With the spring training additions of J.D. Martinez and Eduardo Nunez, the Red Sox are on track to have the highest payroll in Major League Baseball and in team history. As of now, the team has more than $230 million committed to its payroll as calculated for luxury tax purposes — more than $25 million beyond any level at which the team has previously spent.
Even before the additions of Martinez and Nunez, the team was set to blow well beyond the $197 million threshold that triggers a luxury tax bill. Now, the team seems certain to surpass the second luxury tax tier ($217 million) at which a higher tax rate kicks in, and at some point this year, the Sox are likely to confront an interesting question: Should they add payroll and possibly go beyond the highest luxury tax tier of $237 million?
The question may arise depending on available trade avenues during the season. If, for instance, the Red Sox suffer a rash of injuries to their rotation, it’s fair to wonder whether a desire to stay under the third spending tier would limit what the team tries to do in the trade market.
If the Sox are intent on staying below $237 million, they would be extremely constrained. Even assuming that the team has about $230 million committed now, inevitable in-season depth moves — call-ups, players signed as in-season free agents, waiver claims, etc. — would increase the commitments by at least a few million dollars.
That might leave the Red Sox with as little as $3 million to $4 million for in-season trades.
Last year, the Sox added roughly $6 million through in-season moves for Addison Reed, Eduardo Nunez, Rajai Davis, and Doug Fister. That in-season money was in the same ballpark as the roughly $7 million that the two World Series participants — the Astros (Justin Verlander, Cameron Maybin, and Francisco Liriano) and Dodgers (Yu Darvish, Tony Watson, Tony Cingrani, and Curtis Granderson) — assumed in-season.
Last summer offered enormous benefits to those teams willing to take on in-season salary. Several prominent players, including Martinez, Granderson, Jay Bruce, Yonder Alonso, moved in exchange for limited or no prospect returns simply because teams that had fallen out of the race were willing to shed salary. If the Sox believe they need to stay below $237 million and this year’s trade market plays out like last year’s, they might miss out on the opportunity for in-season upgrades that came at only modest cost to their farm system.
Why would the Sox exercise restraint to stay under $237 million after spending past the first and second luxury tax spending thresholds? The answer is that, unlike the purely financial penalties associated with going past $197 million (20 percent for spending between $197 million and $217 million) and $217 million (32 percent for spending from $217 million to $237 million), spending beyond $237 million will come at a cost not just of money (and a sizable one at that, with a 64.5 percent tax on spending beyond that mark) but also potentially of future talent.
If the Sox spend more than $237 million, they would see their top pick in the 2019 draft get bumped down 10 spots. Should that be a deterrent to spending beyond $237 million? How big a loss is it to move down 10 picks in the draft?
Assuming that the Red Sox are making trades in an effort to emerge as one of the best teams in the game, they would likely be in position to get a pick no earlier than the back of the first round. For the sake of argument, assume that their default pick position would be somewhere around 25-30 (the bottom 20 percent). Historically, how has the talent taken in those spots compared relative to the players taken 10 spots lower (spots 35-40)?
The difference hasn’t been as great as one might expect. According to Baseball-Reference.com, there have been 36 players with a career WAR of 10 or higher taken in picks 25-30, and 17 players with a career WAR of 20 or higher. (For the sake of reference, Jacoby Ellsbury was worth 21.1 WAR as a member of the Red Sox.) That segment of picks includes three Hall of Famers (Mike Schmidt, George Brett, Alan Trammell) and one possible Hall of Famer in Mike Trout.
Between picks 35-40, there have been 18 players taken with a career WAR of 20 or higher among 28 with a career WAR of 10 or higher. There have been three Hall of Famers from that group: Barry Bonds, Randy Johnson, and Johnny Bench.
In other words, the overall difference in talent pools has been relatively modest. Over the course of 53 drafts dating to 1965, there has been about a 5 or 6 percent chance of landing a 20-WAR player in either pool, while about 9 percent of players taken between picks 35-40 have become 10-WAR players compared to just over 11 percent of such picks among selections 25-30.
In theory, the cost of moving down in the draft could be greater under the current system in which a slot value is assigned to every pick in the draft — something that would mean the Sox would lose roughly $400,000 to $600,000 in their overall spending ability in the 2019 draft. That penalty helps to explain why, undoubtedly, the Sox would prefer to avoid seeing their 2019 pick move down by 10 spots.
Nonetheless, the cost isn’t so high as to seem prohibitive. If the Sox believe they have a legitimate shot at winning a World Series, the draft-pick penalty seems like an unlikely reason to keep the team from making the trades that could push it over the top. The incrementally improved odds of winning a World Series would seem worth the incrementally lower odds of drafting a potential big league regular.
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One point worth clarifying: There has been confusion surrounding whether spending beyond $237 million would decrease the team’s available limit for signing international amateurs — the pool of players that led the Sox in the past decade to Xander Bogaerts and Rafael Devers. There is, however, no international penalty outlined for spending into the third (highest) tier under the current Collective Bargaining Agreement. Two major league sources confirmed that there is no international bonus pool penalty for spending $237 million or more.