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:
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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