but whose luxury tax figure is approximately $9.37 million), they wouldn’t be announced until after the start of the regular season to avoid a potential luxury tax hit.
The new Collective Bargaining Agreement, which took effect starting in the 2012 season, eliminated the recalculation of a contract’s AAV as a result of an extension. So long as the second deal does nothing to alter the terms of the first, the two contracts are treated as separate. Read the rest of this entry »
|Larry Lucchino on Red Sox payroll, Carl Crawford, David Ortiz, Jason Varitek, Tim Wakefield and more||02.10.12 at 7:26 pm ET|
Red Sox president and CEO Larry Lucchino rebutted claims that his team is scaling back its spending this offseason, saying in multiple settings that his team plays on blowing past the $178 million luxury tax payroll and suggesting that the Sox will exceed the $189 million franchise payroll record, which was set last season.
In an appearance on Sirius/XM MLB Network Radio’s “Inside Pitch,” Lucchino painted a picture of a far-reaching commitment by team owners to the payroll, both over the duration of the group’s tenure (which began in 2002) and in 2012.
“Look at what we’ve done and not what we say. Since we have been here — we are now beginning our 11th year — our payroll has consistently been at the top end of Major League Baseball,” said Lucchino. “It has not been No. 1. That position has been reserved, probably permanently, for the New York Yankees, but it has been second most every year, and we have invested lots of money in amateur draft picks. We sign our draft picks at a much higher percentage than used to be the case. We’ve invested in international signings — you can look at some of our Cuban players and some of our Japanese players — and so we have invested dollars into this franchise because we recognize that the fundamental question about a franchise and about its ownership is, is there a commitment to winning. I think that our track record demonstrates that there is that commitment.
“Now, this year, if you want to talk specifically about 2012, we will have the highest payroll in the history of the Boston Red Sox in 2012,” Lucchino continued. “Will we eclipse the luxury tax threshold? To be sure, we will — once again. So I think the talk of us not spending needs to be viewed in the context of real facts and in comparisons to real dollars.”
In earlier comments to MLB.com, Lucchino also disputed the notion that the Red Sox’ spending has been impacted by the Fenway Sports Group’s ownership of the Liverpool Football Club.
“That has not been the case,” Lucchino said of the idea that the Red Sox ownership group was channeling its resources towards soccer players. “There has not been a situation where that was cited for a reason for us not to do something here.”
Asked for how he feels when his team is characterized as being “cheap,” Lucchino suggested amusement.
“It makes me laugh. It just proves the old adage that you can’t please all of the people all of the time. You certainly can’t please all of the sportswriters much of the time. But that’s OK,” said Lucchino. “What’s important to us is that our fans realize that we are in this to win it, and we operate accordingly.
“Are there financial constraints from time to time? Of course there are. No one has an unlimited budget to do absolutely everything they want to do. But with some common-sense parameters, as I said, we’re going to have the highest payroll in the history of the Boston Red Sox this year, and the commitment to winning from the very highest levels — John Henry, Tom Werner — throughout the entire organization, there is a powerful sense of obligation that our job is to commit to win, provide our fans with entertaining, competitive, winning baseball.”
(For a detailed look at the Red Sox payroll, click here.)
Lucchino also touched on a number of additional topics. Among them: Read the rest of this entry »
|A look at the updated Red Sox payroll (and correcting the record on John Lackey’s deal)||01.26.12 at 11:57 am ET|
The trade of Marco Scutaro unexpectedly freed up more payroll for luxury tax purposes than expected, as the shortstop’s $6 million salary in 2012 would have represented a $7.67 million payroll hit for luxury tax purposes. (More on that here.) Yet in another way, the Sox have slightly less flexibility than anticipated.
It had been assumed that John Lackey had given the team a couple million dollars in additional payroll flexibility with the news that Tommy John surgery that will cost him all of the 2012 season. That is because his absence for the season in turn gives the team an option on his services at the major league minimum for the 2015 season, thus seemingly turning his contract from a five-year, $82.5 million ($16.5 million AAV) contract to a six-year, $83 million contract ($13.83 million AAV).
