So it was about the Luxury Tax after all

The trade deadline has come and gone and the Red Sox apparently navigated it while staying under the first luxury tax threshold. This is a major disappointment to most of us who hoped the so-far successful season would have convinced them to change course and blow past that first tax threshold to improve this team. In fact, when the Schwarber trade was announced with the Sox apparently picking up his remaining contract, most of us who follow the Sox payroll declared that they had, indeed, blown past the tax threshold. But according to Chaim Bloom, they have not gone over the tax threshold, and the lack of other major moves bares this out.

But if you crunch the publicly available numbers, the Red Sox are clearly over the first tax threshold by about $3M. So what gives? Clearly we believe the Sox know how do to basic arithmetic. In the end, this must mean some of the publicly available numbers are just plain wrong. I see this as being one, or a combination, of the following:

  • Cash was included in a trade that has not been announced correctly. This could simply be the Nats paying most of Schwarber's contract, or maybe a past trade like David Price
  • One or more contract AAV (Average Annual Value) was not reported correctly and has not been corrected
  • The widely assumed "Health And Benefits Cost" of ~$15.5M is incorrect.
I have a feeling it might just be that the Nats paid for Schwaber's contract, but it just hasn't been reported. That would seem more in line to me for what we gave up for an injured rental player. I also wonder if there's anything tricky about the Price situation given he opted out last year. How exactly was the cash structured that the Sox sent to LA? I plan on looking into this more when I'm back from a mini vacation.

The 2nd bullet is just saying maybe a contract wasn't reported to the public 100% correctly. Who would really go about correcting this? If the original source was incorrect and everyone copies it, then it'll just propagate and no one is really in a position to correct it unless they directly ask the Sox and they feel like answering.

The 3rd bullet is interesting because the "Payroll Internet" has been blindly assuming this value (increasing by 0.5M/year) for a long time and I have not seen much in the way of recent or independent verification. In the past, I've tried to decipher this value myself from the CBA, but it does not seem calculable just from the CBA alone and you need to know more intimate MLB finance nubmers that aren't necessarily available.

One interesting way to tease this out would be to look at another team that is seemingly riding as close as possible to the tax threshold, e.g. the Yankees. Do they come out also seeming above the threshold? If so, that might point to the health and benefits number being off. If not, then it might be something specific to the Sox, i.e. bullet points 1 and 2. Unfortunately, to do this right is a lot more work than the basic payroll spreadsheets you'll see on the internet that just throw out some made-up bulk number to cover all the IL usage, bonuses etc. If I get motivated in the coming weeks, I'll try to do an actual calculation of the Yanks tax payroll situation.