An updated look at the 2018 payroll for the Boston Red Sox for luxury tax purposes following the signing of J.D.Martinez.
The Boston Red Sox will venture back into luxury tax territory in 2018 after ducking the threshold last year to reset the penalties levied against repeat offenders. We expected this would happen. The only question was how far would their spending go.
The signing fo J.D. Martinez pushes Boston’s payroll well beyond the $197 million tax threshold this year. The penalties vary depending on how far over the tax teams go and how many consecutive seasons they have gone over the threshold.
As a first time offender, the Red Sox would pay a 20 percent base tax for going over the threshold by less than $20 million. The Martinez signing puts them well over $217 million, pushing them into the next tier. Exceeding the tax by between $20-40 million results in a 32 percent tax. This is the area the Red Sox intend to stay in this year. Exceeding the tax by more than $40 million would result in a massive spike to a 62.5 percent tax, plus they would have their first-round draft pick moved back 10 spots.
The Red Sox would prefer not to pay the steepest of those penalties, with the concern based more on the draft pick penalty than John Henry’s wallet. They could take the hit if absolutely necessary but with Martinez on board, there’s no dire need to do so at the moment. However, the need for an in-season move could arise, potentially increasing the payroll. How much flexibility do the Red Sox have to make moves without putting themselves in the top tax tier?
The luxury tax accounts for the average annual value of a player’s contract. While Martinez will earn $25 million this season he only counts for $22 million for tax purposes. This is why the structure of Martinez’ deal was so important. It gives the player the average annual salary he wants in the guaranteed years before the opt-outs become available while creating additional space for luxury tax purposes.
The payroll for luxury tax purposes current sits at a tick below $230 million, according to Cot’s Baseball Contracts.
This figure is merely an estimate based on the 22 players currently signed to 2018 contracts with the Red Sox. Plus nearly $14.5 million for Pablo Sandoval. Yes, his bloated contract still counts against the tax despite that he was cut loose from the roster last summer.
The rest of the 40-man roster will count toward the tax but we don’t know their salaries yet. These pre-arbitration eligible players will make around the major league minimum or minor league salaries.
Cot’s projects these salaries to add up to about $4.225 million, which seems a bit low. Their estimate assumes only three pre-arbitration eligible players will be on the 25-man roster. Andrew Benintendi and Rafael Devers are locks to open the season with the big league club. We can assume Blake Swihart and Brian Johnson will too since they are out of minor league options. Matt Barnes, Heath Hembree, Robby Scott and Marco Hernandez are solid bets as well. Several others are likely to see at least some time on the big league roster.
A more realistic estimate of these combined pre-arbitration salaries is probably in the $5-6 million range.
About $14 million of the projection provided by Cot’s is attributed to health benefits, spring training allowances, travel expenses, etc. Again, this is only an estimate.
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This conservative estimate puts Boston’s payroll at around $232 million for luxury tax purposes in 2018. The actual total could vary slightly but the projection falls short of $237 million by enough that we can be comfortable in assuming they will stay out of the top tax tier.
However, that doesn’t leave the Red Sox with much flexibility to make moves during the season. If the opportunity to acquire a difference-maker at the trade deadline presents itself then they will need to be cautious of how much salary they take back in the deal.
Boston could create some extra breathing room by trading or releasing Brock Holt ($2.225 million). Bringing back Eduardo Nunez makes Holt more expendable. The same can be said for Sandy Leon ($1.95 million) if Swihart proves capable of handling the backup catcher role this spring. Both are useful players that the Red Sox would like to keep, but creating more wiggle room under the top tax tier to make potential deadline deals may be more important for a contending team.
There’s still time before the season opens for additional moves to alter this projection but at the moment it seems the Red Sox should stay safely in the middle tier for luxury tax offenders.