However, that conclusion was based on a premature push of the fast-forward button. Lackey’s contract remains a five-year, $82.5 million deal. There was a conditional club option for the 2015 season that, if he missed an entire year with a preexisting elbow condition, he would pitch in 2015 for the major league minimum. That is now a club option (rather than a conditional one), rather than a guaranteed season. As such, it does not alter how Lackey’s contract impacts the team’s payroll in 2012. He still represents $16.5 million in salary against the luxury tax threshold in 2012.
That now out of the way, here’s a look at the Red Sox‘ current payroll commitments, in a year when the Red Sox appear to be budgeting for somewhere in the vicinity of $185 million to $190 million (a number that will exceed the luxury tax threshold of $178 million): Read the rest of this entry »
|Red Sox GM Ben Cherington: ‘Don’t feel like we need’ to make a move||01.25.12 at 5:40 pm ET|
Red Sox GM Ben Cherington, in an interview on The Big Show, said that the Red Sox face a budget but not a mandate to stay under the $178 million luxury tax threshold for 2012, explained the rationale for the trade of Marco Scutaro to the Rockies and suggested that, while the Sox are exploring options (including starting pitching options) to reinforce their roster, that he is comfortable with where the team stands with its pitching.
Cherington suggested that the team is weighing whether there is more to be gained by using their available resources to sign players now or whether the team might be better served to maintain financial flexibility for potential deals either during spring training or leading up to the trade deadline.
“We would be content going [into spring training] with the pitching staff we have right now. Again, any decision you make, when it comes to acquiring a player, whether a free agent or a trade, there’s that decision and then there’s the opportunity cost of doing that. There’s something, by doing that, that you may not be able to do. Those are the things we weigh,” said Cherington. “If there’s something that helps the team now, that we think makes sense and is the right value, then we’ll do that. If not, we’ll keep our doors open, remain flexible and consider things during spring training and during the year.
“Teams evolve,” he continued. “Teams very seldom look the same way in July or at the end of the year that they do in spring training. In large part, that’s because baseball is such a difficult sport. It’s such a grind, it’s such a long season. It’s hard to predict exactly what you’re going to need. It’s hard to predict how players are going to react or respond. Sometimes flexibility can be a good thing.
“The Cardinals, in spring training last year, were getting beat up because they hadn’t extended Pujols and they lost Wainwright in spring training. Things worked out pretty well. That’s not to suggest it’s always going to happen that way, but things change a lot in baseball. We need to stay nimble and be prepared to react to things that we think make sense. If that’s next week, then it’s next week. If it’s a month from now, then it’s a month from now. If it’s July, then it’s July. We’ll just take every opportunity as it comes.”
“There’s a lot out there. If we acquired every player we are rumored to be on, we’d need, like, an 80-man roster. I’d never comment on a negotiation, specifically,” said Cherington. “We’re talking to a few different guys, we’re considering different things. If there’s a way to make our team better, whether it’s the rotation of the pitching staff or whether it’s another part of the team between now and spring training, we’ll do that.
“We don’t feel like we need to do that. We feel like we’re in a good position. If spring training started today, we like the mix that we have and we’ll have plenty of contenders for the end of the rotation and the last couple bullpen spots.”
To listen to the compete interview, visit The Big Show audio on demand page. Here is a transcript of other highlights of the interview:
Are the Red Sox under orders to stay under the luxury tax threshold of $178 million in 2012? Read the rest of this entry »
|Source: Red Sox expect to go over luxury tax threshold||12.13.11 at 1:16 pm ET|
According to a major league source, the Red Sox expect to exceed the $178 million payroll threshold that would trigger luxury tax payments for the 2012 season. That is, of course, subject to change, but barring a deal that would see the Sox part with an established veteran, the team anticipates taking on enough payroll during the remainder of the offseason that it will have to pay the competitive balance tax in 2012.
The Red Sox typically feature payrolls that scrape against or clear the luxury tax. In eight seasons starting in 2004, the team has exceeded the luxury tax payroll threshold (which is based on the average annual salary of players on the 40-man roster as well as medical and benefits payments) six times, topping out with a $6 million payment in the 2007 championship season (when the Red Sox spent over $163 million in a year in which the threshold was set at $148 million). This year marked the sixth such instance, with the Sox having spent more than $178 million on major league payroll (as calculated for luxury tax purposes), although the precise luxury tax hit on the Sox has yet to be announced.
