From a business standpoint, pending the outcome of the Jason Varitek negotiations, what the Red Sox have done this offseason is to further diversify their portfolio. The $20-million man is gone from the team payroll, but the upper-middle class has grown.
|RED SOX SALARY SNAPSHOT: In baseball, like in others businesses, there are countless ways to calculate expenditures. For the purpose of calculating baseball's luxury tax -- otherwise known as the collective bargaining tax (CBT) -- the value of a player's salary is determined by the average annual value of his contract.|
For example: While Jason Bay is due to earn $7.5 million this season, he counts just $4,562,000 against the salary "cap" because he is in the final year of a four-year, $18.25 million contract worth $4.562 million per season. On the other hand, Dustin Pedroia will count for $6.75 million this year (and every year through 2014) even though the Sox actually will pay him a base salary of just $1.5 million because of his new six-year, $40.5 million contract.
With that in mind, here is the projected Red Sox payroll for 2009, taking into account that Jason Varitek still might sign and that all clubs must pay $10 million-$12 million -- let's call it $11 million for the sake of easy bookkeeping -- for player benefits:
But before you lament the fact that the payroll has gone down, remember these things:
First, of that $20 million-$30 million margin from two years ago, the large majority might have gone to Mark Teixeira, and some could still end up in the hands of Varitek.
Second, the Sox now possess great flexibility to add talent both during this season and after it, barring some unknown circumstance concerning the financial health of owner John Henry. Whatever the Sox failed to spend this winter is more that they can spend later.
In the interim, here are a few other things you should know:
- Though the Sox still owe some deferred money to Manny Ramirez, they effectively have wiped his average annual $20-million salary (since 2001) from their books. The large majority of this money was used in the contracts for Dustin Pedroia, Kevin Youkilis, and Jonathan Papelbon, whose combined salaries in 2008 were roughly $4 million. In 2009, Pedroia, Youkilis and Papelbon will be on the books (again, by the CBT formula) for more than $23 million, a colossal increase.
In Pedroia’s case, while he will earn a base salary of just $1.5 million this year (after receiving a $1.5 million signing bonus), the average value of his contract rests at $6.75 million because the deal is back-loaded. This gives the Sox the benefit of some cash flow now, though they will lose that flexibility with Pedroia later in the deal.
- The luxury-tax threshold for 2009 rests at $162 million, giving the Sox ample room to add players during the season and still avoid the tax. That number is up from the $155 million threshold last season, a number the Sox did not eclipse. While some estimates have placed the Sox’ final payroll at roughly $148 million last season, others have pushed it closer to the $155 million. The one thing we know for certain is that the Sox did not exceed that number since they were not required to pay the tax.
- Had the Sox signed Teixeira for an average of roughly $21 million a year, they still would have been in the market for pitching help, be it in the form of John Smoltz (who eventually got $5.5 million from the Sox, plus incentives) and Brad Penny ($5 million, also plus incentives), or Derek Lowe (who received four years and $60 million from the Atlanta Braves). Had the Sox signed Teixeira, their interest in Lowe actually would have been greater because the compensatory draft selection for Lowe would have been only a second-rounder, since they would have given up the first-rounder for Teixeira.
However, once Teixeira ended up with the New York Yankees, the Sox had a hard time justifying (to themselves) the forfeiture of a first-round draft pick for Lowe, who might have been willing to accept a three-year deal to play in Boston over a four-year proposal from the Braves.
- For accounting purposes, Jason Bay is a bargain. Though the Sox will pay Bay a $7.5 million base salary in 2009, he counts for only $4,562,500 against their CBT payroll because he is in the final year of a four-year, $18.25 million contract.
- Two years ago, when the Sox had Eric Hinske on their roster, Hinske’s base salary was $5.625 million. However, because Hinske was in the final year of a five-year, $14.75 million contract, his CBT for the Sox’ purposes was a mere $2.95 million. Because the Sox got slightly more than $2.8 million from the Toronto Blue Jays under the terms of the trade in which they acquired Hinske, the Sox effectively were able to carry him on their roster for what amounted to nothing by accounting standards.
As one Sox official noted at the time, "He’s basically a free player for us."
- Finally, the Red Sox are out from under that four-year, $40 million contract they granted Edgar Renteria following the 2004 season. The were obligated to $3.67 million of Renteria’s salary per year, through last season, after which the player became a free agent. As a result, Renteria is no longer on the Boston payroll.
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