FanPost

2014 and the Luxury Tax

Given the way the Yankees and Red Sox have been acting since the new CBA was agreed upon, I think it is time to start thinking of the threshold for the luxury tax, or competitive balance tax (CBT), as a soft salary cap.

Hal Steinbrenner has stated publicly he is determined to bring the Yankees under the cap in 2014 when it rises from the current $178M to the new level of $189M. The Red Sox' thrifty behavior this off-season gives me every reason to believe they will follow suit. The Yankees and Red Sox were the only teams to pay the luxury tax last year, and the new CBA apparently gives them persuasive incentive, if not to stay under the cap for good, at least to go under the cap once and do it soon.

For once having advance knowledge of the team's budget, we can begin even now to look at what the 2014 Boston Red Sox might look like.

Starting at the cap of $189M, first we'll deduct the medical expenses, 40-man roster salaries, and bonuses. It is not known what these expenses amount to in any given year. For 2012 Alex Speier estimates they are $14M (mostly tied up in medical). I imagine they'll rise in two years like everything always does, but I don't know how much. Then again big reforms to health care occur in 2014, and I have no idea how that will affect the Sox. I do know a competitive team requires payroll flexibility to add players during the season, so I'll work that into those expenses and just make it an even $20M for the sake of convenience.

Current contracts for 2014

Including Lester, whose contract contains a club option for 2014, there are currently seven players under contract for the Red Sox in 2014 (see Cot's listings and handy chart). For luxury cap purposes, the amount of the salaries is determined by the average annual value (AAV) of each contract. When there are option years with buyouts things can get tricky, as we learned this year regarding Scutaro's contract. Buyouts count as guaranteed salary from the outset of the contract, and a player option counts as a guaranteed year. I am not completely certain how to handle buyouts on club options; I believe the option is not a guaranteed year, though the buyout is definitely guaranteed salary. I apologize ahead of time if I've miscalculated anything.

Gonzalez $22M
Crawford $20,285,714
Beckett $17M
Lackey $16.5M (or perhaps as small as $8.5M)*
Pedroia $6.75M
Buchholz $7,486,250
If Lester's option is picked up: $12.75M

Total for 7 players: $102,771,964

Which leaves space for $66,228,036 with possible additional savings of $8M.

* Lackey's contract has a mysterious sixth-year club option at league minimum for 2015 which becomes available when Lackey misses significant time due to elbow injury. It is not publicly known if the option can be picked up by 2014, but Speier has specifically said that this option has not been activated for 2012. The option once activated would immediately alter the Sox' cap space for the better, ensuring that this will eventually happen even if Lackey does not play a sixth year in Boston. If, in fact, the option cannot be picked up until after 2014, then the relevant hit to the cap space for 2014 would be the normal $16.5M. If the option can be activated as soon as the year is lost to injury, then the option could be activated before 2013 such that the AAV for the final three years could be reduced to $11.167M. Or they could hold off a year and pass the savings on to 2014 and 2015 when the AAV would be just $8.5M. I'm not sure that is possible, but it would be nice.

Players eligible for arbitration in 2014

Of which there are eight currently under team control (not counting McDonald who will be 35 years old and Arb-2 eligible; I assume he won't be around).

Arb-3 players -- and for perspective, their current (Arb-1) salaries, which will increase annually

Bard -- $1.6125M
Bailey -- $3.9M
Aceves -- $1.2M
Aviles -- $1.2M
Morales -- $850,000
Miller -- $1.04M

For more perspective on Bard, Aceves, and Bailey, last year C.J. Wilson and Jonathan Papelbon avoided their third years of arbitration with $7M and $12M contracts, respectively. Now, we don't know if Bard and Aceves will be starters or relievers; we don't know if Bailey is going to be healthy. Aviles, conceivably, could mature into a starting role. Or maybe none of these players will be on the team. Speculation is highly uncertain here.

