Red Sox: Is it time to blow past the final luxury tax threshold?

The Boston Red Sox are right up against the final threshold for penalties under the competitive balance tax system. Should they ignore it?

After the Steve Pearce trade, the Red Sox have virtually no room left to operate under the Competitive Balance Tax threshold. That means that any help for the bullpen, rotation or further help for the bench would need to be payroll neutral to work. Now, you may be saying “They went past the threshold over the winter, didn’t they?” And you’d be right. But I’m not talking about the main threshold of $197M. I’m talking about the third, and final level of penalties levied once a team goes $40M above that figure.

There are three levels of taxes that hit a team as they move further and further past that $197M. The first is a 20% tax for first time offenders which jumps to 30% in the second year and 50% in the third. Getting back under for a year resets the percentage. But that’s not the extent of the system. Teams that exceed the threshold by $20M or more will also see a 12% surtax. Teams that go $40M past it, are hit at 42.5%. That final tax can climb to 45% if a team is $40M above the threshold for a second straight year. Currently, the Red Sox are a first time offender and are just barely below the 42.5% surtax. And if it was just money, I’d say “Who cares? Spend the money!” But there are additional penalties.

They’ll hit you where it hurts.

Starting this season, any team that goes $40M past the threshold will have their highest pick in the June draft dropped ten spots. For a team like the Red Sox that expects to be picking late in the order, that means dropping out of the first round. That might not seem like much, but imagine this year’s draft without Triston Casas as their first pick. For whatever it’s worth, high school pitcher Gunnar Hoglund was selected ten picks later.

Being that far over also puts the Red Sox in a tough spot this coming winter. As a team exceeding the threshold, they can’t sign free agents who have received qualifying offers without sacrificing their 2nd round pick, 5th round pick, and one million dollars of their IFA signing bonus pool. In short, they either stay away from the very top free agents who will be available, or their 2019 amateur talent acquisition plans may get blown out of the water. If they also get hit with the third level of penalties from the CBT program, it would amount to punting that year’s farm system influx.

Of course, they will be over the main threshold no matter what they do this summer, so that’s not a major factor in spending decisions right now, right? Well, every addition to payroll made now can make it harder to get under in the future. The Red Sox will almost certainly be over next year regardless. But getting back under for 2020 is important. So spending decisions now need to be made carefully.

But they should still go over.

This team has a very specific window before they will lose at least some of their talent. Craig Kimbrel, Drew Pomeranz, Joe Kelly and now Steve Pearce will all be free agents after this season. That’s a significant amount of talent headed for the door, but not enough to sink the team’s chances in 2019. Unfortunately, after the 2019 season, Chris Sale, Rick Porcello, Xander Bogaerts, Mitch Moreland, Eduardo Nunez, and Brock Holt will all hit free agency as well. This comes with arbitration awards for Mookie Betts, Jackie Bradley Jr., Eduardo Rodriguez, Sandy Leon, Carson Smith, Andrew Benintendi, Heath Hembree, Steven Wright, and Brandon Workman all going up. In short, the cheap talent will get less cheap and they won’t be able to retain everyone.

That doesn’t mean they can’t be competitive. And it doesn’t mean they can’t hang on to any of the star players. But they won’t keep everyone. They simply can’t. So the 2018 and 2019 seasons represent the best possible chances for the team to win another title in the foreseeable future. And 2018 is the better chance of those two seasons. That means they need to expend whatever resources they can to win now. They’re already all in on player assets. Dave Dombrowski did a great job of using prospect capital to maximize the major league roster. The only resources they have left to spend are money and future farm system assets. Holding back now would be silly.

The playoffs are a crapshoot. Why burn resources for rebuilding the farm more quickly?

A few months ago I wouldn’t have suggested it. But a lot can change in that much time. Specifically, the team can have a strong draft and existing prospects can take steps forward. Coming into the season the Red Sox had one of the worst farm systems in the game. What little talent existed in the upper minors was either limited by ceiling or was serving a PED suspension. The organization also had slow starts from last year’s draft class and saw their top pitching prospect go under the knife. Under those circumstances, it seemed imperative to protect draft and IFA resources jealously.

But things got better. Jock Ockimey took a step forward and started hitting for power in games. After a rough start to the season, Tanner Houck has looked great. Danny Diaz and Antoni Flores from last year’s IFA class are showing why they got nine figure deals. There is reason for hope already in place. And then they went out and had a strong draft. Simply put, there is no lack of high upside players in the low minors now. The seeds for a quick turnaround are in place. And while another year of that kind of talent influx would be helpful, you have to weigh those incremental gains against incremental gains in the quest for another World Series championship banner over the next two seasons. Quite frankly, when push comes to shove, winning now trumps stacking future assets.

So what’s the plan?

The Red Sox should absolutely continue to spend what they can to add more talent to the farm in the short term. That means trading for some more IFA cap money and spending all of it. If possible, outbid other teams for Victor “Victor” when he becomes available later in the summer. Land as many toolsy Latin American players as possible when Monday’s July 2nd signing period kicks off. Manipulate the 2019 draft to funnel as much money into a tough sign or two as possible. Keep pushing for those impact amateur names. But going past the $237M final threshold for this year’s payroll is worth losing some assets for next year.

You are almost all in on this hand. Letting the pot go over your remaining few chips doesn’t make any sense. Push them to the center of the table and see if you have the winning hand. Anything less would be a bad read on the odds. That means going out and getting a Zach Britton, Brad Hand, or maybe Mark Melancon if the Giants decide to sell. Maybe Jeurys Familia or Blake Treinen. There are plenty of options for shoring up the pen. Go do it. And if Dustin Pedroia hasn’t started making real progress by the All Star break, go get a second baseman, too. Time to pull out all the stops. A third straight division title and a fourth World Series championship since John Henry bought the team are within reach. Don’t let them slip over a draft pick and a higher tax rate.

Next: Did Eduardo Rodriguez avoid his changeup against the Yankees?

What do you think the Red Sox should do? Is it worth going over the final threshold and incurring the harshest level of penalties? Let us know in the comments!