Red Sox: Three ways to dip under luxury tax while still contending

There are ways that the Boston Red Sox can get under the luxury tax without giving up their high-priced stars so that they can still contend for a title.

The Boston Red Sox have a clear goal of trimming the payroll this offseason in order to avoid going over the luxury tax for a third consecutive season. That doesn’t mean they can’t put together a contender in 2020.

The luxury tax threshold is set at $208 million for next season, which poses a problem for the Red Sox since they are already well over that figure.

Boston has approximately $139 million in committed salaries for next season, per Spotrac. This accounts for only seven players, including Dustin Pedroia, who may never see the field again. Pablo Sandoval‘s $5 million buy out also counts toward the tax.

The rest of the roster has yet to have their contracts finalized but we have a fairly good idea of what they will cost. The 12 arbitration-eligible players are projected to earn a combined $70 million. That leaves seven pre-arbitration players to fill out the remainder of the 25-man roster, tacking on approximately $4 million. We also need to account for about $15 million in benefits and other expenses that count toward the tax.

That puts the Red Sox payroll in the neighborhood of $228 million without making any offseason additions to improve the roster. They need to cut at least $20 million, preferably more so that they can afford a back of the rotation starter or bullpen arm.

The good news is that there are ways the Red Sox can get under the tax without giving away any of the high-priced stars they will need in order to contend next season. Following each of these three steps would be enough to provide Boston with the savings they need.

Non-tenders

The easiest way to cut payroll is by letting go of expendable players. Considering the team’s payroll constraints, we can start with the players hitting free agency. We shouldn’t expect to see Rick Porcello, Brock Holt, Mitch Moreland, or Steve Pearce return. Each has provided value in the past but they are either coming off down seasons or don’t have a clear path to playing every day. The Red Sox can replace them with cheaper options.

Next, we have the arbitration eligibles. These players aren’t signed yet to contracts for 2020 but they remain under team control. They can’t negotiate with other teams as a free agent – unless the Red Sox let them leave. The team could decline to tender them a contract, allowing them to hit the free-agent market.

From the list of 12 arbitration-eligibles on the Red Sox roster, we can find a few expendable pieces.

Chris Owings (projected $3 million) and Gorkys Hernandez ($1 million) are seldom used options the Red Sox added for depth late in the season but neither performed well enough to entice the team into bringing them back.

Sandy Leon is solid behind the plate but his anemic bat makes him a liability in the lineup. His value stems mostly from being Chris Sale‘s security blanket, which isn’t worth the $2.8 million he’s projected for. Boston can find a cheaper backup catcher.

Between injuries and suspension, Steven Wright ($1.5 million) was limited to 6 1/3 innings this year. He didn’t perform well in his limited time, posting an ERA north of 8.00 for the second time in the last three years.

Heath Hembree is a solid middle reliever but easily replaceable for less than $1.6 million.

Non-tendering those five players would shave nearly $10 million from Boston’s projected budget. They would need to replace their roster spots with pre-arbitration players making close to the minimum. Let’s conservatively say that cutting these five players saves the Red Sox $7 million. That puts the payroll projection at $221 million.

Re-Negotiate Martinez contract

J.D. Martinez is set to earn $23.75 million in 2020 and $62.45 million over the next three seasons. However, he has a clause in his contract that allows him to opt-out after any of those seasons to test free agency again.

If Martinez exercises the opt-out this offseason, it’s possible he could walk away to sign with another team. Removing his salary from the payroll is enough to get Boston under the tax line but removing his bat from the lineup severely hinders their chances to contend for a playoff spot.

There’s a way to keep Martinez and still save some money. The key is convincing him to opt-out in order to sign a new deal with a lower average annual value, which is what matters for luxury tax purposes.

Martinez counts for about $22 million against the tax under his current deal. The Red Sox could offer him a new contract that pays him the same amount over the next three years while tacking on two more years at a lower rate.

Let’s say the Red Sox offer Martinez a five-year, $95 million deal. The average annual value drops to $19 million, saving $3 million per year against the tax.

Would Martinez accept that offer? His agent is Scott Boras, so we can assume the preference would be to test the market to get a better offer but it’s unclear where he’d find one. The Red Sox were his only serious suitor when they signed him to a 5-year, $110 million deal. Is he going to match that now that he’s two years older? If he plays out the remainder of his contract before testing the market, is any team giving a 35-year old designated hitter more than $16 million per year?

He may look around for other options if he opts out but it’s reasonable to believe the Red Sox can convince him to stay on a new deal that lowers his tax hit. An AAV of around $19 million drops the total payroll to about $218 million.

Outright Pedroia

The three previous steps would combine to get the Red Sox barely under the tax line. It leaves them very little wiggle room to upgrade the pitching staff, which is a necessity if they truly want to contend.

One way to get further under the threshold is to remove Dustin Pedroia’s $13.75 million from the payroll.

The veteran second baseman has been limited to a total of nine games over the last two years while dealing with a career-threatening knee injury. A few months ago, Pedroia admitted that he was uncertain if he’ll ever return to playing baseball.

Pedroia isn’t going to forfeit the $25 million remaining on his contract by retiring. He’s earned that money even if his knee prevents him from taking the field again.

However, the Red Sox could outright Pedroia off the 40-man roster. He would easily clear waivers since no team is touching his contract without a guarantee he can still play, allowing him to stay in the organization. Pedroia would still get his money if he accepts a minor league assignment, where he’d be placed on the injured list.

The option to add him back at some point would still be available but removing him from the 40-man roster for next year means he won’t count toward the tax. The scenario is similar to when the Red Sox outrighted Allen Craig in 2015.

This is a bit of a sensitive topic for the Red Sox. We’re all rooting for a Pedroia comeback. He and the team need to be realistic though. He’s 36 years old and coming off consecutive seasons lost to injury. If he’s not ready to play by the time spring training rolls around, the Red Sox can’t afford to have his salary constraining their budget.

Taking Pedroia’s salary out of the equation would allow the Red Sox to duck the tax even if they aren’t able to complete all three of the previous steps. Maybe not all five of those arbitration-eligibles need to go. Martinez might not be willing to re-negotiate. Boston could keep Bradley.

Outrighting Pedroia is an uncomfortable move but it may be a necessary one. He’s the wild card who could put the payroll goals back on track if the team stumbles along any of the previous steps. Or the move could be combined with all three steps in order to give the Red Sox room to upgrade the pitching staff.

Regardless of Pedroia’s fate, there is a clear path to how the Red Sox can conceivably slash the payroll enough to get under the tax without significantly hindering their chances to contend next season.