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Red Sox are on track to exceed the tax threshold, but the effect — for now — should be minimal

Red Sox general manager Brian O'Halloran said that whatever penalties the team has to face this offseason, they won't impede the "overarching goal."Nic Antaya for The Boston Globe

CINCINNATI — As the trade deadline approached, the Red Sox had a clear path to duck under the luxury-tax threshold. With a payroll projecting to land in the $230 million range, dealing J.D. Martinez or Nate Eovaldi (there was industry interest in both) would have gotten the Sox under that payroll line.

After they dealt Christian Vázquez to the Astros for two prospects the day before the deadline, the Sox elected to add Tommy Pham and Eric Hosmer while holding on to Eovaldi and Martinez (as well as other veterans who had garnered market interest), hoping they could go on a hot streak that would vault them from three games out in the wild-card chase to a postseason berth.


That didn’t happen, and the Red Sox — who are in last in the AL East — are going to go over this year’s $230 million tax threshold. The Associated Press reported that the Sox’ season-ending payroll (accounting for the average annual value of salaries of 40-man roster players, bonuses, and benefits) projects to land at approximately $234.5 million. That overage comes with consequences.

The most direct — yet arguably least significant — is financial. As a team that has been under the threshold for the last two years, the Sox will pay a tax of 20 percent on the amount by which they exceed $230 million. In this case, as reported by the AP, they will pay approximately $900,000 — an amount that in its own right should have few implications for their spending this offseason or in the future.

However, future years of spending beyond the threshold will now become more costly. If the Sox exceed the threshold next year, they’d have to pay a 30 percent tax on any overage; if they do so for a third straight year, they’d be subject to a 50 percent tax.


What sort of financial flexibility will Chaim Bloom have this offseason?Barry Chin/Globe Staff

For that reason, many teams — including the Sox — have been loath to spend beyond the threshold for three straight years, typically contorting to duck under it at least once out of every three years. But that’s a concern for another season.

However, there are ancillary consequences related to free agents this offseason. If the Sox lose a player to whom they make a one-year qualifying offer ($18.4 million in 2022) — and they are as certain to extend an offer to Xander Bogaerts as he is to opt out of the last three years of his deal, while Michael Wacha and Eovaldi are possibilities, too — they’d be entitled to a draft pick between the fourth and fifth rounds rather than between the second and third rounds.

Additionally, if the Sox sign a free agent who receives a qualifying offer from his current team — something that will happen with top free agents such as Aaron Judge and Trea Turner — they will lose a second- and fifth-round pick as opposed to just a second-round pick had they gotten under the tax. More significantly, they would lose $1 million in international bonus pool money for signing such a free agent, rather than $500,000.

A case can be made that the difference in penalties is relatively trivial. But it’s meaningful enough that teams take pains both to avoid going over the tax threshold and to avoid signing players who receive qualifying offers.


All of that being the case, how do the Sox feel that going over the threshold will affect their offseason?

“The overriding goal is to build a great team in 2023 and beyond, build a team that can contend for World Series championships,” said general manager Brian O’Halloran. “So we have to factor in everything as we look to best deploy our resources, but it won’t stop us from our overarching goal, which is to build a championship team next year and beyond. You always factor in everything. But it won’t drastically impact how we approach things.”

O’Halloran also suggested that the draft-pick-compensation issue won’t have an effect on who will or won’t receive qualifying offers.

Still, a number of executives in the industry were surprised that the Sox didn’t use the trade deadline to get under the threshold, and that they were willing to exhaust long-shot postseason odds rather than part with Eovaldi or Martinez to better position themselves for the future.

Some baseball people were surprised the Red Sox didn't make more of an effort to try and deal J.D. Martinez at the deadline.Matthew J. Lee/Globe Staff

Do the Sox regret their choice?

“Only with the benefit of hindsight, if we knew ahead of time that this is where we would end up in the standings and this is where we would end up payroll-wise, of course we would rather be under the threshold than over the threshold in that situation,” said O’Halloran.

“But I don’t regret the approach based on the information that we had at the time, which is that we believed the team had a chance to contend and we were trying to give the team a fighting chance to get back into contention to make the postseason and make a deep run into October. Obviously, that didn’t happen, but that was the goal at the time and we didn’t think that was unrealistic.”


Alex Speier can be reached at alex.speier@globe.com. Follow him @alexspeier.