Now, with the Shoppach signing, the Sox have 13 players under contract for 2012 for approximately $130 million. Additionally, the team will retain David Ortiz (likely to receive in the vicinity of $14 million) and the 23 players who were tendered contracts for 2012 on Monday will likely add approximately $20 million in additional payroll. Combined with the benefits payments, that would push the team’s 2012 payroll between $170 million and $175 million, with the team still looking to add multiple pitchers to round out both the rotation and the bullpen.
All of that makes it virtually inevitable that the Sox will end up clearing the luxury tax in 2012, though the team will try to remain close to the $178 million mark to minimize its penalty. Assuming the team does spend beyond the $178 million payroll, the Sox will be taxed at a 40 percent rate for any payroll that exceeds the luxury tax threshold, a percentage that reflects the fact that next year would mark the third straight in which the Sox paid the luxury tax.
Even so, the team has a significant incentive to get below the luxury tax threshold in coming years. If the Sox go over the mark in both 2012 and 2013, they will be penalized at a 50 percent rate in ’13. On the other hand, if the Sox move back below the luxury tax threshold, the tax rate will re-set. If, for instance, the Sox fall below the luxury tax threshold in 2013 but then exceed it in 2014, they would be penalized at a 17.5 percent tax rate in 2014.
While mindful of the luxury tax implications of any money spent now, the Sox seem resigned to the probability that they will spend beyond next year’s $178 million threshold. However, they are also operating as if they have limited resources to spend this winter, as the team has no apparent plans to blow past that mark.
For a breakdown on the Red Sox’ current payroll commitments for next season, click here.
|Red Sox join Yankees in getting hit with a luxury tax bill||12.21.10 at 6:01 pm ET|
According to the Associated Press, the Red Sox joined the Yankees as the only two teams to pay Major League Baseball’s luxury tax for the 2010 season. The Yankees, according to The AP, paid $18 million in luxury taxes, while the Sox will be billed for just under $1.5 million in luxury taxes.
The Yankees, who have paid MLB’s competitive balance tax in all eight seasons of its existence, are taxed at a rate of 40 percent above the CBT threshold, which was $170 million in 2010. That means that New York’s payroll, for the purposes of calculating the luxury tax, was approximately $215 million. The Sox, who had been under the luxury tax threshold in the last two seasons, were taxed at a rate of 22.5 percent, meaning that their payroll was roughly $176 million. That would mean that the 2010 Sox had the highest payroll of all time for any non-Yankees club, eclipsing the $163.1 million by the 2007 Red Sox.
Next year, the Red Sox would have to pay a 30 percent premium on any payroll expenditures above the 2011 luxury tax threshold of $178 million. As things stand right now, the Sox already appear poised to exceed the threshold. For more on the Sox’ luxury tax situation for next season, click here. For complete Red Sox coverage, visit weei.com/redsox.
|Extension can wait? Why Adrian Gonzalez extension might not make sense right now||12.05.10 at 7:06 am ET|
The big fish is on the hook, and now needs only to be reeled in. Or does he?
The Red Sox made their trade to acquire star first baseman Adrian Gonzalez on Saturday, giving up the richest package of prospects they’ve parted with since they sent Hanley Ramirez to the Florida Marlins as the headliner in the Josh Beckett deal. It’s a landscape altering deal in many respects, but as much as the Sox love Gonzalez, they were not going to agree to such a rich prospect package without the opportunity to have an exclusive negotiating window to talk to the slugger and his agent about an extension.
Since GM Theo Epstein became the head of baseball operations in late-2002, the Sox have almost always used their key chips to get players whom they would have under contract for more than one year. That has been especially true in recent years, when the team acquired Victor Martinez and Jason Bay for two seasons of control. In ’09, when the team was discussing dealing a number of its best minor leaguers for players like Martinez, Gonzalez, Roy Halladay and Felix Hernandez during the season, it was in part because all of those players would have impacted the Red Sox in at least two seasons.
