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Contextualizing the luxury tax penalties

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It shouldn’t be that big of a deal

Photo by Joel Auerbach/Getty Images

The Red Sox can always spend more money, just like any other team in baseball. Professional baseball teams in today’s game print money, particularly marquee franchises like the Red Sox and Yankees. Just with the basic revenue alone they can afford a massive payroll. That of course doesn’t even count the valuation of teams, which is the real money maker for owners. Even if teams operate at a loss — and with TV money and revenue sharing that is basically impossible at this point — owners are guaranteed to make their initial investment many, many times over when they sell the team. And that puts aside the fact that sports franchises are vanity purchases for many owners who have already made more money than they can ever spend.

Anyway, all of that is to say that the Red Sox have money to spend, and they spend it last season. Again, they can always spend more, but at least relative to the rest of the league Boston spent their cash. While most of the rest of baseball was trying to get under the first luxury tax threshold, Boston soared over the highest threshold. Good for them! Sincerely!

On Saturday, the AP released the details of what exactly it means for the Red Sox to exceed this threshold. They were one of two teams in baseball to go over the luxury tax (the Nationals were the other), and as a result they had to pay......a little under $12 million. They also saw their top draft pick drop ten spots back. That $12 million is being used by some as a justification for them to scale back their payroll for the 2019 season — though, to be fair, they haven’t explicitly expressed a desire to do so themselves — which is ridiculous. Here’s what $12 million means to them.

  • Here is a list of players who will make more than $12 million in 2019: Mookie Betts, J.D. Martinez, Chris Sale, Rick Porcello, Nathan Eovaldi, Dustin Pedroia. It is over $6 million less than what they’re paying Pablo Sandoval to not play baseball for them.
  • That $12 million is roughly what Xander Bogaerts is projected to make in arbitration this coming season. It is also almost exactly what the Red Sox will pay Rusney Castillo to play in Triple-A for the upcoming season.
  • The $12 million is $750,000 less than what the Red Sox will pay their first base platoon of Steve Pearce and Mitch Moreland.
  • Boston’s luxury tax payment is roughly equal to what the team is paying all of their current relievers.
  • Most importantly, according to a Forbes study from last year, the Red Sox were valued at $2.8 billion after the 2017 season and during that season they made $453 million in revenue. Or, in other words, they made almost 38 times that $12 million luxury tax payment, and that was in a season where they did not win at a record pace and take home a championship.
  • The draft pick fall is probably what hurts more than the actual luxury tax payment. The actual fall in the first pick doesn’t hurt too much — in terms of talent expectation the difference between 33rd and 43rd in the draft isn’t very much — but the argument would be that the total pool money dropoff can hurt. It’s not nothing but in all the Red Sox lose less than $500,000 in draft money. That is roughly one fewer lottery pick in the final 20 rounds, which isn’t nothing but also isn’t a total killer.

So, yeah, the Red Sox paid a penalty and they deserve credit for actually spending money. It’s becoming more and more of a rarity in today’s game. That being said, they also aren’t really paying a big penalty. If there’s anything I’ve learned from all this, it’s that more teams should be spending this kind of money. The tax rate does go up for repeat offenders, but there is a lot of room between their current tax rate and one that would truly hinder them on the business side of things.