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All about the money

Posted by Tony Massarotti, Globe Staff  October 23, 2009 11:14 AM

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The most promising aspect, going forward, is that the Red Sox have money to spend again. And even if the Red Sox elect to spend it all this winter, the even better news is that they project to have just as much financial flexibility during the winter of 2010.

In the end, the bottom line is this:

Over the next two winters, while the heralded prospects in the lower levels of the Boston farm system presumably continue their development, the Red Sox should have the financial flexibility to reconstruct a big league team that has aged in some key areas, deteriorated in others.

And given the shortage of talent available on the free agent market this offseason, the process might take the full two years.

UNDERSTANDING PAYROLL

Accounting can translate into very fuzzy math, of course, so let’s start with this: in the world of professional sports, there basically two kinds of payroll. The first concerns the actual outflow of cash that takes place during any season; the second results from the formula used for salary caps and or luxury tax, the latter of which is known in baseball as the collective bargaining tax (CBT). No matter how you slice it, the Red Sox generally project to be in the range of $140-$150 million annually as it pertains to their major league roster -- and that is basically where the Sox ended up in 2009.

Here’s an example: Before this season, the Sox signed Jon Lester to a guaranteed five-year, $30-million contract that averages out to exactly $6 million per season. The deal included no signing bonus and called for a base salary of $1 million in 2009. In terms of actual cash outflow, the Sox only paid Lester $1 million this year. But with regard to the CBT, his salary stands at the average of $6 million per year through 2013, even when the Sox are paying Lester an actual base salary of $11.625 million in the final year of the contract.

What you save now, you pay later.

Here’s the flip side: When the Red Sox acquired Jason Bay from the Pittsburgh Pirates last year, he was in the middle of a four-year, $18.25 million that averaged roughly $4.55 million per season. For purposes of the CBT, that is the number the Sox were charged for Bay this year. Yet, the Sox actually paid Bay a base salary of $7.5 million this year because Bay’s original deal with the Pirates was backloaded. (This explains why the Pirates traded him when they did.)

Here is an estimated comparison of the Sox’ commitments to their players in 2009 and 2010, separated by actual payroll and the formula used to calculate CBT payroll:

(Key: FA --free agent; ARB -- eligible for arbitration; 0-3 -- player has fewer than three years of major league service and is under team control but ineligible for arbitration, so salary has yet to be determined. Salary figures are in terms of millions.)



ACTUAL

ACTUAL20092010
Alex Gonzalez $0.50 6.0*
Billy Wagner $3.20 FA
Brad Penny $5.00 FA
Clay Buchholz $0.40 0-3
Daisuke Matsuzaka $8.00 $8.00
Daniel Bard $0.30 0-3
David Ortiz $12.50 $12.50
Dustin Pedroia $3.00 $3.50
George Kottaras $0.40 0-3
Hideki Okajima $3.00 ARB
J.D. Drew $14.00 $14.00
Jacoby Ellsbury $0.50 0-3
Jason Bay $7.50 FA
Jason Varitek $5.00 $3.00
Javier Lopez $1.40 ARB
Jed Lowrie $0.40 0-3
John Smoltz $6.90 FA
Jon Lester $1.00 $3.80
Jonathan Papelbon $6.30 ARB
Jose Iglesias $6.00 $0.40
Josh Beckett $10.50 $12.00
Julio Lugo $9.00 $9.00
Junichi Tazawa $0.50 $0.50
Justin Masterson $0.30 n/a
Kevin Youkilis $7.00 $9.10
Laroche/Kotchman $1.80 ARB
Manny Delcarmen $0.50 ARB
Mark Kotsay$1.30 FA
Mike Lowell $12.00 $12.00
Nick Green $0.60 FA
Paul Byrd $0.20 FA
Ramon Ramirez $0.40 ARB
Rocco Baldelli $0.70 FA
Takashi Saito $6.00 FA
Tim Wakefield $4.60 $4.00
Victor Martinez $1.90 $7.00
Others $2.00 $2.00
Totals $144.60 $100.80





CBT

CBT20092010
Alex Gonzalez $0.50 $6.0*
Billy Wagner $3.20 FA
Brad Penny $5.00 FA
Clay Buchholz $0.40 0-3
Daisuke Matsuzaka $8.70 $8.70
Daniel Bard $0.30 0-3
David Ortiz $13.00 $13.00
Dustin Pedroia $6.80 $6.80
George Kottaras $0.40 0-3
Hideki Okajima $2.30 ARB
J.D. Drew $14 $14.00
Jacoby Ellsbury $0.50 0-3
Jason Bay $4.60 FA
Jason Varitek $5.00 $3.00
Javier Lopez $1.40 ARB
Jed Lowrie $0.40 0-3
John Smoltz $6.90 FA
Jon Lester $6.00 $6.00
Jonathan Papelbon $6.30 ARB
Jose Iglesias $0.00 $2.10
Josh Beckett $10.00 $12.00
Julio Lugo $9.00 $9.00
Junichi Tazawa $1.10 $1.10
Justin Masterson $0.30 n/a
Kevin Youkilis $10.30 $10.30
Kotchman/LaRoche $1.80 ARB
Manny Delcarmen$0.50 ARB
Mark Kotsay $1.30 FA
Mike Lowell $12.50 $12.50
Nick Green$0.60 FA
Paul Byrd $0.20 FA
Ramon Ramirez $0.40 ARB
Rocco Baldelli $0.70 FA
Takashi Saito $6.00 FA
Tim Wakefield $4.60 $4.0*
Victor Martinez $1.00 $7.0*
Others $2.00 n/a
Totals $148.40 $109.50