Arb-2 players

Melancon, if he makes super-2 status; otherwise he'll be Arb-1
Tazawa

How much might the Red Sox spend on arbitration-eligible players in 2014? For 2012 the number is $23.1775M, but that is without any Arb-3 players besides Albers, who was cheap. Most, in fact, were Arb-1 players. In 2014 the situation will be reversed. By trading away or releasing players the cost can be contained, but for our purposes I'm going to estimate $30M spent on arbitration-eligible players.

The cap space remaining now is $36,228,036.

So ... we're still going to sign Ellsbury, right?

Guess what: Jacoby Ellsbury is up for free agency before the 2014 season. Do you think there is room for a $20M player in that budget? So far we've accounted for seven players on contract and at the very most, I'd say, seven arbitration-eligible players. After Ellsbury, we'd have about $16M to fill ten roster spots -- that's $1.6M per spot in a year when minimum salary will be $500,000.

Oo, oo! Can we sign a free agent starting pitcher, too?

Oh! You want a free agent starting pitcher, too, huh? Yeah, we've been waiting for this: The 2013 class could include (barring extensions) Greinke, Hamels, Cain, McCarthy, Marcum, and Anibal Sanchez. And for 2014: Lincecum, Josh Johnson, Garza, Jimenez.

But already on contract for the Sox would be Beckett, Buchholz, Lackey, and in all likelihood Lester. Bard could be a starter. One of the younger competitors for this year's rotation could surprise us and stick there: Aceves, Doubront, Tazawa, Wilson, Miller. Prospects Ranaudo and Barnes could be ready to debut in 2014, though barring something spectacular, come the start of the season I think they would still be considered as depth.

For some time I've been looking forward to these upcoming free agent classes and dreaming of landing a new ace. Should we sacrifice a chance at signing Ellsbury? Buying out Lester's option would be counter-productive to say the least. He's as good as anyone you'd realistically hope to get for the price of his option, $13M.

Scarily, we might not be able to refresh our aces for years to come. The free agent market looks daunting budget-wise, and we have no high-ceiling #1 pitchers in the farm system. A big trade could be the only way it could happen ... and I'm reminded that's how Pedro, Schilling, and Beckett -- on whose shoulders rest the team's only two live-ball era championships -- came to Boston in the first place.

Or, realistically, we could just forget about re-signing Ellsbury. I don't see that happening in time for next year's free agent class, however. And the class after that (in which Ellsbury will partake), has fewer great pitchers, probably even fewer once some sign extensions.

No, looking at this budget and considering how Cherington has behaved as GM so far, I think it not likely the team will sign another big free agent contract for the next two years. Ellsbury is the best chance since he's homegrown talent, but I more easily see him receiving another offer the Red Sox just can't match. Perhaps a somewhat smaller deal will be struck with someone else instead.

If the team is going to contend in the next few years, well, some good trades will need to be engineered, and, more essentially, a new core of good, young pre-arbitration players will need to emerge. In 2007 we had Pedroia, Ellsbury, Papelbon, and Lester arrive in time to help Manny, Papi, and Varitek win another title. They didn't do it without Beckett and Lowell, either. We'll need all that again.

Filling out the Roster: the Infield

So far in our plans for the 2012 infield, we have Pedroia and Gonzalez and possibly Aviles. That's a good start. At catcher we have nobody, as Saltalamacchia will be a free agent for 2014. Fortunately for third base, shortstop, and catcher, there are three AAA prospects that could fill those holes, and potentially even look good doing it.

Will Middlebrooks has a solid floor at the Major League level and could be manning third base as soon as next year. I for one am optimistic that Jose Iglesias' bat will develop sufficiently to complement his elite defense at shortstop. There is always Aviles for either of these two positions should the prospects fail. Between the three of them, hopefully the Sox will have a left side of the infield without resorting to free agency.

Ryan Lavarnway has been steadily improving his defense behind the plate, and of course his bat exploded in the upper minors last year, spilling over into the majors a little. He is the hope for starting catcher. The market for catchers is fairly deep the next two years; finding a second one for 2014 should not be difficult.

A lot is riding on these prospects, I feel.

