Dug this one out now because it is interesting to look at "luxury tax" and competitiveness tactics after a month of FA signings.
here is a clip from today's Cafardo
Contract creativity can keep you away from the threshold
Creativity is key this time of the year. It’s tough to sign high-end players such as Bay and Matt Holliday, but if Bay wants to return to the Red Sox and if the Red Sox want to avoid paying a luxury tax, they and Bay’s agent would have to get very creative on a contract. The Sox, according to major league sources, are debating whether they’ll go for it and pay luxury tax money, knowing they have up to $48 million coming off the books at season’s end (Josh Beckett, Mike Lowell, Ortiz, Jason Varitek, and Julio Lugo).
While Boston’s exact payroll figure is not yet known, the Red Sox appear to be moving closer to the $170 million tax threshold. If they find a creative way to keep Bay and still stay under the threshold, it would handcuff them in trying to make a midseason deal for, say, Gonzalez.
Yet Bay and Holliday still intrigue the Sox. The addition of Holliday, whom the Sox offered a five-year, $82 million contract, would mean paying a luxury tax.
A couple of agents see one way to add Bay at close to the $60 million over four years he turned down is by offering a lower-base one-year deal with most of the money backloaded in three option years. That way only the lower base salary of one year would be tacked onto the payroll.
The Sox showed creativity when they protected themselves on John Lackey’s deal by adding an option for a sixth year should Lackey miss any time because of elbow surgery. Lackey would have to play at the major league minimum in the sixth year should he miss time with such an injury.
On the other end is low-salary creativity. Baseball executives believe there will be some great value players available in free agency into mid-January, with several established players signing minor league deals.
“The Pirates will load up on players like these,’’ said one National League GM. “There’ll be good value, players who can fill a role for your club.’’
One NL scout believes that you can have too many players with minor league deals and invitations to major league camp.
“It can definitely create kind of a crowded situation sometimes in spring training, but sometimes you don’t want to miss out on taking a look at players who may be able to fill a role,’’ he said.
I've noted that the wide-spread assumption that the Red Sox have been the #2 spender by a wide margin the past few years is wrong and that the Henry ownership group generally tries to operate with the tax threshold as a team cap. In fact, the past two years they have been #4, and this year they were within about $2m of the #6 team. That's why this year's pushing up to and possibly above the threshold is interesting.
I read an insight into why they try to operate below the cap that made some sense. The first year you exceed the cap, you have to pay $1.22 for a player whose value on the general market is $1.00. If you are the NYY, and you exceed the threshold every year, you pay $1.40 for every player that puts you over the threshold. A one year exceedance for a contender may make sense because the marginal gain of the win might be a playoff spot, but a team (other than NYY, NYM, and maybe the LA teams) can't afford to stay there and subsidize their prime opponents, like the Rays. As the article note, if the Sox do a 2 year budget, they might see the money coming off the books next year as justifying a one year exceedance.
I would not have posted this but for the additional discussion of low budget strategy. The article echoes what every one else has observed: with the continued price crash, look for bargains on hitters like a Damon or some of the 2d basemen that face a lack of spots to land.