For Future Considerations

Boston’s offer on the table to J.D. Martinez is $125 million for 5 years, according to “source”. (Yeah, thanks, Boston Herald.) But what are the penalties under the new CBA, and is Boston likely to incur them, if they make that deal? In short: hefty, and yes.

Let’s do a little level-setting. Under the new CBA the penalties increase depending on how far over the threshold a team goes, and on how many consecutive years they exceed it. The lowest penalty is a 20% tax on any amount exceeding the threshold. The highest penalty is a 95% tax on any amount $40 million higher than the threshold, plus having next year’s first round pick getting pushed back 10 slots. Page 124 of this PDF has the details.

So let’s look at 2018. The threshold is at $197 million this year. On the first $20 million over that threshold Boston would be taxed at 20%, given that they did not exceed the threshold last year. On the next $20 million they would be taxed at 32%; and on any amounts above that they would be taxed at 62.5%.

If I did the math correctly (using amounts at Cot’s and soxprospects) the Red Sox have $123.75 million in prior contract obligations (using AAV, not 2018 amounts) spread across 14 players, another $38.15 million to 10 players who were eligible for arbitration, and another $8.72 million in minimum contracts to the other 16 players who will be on the 40 man roster. There’s another $7.31 million in player benefits that get lumped in with salary for the sake of these calculations. That puts the Actual Club Payroll - the term they use for “payroll for the sake of the CBT” - around $178 million, well below the threshold… if they don’t sign anyone else after today. If they go $125m/5y with JDM, they would be just around $202.4 million (booting one minimum contract player off the roster). Not bad! They’d be around $5 million above the threshold, and would pay $1 million in tax.

Did I say “not bad”? Well…

In 2019 they will have 15 players reaching arbitration. Fun fact: after the 2013 championship they had 15 arb-eligible players… in 4 seasons combined. That’s a crazy big number for one year. They had ten this year, and that’s a crazy big number. Fifteen is insane.

How big will the salary impact be for them? There are two ways to look at this. First, on average, players in arb years see a 100% increase in salary. On that basis we should expect these players to be paid $82 million next year. Second, if we assume each of them averages a $3 million raise that would be a $45 million raise on their current salary of $41 million, or a 2019 commitment of $86 million. Let’s say $82 million because it’s lower and this is getting depressing.

What makes it even more depressing is that they will have 8 players reaching free agency, but those players are making around $3 million on average this year. Replace them with minimum contracts, and there’s not much in savings. Tally up everything and we’re sitting at $225 million. The threshold next year is $206 million, and the tax rate for a 2nd-year offender is 30%, so that’s another $5.7 million in tax. Again, this is without signing anyone except Martinez. If someone leaves, they’re replaced with a minimum salary player.

It can’t get worse, can it? Yes and no.

In 2020 they lose some expensive players to free agency, bringing those obligations down to $70 million (for 3 players: Pedroia, Price, and JDM). Again they have 15 arb-eligible players, with Bogaerts, Holt, and Thornburg (free agents) being replaced by Benintendi, Hernandez, and Marrero. And absent any signings they’ll have 22 players on the 40-man roster making the minimum. Seems like the roster is slipping, right? Should be cheaper, right? It is: $203 million. The threshold is at $208 million, so no penalties! They can even afford to sign a player for $5 million. Woooo!

That roster has the final year before free agency for Betts, Bradley, Vazquez, Leon, Wright, Workman, and Smith. And they’ll have already lost Sale, Bogaerts, Porcello, Moreland, Thornburg, Holt, and Hanley, each of whom has been replaced by someone at the minimum. Kimbrel, Kelly, and Pomeranz would be long gone. $203 million buys… not them.

So if they want to replace any of these players, what happens?

Let’s say they throw another $30 million in salary out there in 2019. Re-sign Kimbrel, bring in someone else, sign one of their current players to a long-term extension… Whatever. They will be paying around $20 million in tax for 2019, around $14 million more than without the extra salary. Oh, and they get the draft pick penalty that year. And $13 million in tax in 2020.

What if they do that, and throw another $25 million out there in 2020? That adds another $13 million in tax on the 2020 heap, and tacks on another year of the draft pick penalty. So just in the next three years, the addition of Martinez in 2018 and two more significant salary allocations in each of the subsequent years will add close to $47 million in tax and push the first round draft picks to the second round for 2 of the 3 years. What happens after that? Well, by then everything we know about the current roster would be different – except J.D. Martinez, of course. So let’s just ignore beyond three years for my own sanity.

So what happens if they do all that, but don’t sign Martinez? The total tax bill is $11 million (none this year), and they keep the draft picks right where they are.

And finally, what happens if they do all that, and sign Martinez, but at $30 million AAV? Tax is $57 million, and they get the two-year draft pick hit.

In all honesty, I think they will need to throw around a lot more money than what I’ve outlined here if they are to stay competitive. They have a young, talented roster that is about to get very expensive, and they don’t have Mookie 2.0 to replace Mookie 1.0 at league minimum. They don’t even really have Will Middlebrooks 2.0. But if we take as a given that they need to spend in 2019 and 2020, then their options with JDM sum up as follows:

1. Don’t sign JDM at all. Some tax, no draft pick impacts.
2. Sign JDM at $25m AAV: +$75m salary, +$36m total tax, worse picks x2.
3. Sign JDM at $30m AAV: +$90m salary, +$46m total tax, worse picks x2.

...plus whatever impacts happen beyond 2020.

So when we think of J.D. Martinez, we should be asking two questions:

a. Of all the roles they need to fill in the next couple of years, is his role (likely DH) a priority to fill from the free agent market?
b. Is he worth roughly a 50% tax, plus worse draft picks?

I think you can make a compelling argument in the affirmative for the first question, if you focus on winning now. Keeping the roster together becomes untenable in 2019, unrealistic in 2020, and unpossible beyond that. The major hole to fill seems to be a power-bat DH, so if you want to win now that’s the priority. Still, I really don’t think you can make the case on the second question. He’s on the scale of $38-$45 million per year counting the tax hit, and stomping on draft picks along the way. One way he wouldn’t cost as much is if they sign him and then don’t spend on other players for the next few years. J.D. Martinez really isn’t the kind of player I’d do that for.