(Notes: With regard to the CBT, Matsuzaka’s average of $8.67 does not include the $51.11 million postion fee the Sox paid for his rights late in 2006; also, though it is not reflected in the CBT calculation here, each club is required to contribute roughly $10.2 million to play benefits. That figure increases the Sox’ 2009 CBT to roughly $158.6 million.)

THE SHORTER TERM

Though the Red Sox have no major free agents other than Jason Bay, their financial flexibility this offseason is similar to that of a year ago, when the Sox offered a whopping eight-year, $170 million contract to Mark Teixeira, who eventually signed with the New York Yankees. In lieu of acquiring Teixeira, the Sox effectively spent their money on John Smoltz ($6.9 million after bonuses), Takashi Saito ($6 million after bonuses) and Brad Penny ($5 million). Those three players alone cost the Sox a combined $17.9 million, not much less than the $21.25 million annual average the club offered to Teixeira.

The bad news? Smoltz was an enormous bust, Penny was a moderate bust, Saito was grossly overpaid. The good news? The Red Sox aren’t on the hook for any of them anymore, something of which Bay’s agent (Joe Urbon) is surely to remind the club if and when negotiations between the player and team reach a critical stage.

At the moment, after all, Bay seems the best fit and solution -- at least on the free agent market -- for a Sox team that has some offensive questions after a collective .224 team batting average over the last two postseasons. Aside from Bay, the only other relatively young elite run producer on the open market is Matt Holliday, whose brief history in the American League is suspect. The Sox always could opt for a shorter-term solution like Bobby Abreu, but Bay and Holliday seem to be the most obvious place where the Sox could utilize the estimated $40 million (annually) they have to spend this winter.

If neither of those players ends up in Boston, general manager Theo Epstein may have little choice but to focus on a stopgap measure like Abreu, though he will have other options, too. Thanks to their financial picture beyond 2010, the Sox may have great flexibility in a trade.

THE LONGER TERM

Following the 2010 season, David Ortiz, Mike Lowell and Josh Beckett all will be eligible for free agency, shedding another $35-$37.5 million from the Red Sox payroll, depending on the precise calculation. Jason Varitek ($3 million in 2010) could be gone. Tim Wakefield ($4 million, assuming the Sox exercise his 2010 option) could be gone. This could allow Epstein great flexibility to make a blockbuster trade in much the same way that interim Sox executives Bill Lajoie and Craig Shipley executed the deal for Josh Beckett and Mike Lowell in November 2005.

That year, in order to acquire Beckett, the Sox took on Lowell’s contract. The Sox subsequently re-signed both players, though Lowell would have been set free following the 2007 season had his career remained in a funk.

So, depending on what the Sox do this winter, Epstein could have an absurd amount of money to spend next year at this time, giving the Sox the chance to go on a spending spree like the one the Yankees ventured on last winter. At the moment, the Sox have an estimated $50-$65 million committed in player salary for the 2011 season. Even when adding the team contribution to player benefits, the commitment stands in the range of roughly $60-$75 million, roughly less half of the team’s projected number in the last few years.

And remember: Lester, Dustin Pedroia, Kevin Youkilis, Jacoby Ellsbury, Jonathan Papelbon, Daniel Bard, Daisuke Matsuzaka and J.D. Drew, among others, all are under team control through that year.

For all of the concern about the Red Sox’ offense going forward, the pitching staff is in excellent shape. That fact should allow Epstein to focus his efforts on offense this winter, particularly with prospects like pitcher Casey Kelly already making waves in the Boston system. The biggest question Epstein may be faced with this offseason will result if he fails to sign either Bay or Holliday, leaving the Sox with a fistful of money and no marquee free agents to spend it on.

When that happened last year, Epstein signed a handful of pitchers to one-year contracts and rolled the dice that the Sox could pitch their way to a world title. And though that plan ultimately fell a few steps short, the Sox essentially are right back where they started.

With a roll of cash in their pockets, faced with the decision of spending it now or spending even more later.

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Updated: Mar 1, 07:24 AM

About Mazz

Tony Massarotti is a Globe sportswriter and has been writing about sports in Boston for the last 19 years. A lifelong Bostonian, Massarotti graduated from Waltham High School and Tufts University. He was voted the Massachusetts Sportswriter of the Year by his peers in 2000 and 2008 and has been a finalist for the award on several other occasions. This blog won a 2008 EPpy award for "Best Sports Blog".

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