The Sox are not going to give up their top pitching prospect (Casey Kelly), their top power hitting prospect (Anthony Rizzo) and one of their top defensive prospects (Reymond Fuentes) without getting Gonzalez for several years. But, of course, the Sox have the negotiating window with Gonzalez, so they can do precisely that: Talk with the player and his agent in order to make sure that the two sides see eye to eye on his value, thus allowing the team to secure the 28-year-old’s value for the next several years.
But in at least some respects, the best course the team can take might be to agree with Gonzalez to the parameters of a deal right now, and then wait until, say, April 8 (the day of the Fenway opener against the Yankees) to announce it.
Disclaimer: This scenario is entirely speculative. But there was, at the least, this intriguing tweet from Jon Heyman of SI.com late on Saturday night:
“[The Red Sox] may be willing to do [a Gonzalez] deal without extension and may actually prefer to just talk parameters now, then watch him in spring,” Heyman wrote.
The right shoulder, on which Gonzalez underwent surgery in October and that will keep him from playing until spring training, could serve as the ostensible justification to delay a deal. The Sox could say that they simply want to see the slugging first baseman back on the field and healthy before they formalize the extension. But no one involved in the deal appears to think that the shoulder will actually be a significant concern going forward, and multiple reports suggested that Gonzalez’ physical went without a hitch on Saturday.
The real reason why the Sox might want to wait until after the start of the regular season to announce an extension, if at all possible, is financial. Specifically, the luxury tax implications for the timing of the announcement of a long-term deal are huge.
Right now, Gonzalez is slated to play the 2011 season for a bargain basement $6.2 million option. That salary would give the Sox tremendous financial flexibility to address other needs, most notably, to dip their toes in the water and gun for another big offseason kahuna, namely an outfielder along the lines of Carl Crawford or Jayson Werth.
But, for the purposes of calculating the competitive balance tax (CBT) on the Sox’ 2011 payroll, Gonzalez’ contract would no longer be calculated at $6.2 million if he signs an extension before the start of the season. Let’s say that the Sox are able to sign Gonzalez to a six-year, $132 million extension to run from 2012-2017, after the expiration of his current contract. (Again: purely speculative numbers.)
For luxury tax purposes, Gonzalez’ option and the extension would be added together. So, he would be viewed as receiving a seven-year, $138.2 million deal, with an average annual value of $19.74 million per year.
The implications would be significant. The Sox have always viewed their CBT payroll as being more significant than their actual payroll, and with good reason: If they can avoid doing so, they don’t want to pay the luxury tax.
The Sox did exceed the $170 million luxury tax threshold in 2010; every dollar they spent beyond that sum will be taxed at a rate of 22.5 percent. In 2011, the tax rate will rise to 30 percent for every dollar they spend beyond the $178 million threshold outlined in the Collective Bargaining Agreement.
If Gonzalez is playing under the terms of his current contract, it would go a long way towards helping the team avoid paying the tax in 2011. Superstar production for a $6.2 million CBT can help transform a payroll.
But if the Sox sign Gonzalez to an extension now, the team would have an additional $13.5 million in taxable payroll (again, as calculated for luxury tax purposes). That would make it very difficult — indeed, almost impossible barring a move to shed payroll — for the team to sign a Werth or Crawford while staying under the luxury tax threshold of $178 million. That, in turn, could cost the Sox over $4 million in luxury tax money. (Under a six-year, $132 million deal, it could be as much as $4.05 million.)
So what does that have to do with signing the extension after the season starts? If the extension is signed after Opening Day rather than before it, then it would not be factored into the calculation of Gonzalez’ AAV for the 2011 season. So, he would have a $6.2 million CBT hit in 2011, and then count for $22 million (or whatever the average salary is of his long-term deal) against the luxury tax threshold during the life of the extension. Under that scenario, the Sox could likely afford to hand out a monster contract to Werth or Crawford while still limbo-ing under the luxury tax threshold for next year.