Filling out the Roster: the Outfield and DH

We have Crawford in left, and with plenty of room to run because center and right are conspicuously vacant. Re-signing Ellsbury ... well, we've covered that. Ryan Kalish has the perfect combination of tools to play either center or right. He's been injured so badly over the last year, it has been pretty devastating. The hope is fading, but it is still there.

Reddick was traded for Bailey and Sweeney. Sweeney will be a free agent. Chih-Hsien Chiang was traded for Bedard (Trayvon Robinson was flipped for the same). While a wonderful fielder, Che-Hsuan Lin's lack of any power at the plate is a liability. Bryce Brentz has a chance to debut in 2014; predicting him as a starter would be too ambitious. Other prospects are too far away, with futures too uncertain. Then again, hey, there's always Mike Aviles.

At designated hitter, it should be apparent to all that there is no Papi in 2014. Not unless at age 38 his asking price is cheap and his bat still worthwhile. If his 2012 is productive, expect no arbitration again for 2013 but a lower one-year offer. In his stead, Lavarnway could make a good DH, but he's the hope for catcher. DHs these days come cheap on the open market, at least. If Lavarnway can't catch, then DH is open for him, and as I said before, catcher is a position of depth in the next two free agent classes.

The purpose of free agency is supposed to be to fill holes in your homegrown talent, positions of need that you can't afford in trade. It looks like outfield along with catcher and/or DH will be such holes.

We sure could use Ellsbury, which sadly, Boras knows. Get well soon, Ryan
.

Bullpen

The relief market is constantly turning over, and a good GM can assemble an adequate bullpen on the fly for not too much. With Bailey, Melancon, Bard, Aceves, Morales, Doubront, Miller, Tazawa, Wilson, Bowden, Mortensen, and Carpenter -- all under team control in 2014 -- it is not a concern, not presently. The Reddick and Lowrie trades made sure of that. This could be used to the team's advantage, though, which I will get to in a moment.

About that $36M...

So after accounting for the current contracts, arbitration contracts, medical expenses, in-year flexibility and the like, I said we were down to about $36M. Optimistically, Lavarnway, Middlebrooks, Kalish, and Iglesias will all play, and along with a second catcher might cost $8M. Now we have $28M for one outfielder, a DH, two bench pieces (Aviles counting as one of the necessary three), and final pieces of the pitching staff. There could be as many as three or four pitchers not yet covered in the budget, mostly relievers.

We need more cap space. The most efficient way I can think of is trading Andrew Bailey. Making $3.9M now, he could be making $10M by 2014. Replacing him in the pen with, say, a $1.5M reliever (while moving Bard or Melancon into the closing role) would save $8.5M of cap space. Now you have $36.5M to spend on the same needs, one of which could be met by the Bailey trade. Cherington would have done his job well if he could prove Bailey healthy and AL East-effective and then flip him for a young outfielder better than Reddick. Perhaps in 2014, this outfielder will cost, say, $4.5M.

Now there's $32M for a DH, two bench pieces, and three or four pitchers, most or all relievers. If perchance Lackey's contract could be rigged properly, another $8M in cap space can be engineered. $40M sounds good (we could buy the Padres!). More than likely, though, this money will also need to be used to fill a hole created by Kalish or Iglesias failing to arrive, or by injuries to the starting pitching. I feel confident now that my speculation has reached a point of feasibility.

It Will Happen

I am confident that the Red Sox front office will make all the strides necessary to avoid paying the luxury tax in 2014.

The success of the team under these strictures will depend largely on the development of many players you know: Middlebrooks, Lavarnway, Iglesias, Kalish, Doubront, Tazawa, Wilson. Whether or not enough of these prospects show Major League promise in the next two years will determine if the Red Sox can make a competitive bid on Ellsbury. I do not now expect a big free agent signing next year (blargh!!), unless it is first determined that Ellsbury will not re-sign the following year. Perhaps in 2014 a larger than average signing will be feasible once it is at last known Ellsbury is gone.

Clever trades will be necessary to keep the team afloat; I particularly advocate flipping Bailey so as to avoid paying eight figures for a closer in a year crucial to the luxury tax. Doing so before 2013 would increase his value to other teams and improve the return.

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