The athletic with another “inside baseball” type article that explains the reasoning behind the Sox trading Betts:
I am not going to spoil more of the article as it is really worth your time to read it all. There are couple Mookie contract scenarios in the article as well.
but it really shows both why the Sox were inactive on the FA market this year and of course why they needed to trade Mookie
I never wanted to be Alan Greenspan when I grew up. I never wanted to work for H & R Block. I never even wanted to fill out my own tax return myself.
I enjoy writing more than write-offs. And I’m pretty sure most of you relate to that, unless you’re an actuary or something.
But there’s one tax in the world I do know a few things about. Believe it or not, I know enough about baseball’s Competitive Balance Tax, more often called the luxury tax, to understand exactly why the Red Sox were convinced it was worth their while to trade Mookie Betts and David Price. I can sum it up this way for you:
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
I’ve done that math. I even ran it past people in baseball who work with this tax every day. And I can tell you that trading those two guys, and dipping under the tax threshold, could easily be worth hundreds of millions in savings off future tax bills. But…
These are the tax rates:
First threshold: $208 million
Tax rate: 20-50%
Second threshold: $228 million
Tax rate: 62%
Third threshold: $248 million
Tax rate: 92.5-95%
So how exactly does this affect the Red Sox? Read on.
Say the Red Sox had decided to keep both Betts and Price. According to FanGraphs’ Roster Resource, they were headed for an estimated payroll of about $235 million, for Competitive Balance Tax purposes. That was down slightly from the $242-million payroll they finished last season with, but still the highest payroll in baseball.
So they were going to be over the first two thresholds without this trade. And even a modest acquisition would have elevated them over all three thresholds. Hello, 95-percent land!
But now let’s go all sci-fi and venture into an alternative universe. Let’s say the Red Sox were not just hanging onto Betts and Price, but still going all in, in a Dave Dombrowski kind of way. Let’s say they’d gone out this winter and signed Zack Wheeler for the same deal he signed with the Phillies – five years, $118 million.
https://theathletic.com/1596793/2020/02/10/stark-doing-the-math-on-the-competitive-balance-tax-and-the-red-sox-motivation-to-trade-mookie-betts/Much much more at the linkWhen you add in all the taxes the Red Sox would be subject to, that $118-million deal turns into nearly a $185 million deal – because just the taxes add another $67 million! So what’s the actual cost of Zack Wheeler in our alternative universe? Let’s use this fun comparison:
AAV* of Zack Wheeler: $37 million per year
AAV of Gerrit Cole’s Yankees contract: $36 million per year
(*tax-adjusted AAV)
That’s a little misleading because the Cole deal will force the Yankees to pay a tax bill, too. But you get the idea. In our alternative universe, the Red Sox wouldn’t be paying Wheeler third-starter money. They’d be paying him Cy Young Waiting to Happen money. So file that away
I am not going to spoil more of the article as it is really worth your time to read it all. There are couple Mookie contract scenarios in the article as well.
but it really shows both why the Sox were inactive on the FA market this year and of course why they needed to trade Mookie