Keep in mind that the Sox have frequently gone to such lengths in order to minimize their luxury tax hit. A few examples:
— The team waited to announce extensions for Coco Crisp (2006 for the 2007-09 seasons), David Ortiz (2006 for the 2007-10 seasons) and Josh Beckett (2010 for the 2011-14 seasons) until after the start of the season so that they would be able to minimize their luxury tax hit.
(A footnote to this idea: The Sox would, of course, be increasing their luxury tax hit for the 2012-17 seasons in this scenario, from $19.74 million to $22 million. But: 1) No one knows what form, if any, the luxury tax will take in the next Collective Bargaining Agreement, which is currently open to negotiation between players and owners; 2) The extra $2 million and change represents a fairly small increase; and 3) The Sox will have contracts for J.D. Drew ($14 million AAV), David Ortiz ($12.5 million), Jonathan Papelbon (approx. $11 million), Mike Cameron ($7.75 million), Marco Scutaro ($6.25 million), Tim Wakefield ($2 million) and Jason Varitek ($2 million) coming off the books after the 2011 season. That is a mind-boggling $55.5 million coming off the books for luxury tax purposes.)
All of that being said… It should surprise no one if Gonzalez and the Sox announce by 2pm EST on Sunday (the deadline for the negotiating window, as reported via twitter by Ken Rosenthal FoxSports.com) that they have a deal in place. This is a marriage that both parties want to enact.
BUT, if there is not an extension, it is far from a worst-case scenario for the Sox. You may hear statements suggesting that the sides are close, but that they wanted to get to know each other a bit better, and to see where Gonzalez’ health stands entering the season. But the reality is that if the Sox and Gonzalez don’t have an extension officially in place, it may just be a matter of waiting for the start of the regular season to announce it so that the team will maximize its financial flexibility to pursue other deals this offseason.
|Beltre and the 2011 Payroll||01.06.10 at 8:25 pm ET|
One further update regarding Adrian Beltre’s contract and its implications for the luxury tax.
Beltre’s one-year $9 million deal with a $5 million player option is treated, for purposes of determining the luxury tax, as a two-year deal with a $7 million average annual value (AAV), since player options are always treated as guaranteed money. There is every reason to believe that Beltre will not exercise his $5 million option, given that he is looking to increase his value by a year in a ballpark that is friendly to right-handed hitters before going back on the market in 2011.
That being the case, it is fair to ask: what are the luxury tax implications if Beltre declines his player option?
The Collective Bargaining Agreement stipulates that “[i]f a Player fails to exercise or chooses to nullify a Player Option Year that is deemed a Guaranteed Year … the difference between the amount paid to the Player under his Contract (including any Option Buyout payment) and the amount that has been attributed to Actual Club Payroll of a Club under that Contract shall be added to (or subtracted from) Actual Club Payroll in the Contract Year in which the Player Option Year falls.”
Translation: if Beltre declines his option, then the $2 million difference between what Beltre will be paid in 2010 ($9 million) and his Competitive Balance Tax number in 2010 ($7 million) will be assessed in the luxury tax calculations of the 2011 payroll.
So, based on the Sox’ efforts to minimize the luxury tax number associated with Beltre in 2010, assuming that he declines his player option, he would count for approximately $2 million against the Competitive Balance Tax in both 2010 and 2011.
|Sox Rank Fourth in MLB Payroll in ’09||12.22.09 at 3:31 am ET|
According to the Associated Press, the Red Sox ranked fourth in major-league payroll in 2009 with a $140.5 million payroll for luxury tax purposes. That mark ranked behind the Yankees ($226.2 million), Mets ($142.2 million) and Cubs ($141.6 million).
The Yankees were the only team that paid a competitive balance tax (CBT) in 2009. By blowing past the $162 million luxury tax, New York incurred a $25.7 million penalty that it paid into Major League Baseball’s central fund. The Yankees have now paid $174 million in CBT penalties since 2003.
The 2009 season marked the second straight year that the Sox — who paid a total of $13.9 million in CBT taxes from 2003-07 — had a payroll that fell below the luxury tax threshold. As such, if the Sox exceed the luxury tax threshold in 2010 (something that seems likely given the team’s current commitments), they will be penalized 22.5 percent on any payroll commitments in excess of $170 million.
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