It's not a secret that the Red Sox just spent a lot of money. According to multiple reports, Ben Cherington and the front office are preparing to commit four years and $88 million with a vesting option for another to Hanley Ramirez and five years and $95 million to Pablo Sandoval. Given the team's hesitancy to give out deals longer than three years in recent off seasons, the decision to sign not one, but two players to contracts longer than three seasons.
While the signings represent a major financial commitment, they mark the beginning of a new player personnel decision making philosophy for the Red Sox front office in multiple areas.
With the reported $41 million committed to just Ramirez and Sandoval alone. With the 2015 luxury tax cap set at $189 million dollars and the team currently committed to spending about $184.84 million according to the estimates done by Alex Speier of WEEI.com (with salaries adjusted following the reported deals for Ramirez and Sandoval), the team has about $4 million left to spend.
With the team's already massive spending so far this offseason, there is a decent chance that, given the need to add pieces to field a team to match the organization's expectations, the Red Sox will be penalized for exceeding the luxury tax. While the team has tried to stay under this ceiling in recent years, Red Sox owner John Henry downplayed the potential effect of the tax on a team's ability to operate.
"It's a question we've been talking about and discussing internally over the last couple years," said Henry. "It has gotten harder to spend your money in ways we normally were doing it. We spent a lot of money in the amateur draft and got tremendous results from that. It's an issue and something that we've talked a lot about. It is more difficult. How we're going to address that and deal with that is, because you always focus on payroll in the media. There are a lot of external dollars that don't head up there. Those avenues have been closed off."
How much is this potential effect on the wallets of ownership? For this, we'll create a best case scenario (using Jim Bowden's generally pretty close to accurate free agent contract projections): the Red Sox sign both Jon Lester (six years, $138 million, $23 million AAV) and Andrew Miller (three years, $25.5 million, $8.5 million AAV). In addition, they trade Yoenis Cespedes (due $10 million in 2014) for another starting pitcher (lets say around $9-$12 million committed). That would bring the payroll to between $215.34 million and $218.34 million.
The current structure of the collective bargaining agreement constitutes that a team is penalized a first time penalty of 17.5 percent of the money spent over the threshold level. A second straight year brings a 30 percent penalty, a third year a penalty of 40 percent and a fourth and every other subsequent year a 50 percent penalty. When a team drops below the threshold, the rate resets. Because the Red Sox have been under this threshold, this would bring the luxury tax first year penalty under this hypothetical payroll to a grand total between $4.61 million and $5.13 million. Given the current value of the Red Sox (and the growing amount of money in the game due to television deals), this is not a massive amount of money. On Tuesday, Henry appeared to agree with this sentiment.
"The way it's structured we can blow through one year," Henry told reporters at Fenway. "Again for next year we have tremendous flexibility so we could go could through for one year and not overly effect us."
That tax hit, however, is lessened by the fact that the Red Sox have a tremendous number of players coming off the books for the 2016 season. Mike Napoli ($16 million), Shane Victorino ($13 million), Edward Mujica ($4.75 million) are all free agents for a total of $33.75 million. David Ortiz's option would also reduce his salary $6 million. A picked up option for 2016 for Clay Buchholz would increase the righty's salary by $750,000. That would bring the total money coming off the books (before arbitration numbers) to $39 million.
Over the last couple of years, the team appeared to take the philosophy that the luxury tax threshold was some sort of hard cap. This time, however, represents an outlier in the current ownership's group. The team regularly went way past the threshold from 2004 through 2011. The signings of Sandoval and Ramirez indicate a shift from a philosophical extreme for a major market team. For most teams in baseball, the threshold, the threshold does represent a hard cap. The Red Sox aren't most team, something that is a luxury of playing in one of the most profitable baseball markets in the country.
For the last couple of years, the Red Sox spending philosophy represented a financial extreme for a team with the money to disregard the rules of most franchises. The other extreme for the team was seen, of course, with the Carl Crawford signing, when the team committed seven years and $142 million to the outfielder. That era of spending for the Red Sox was slammed closed with the Nick Punto trade to the Los Angeles Dodgers.
Beyond the finances, there has been recent shift in personnel philosophies as well.
For two years, the Red Sox, like many around baseball, began to overvalue many of their home grown prospects. This trend in baseball happened to coincide with the development of two of the team's most highly lauded prospects in years in Xander Bogaerts and Mookie Betts. The unwillingness to part with young talent to acquire established major league talent became something that began to hamper the development of, not only the Red Sox, but a lot of teams around baseball.
Cubs reportedly offer Lester 'north' of $135M
The chances that $120 million were enough to get Lester seemed slim, and offers like this will require a response from the Sox eventually.
The first sign in a shift in that philosophy appeared at the trade deadline when Cherington surprised everyone by dealing Lester, not for top minor league talent, but an established player in Cespedes. The intrigue of prospects comes in the unknown, the promise of potentially seeing the next major league star before they become that player. The cold, hard truth -- marked again on Tuesday by the designation of former top MLB.com 100 prospect Ryan Lavarnway for assignment -- is that most prospects fail. According to a study from Scott McKinney on Royals Review, nearly 70 percent of top 100 prospects fail. Seventy percent.
A prime example of the failure rate in top prospects is the Adrian Gonzalez trade with San Diego. The three main pieces sent to the Padres were Anthony Rizzo, Casey Kelly and Reymond Fuentes. Rizzo is now a star for the Chicago Cubs (who sent Andrew Cashner to San Diego to acquire Rizzo). Kelly underwent Tommy John surgery in 2013 and has pitched in six games in the majors since leaving the Red Sox organization. In response to the 40-man roster crunch, the Padres dealt Fuentes last Thursday for Kyle Bartsch, a reliever prospect with a moderate ceiling. Three years after the trade to San Diego, Fuentes is a long way from his days as a former first round pick and top Red Sox outfield prospect. As of now, one of the three prospects have made an substantial impact at the major league level. Two are now with different organizations.
While Bogaerts and Betts represent two players that the organization views as untouchable (unless Giancarlo Stanton clones himself with his new, juicy contract or the White Sox suddenly make Chris Sale available), it's not unreasonable to think that two of the three prospects it would take to acquire a front line starter (starting with a package with Blake Swihart, Henry Owens/Brian Johnson/Eduardo Rodriguez and Manuel Margot) will not turn out to become what the evaluators say they will become.
Yes, the Sandoval and Ramirez signings represent a risk. They, however, represent a move towards a medium between two philosophical extremes that the Red Sox have reached in recent years. On one end, the team began to rely heavily on high-priced free agents and significant contract lengths. While there is significant money promised to both players, the contract structures for both players -- a four year deal with a vesting option dependent on Ramirez' health and a five year deal with a club option for Sandoval, a player uniquely positioned as a 28-year-old free agent in his prime -- are significantly smaller commitments than the ones made to Crawford and Adrian Gonzalez.
On the other end, the reliance on home grown prospects and short term deals eventually lead to a World Series victory and then a subsequent last place finish. With the trade for Cespedes and the two signings made this past week, Cherington and company marked the beginning of a new era in player personnel decision making for the Red Sox.