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Doing the math on the Red Sox payroll

Posted by Tony Massarotti, Globe Staff  January 24, 2011 07:44 AM

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We received a number of emails and comments last week with regard to the Red Sox payroll, so today seems like a good time as any to address the topic. Payroll numbers all depend on the accounting. In baseball as much as any sport, the math can be fuzzy.

So know this: For the purpose of those who do not have access to the Red Sox’ financial information – namely, almost all of us – the only number that really matters is what baseball often refers to as the competitive balance tax (CBT) or "luxury" tax payroll. In 2011, the luxury tax threshold is $178 million. The Red Sox currently stand at a little more than $180 million. As a result, the 2011 Sox must pay a tax of 22.5 percent on every dollar they spend over the allotted $178 million, which translates into $225,000 for every million.

At the moment, for the Red Sox, that tax is a relatively small number. (Let’s call it $450,000 to $500,000, just to make it simple.) But unless the Sox trim salary during the season, every million added in payroll will actually cost them $1.225 million from this point forward.

Now, in terms of how the CBT payroll is calculated, that is another matter. Let’s use Dustin Pedroia as an example. In December 2008, after winning the American League Most Valuable Player Award, Pedroia signed a six-year, $40.5 million contract extension that pays him an average of $6.75 million per season through 2014. In CBT calculations, that $6.75M is the only number that matters. So, even while Pedroia’s contract called for salaries ranging from $1.5 million (in 2009) to $10 million (in 2014), he is listed at $6.75 million for each of the six years on the contract. This generally prevents big market teams from manipulating deals so that they can avoid the luxury tax, something teams often do by front-loading or back-loading contracts.

As such, front-loading and back-loading is still allowed, but only to manage actual cash flow. With regard to team payroll, the average annual salary is all that matters. And so, while Pedroia is due a base salary of $5.5 million this year, he will actually count $6.75 million against the tax. By contrast, Kevin Youkilis will earn $12 million this year while counting only $10.3 million against the tax because the latter comprises the average annual salary of his four-year, $41.125 million deal.

All of this brings us to Adrian Gonzalez, who is due $5.5 million this year under his current contract. If they Sox were to formally announce the signing of Gonzalez now – most believe that he has generally agreed to the framework of a seven-year deal worth about $154.5 million – his average annual salary would go from $5.5 million (his current CBT number) to somewhere around $20 million. By delaying the announcement until Opening Day, the 2011 Red Sox will save somewhere around $18 million in accounting dollars – comprised of the $15 million in average salary increase and the additional estimated $3 million they would pay in luxury tax.

In 2011, that $15 million will essentially pay for someone like John Lackey. So that is why the Red Sox are believed to be delaying announcement of any deal with Gonzalez until after Opening Day. By doing so, under the terms of baseball’s bargaining agreement, Gonzalez’ new deal would not factor into any team accounting until 2012.

Before we get to the actual breakdown of the 2011 Red Sox, a few other points:

  • Under the terms of the bargaining agreement, official payrolls are for 40-man rosters, not 25-man rosters. While the roster spots 26-40 generally cost relatively little, there are exceptions. For example: the Red Sox have deals with both Junichi Tazawa and Jose Iglesias that are deemed major league contracts because of their status as coveted prospects (at the time of signing). Iglesias signed a four-year, $8.25 million that essentially translates into $2.1 million per year. Tazawa signed a three-year, $3.3 million deal that translates into $1.1 million per. Both count against the luxury tax.

  • Every team is required to pay a sum into the player benefits plan each year – health care, etc. Estimates on this number have varied slightly over the years, but most team executives have pegged it at somewhere in the neighborhood of $10-$12 million. For all teams, this number counts against the luxury tax. For the sake of simplicity, we’ll call it $11 million.

  • Not all salaries are determined at this point, so estimates must be used in some cases. For example: Clay Buchholz, Daniel Bard, and Jed Lowrie do not possess the necessary service time to qualify for salary arbitration or free agency. As a result, their 2011 salaries are not yet known. If the Red Sox have not already begun negotiations with these players, they will do so during spring training. Talks must be finalized in March, at least with regard to 2011. Bard, Buchholz, and Lowrie have little or no leverage at this point, and all are likely to end up with deals somewhere around $500,000 or $600,000, give or take.

  • Last year, Buchholz made $443,000. Lowrie made $434,000. Bard made $415,500. At the early stages of a player’s career, salaries are extremely low and based largely on service time. The reason why Lowrie was paid slightly more than Bard last year is because he had slightly more major league experience entering the season.

    One additional point here: Based on how Theo Epstein has done things during his time as general manager, Bard and Buchholz both seem like logical candidates for long-term deals now. But given where the Sox already are with regard to the luxury tax, don’t be surprised if the Sox manipulate the system a little with either player (or both). The Sox could very well sign Bard and Buchholz to low, one-year deals during spring training, then announce longer, multi-year deals after Opening Day. That would allow them to keep their luxury tax number where it is while also fixing the long-term costs on two of their better young players.

    What follows if the Red Sox’ 2011 CBT payroll. Remember that many numbers are estimates based on information we have and do not include discounts for deferred money, etc.

    Player | Average annual salary
    Carl Crawford: $20.30 million
    Josh Beckett: $17.00 million
    John Lackey: $16.50 million
    J.D. Drew: $14.00 million
    David Ortiz: $12.50 million
    Jonathan Papelbon: $12.00 million
    Kevin Youkilis: $10.28 million
    Daisuke Matsuzaka: $8.67 million
    Mike Cameron: $7.75 million
    Dustin Pedroia: $6.75 million
    Marco Scutaro: $6.25 million
    Jon Lester: $6.00 million
    Bobby Jenks: $6.00 million
    Adrian Gonzalez: $5.50 million
    Dan Wheeler: $3.00 million
    Tim Wakefield: $2.50 million
    Jacoby Ellsbury: $2.40 million
    Jose Iglesias: $2.06 million
    Jason Varitek: $2.00 million
    Hideki Okajima: $1.75 million
    Junichi Tazawa: $1.10 million
    Jarrod Saltalamacchia: $ .75 million
    Jed Lowrie: $ .50 million
    Clay Buchholz: $ .50 million
    Daniel Bard: $ .50 million
    Scott Atchison: $ .44 million
    Felix Doubront: $ .40 million

    Balance of roster: $2.50 million
    Benefits: $11.00 million
    Total: $180.92 million

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    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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