Red Sox Could Save $100 Million Over Three Years By Getting Payroll Under 2020's Luxury Tax Threshold

Alex Speier, The Globe, December 10, 2019:

For the Red Sox, the luxury tax looms as a giant iceberg in the movement toward building a 2020 roster. The team has made no secret of its desire to dip its payroll beneath the $208 million threshold that would trigger penalties for 2020.

The Red Sox are willing to pay the luxury tax, something they've done in 10 of 17 seasons since something like the current form of the tax was introduced in 2003 ...

If the Sox scale back their payroll to $205 million next season before returning to their 2019 level of $243.5 million in 2021 and 2022, they could save a total of roughly $90 million to $100 million over the next three years.

How? For that, it's worth looking at the current collective bargaining agreement between Major League Baseball and the Major League Baseball Players Association, and the changes it introduced to the luxury tax threshold and the penalties for exceeding it that teams have cited as a reason for changes to their spending behavior.

Speier then goes into more depth than you'll find anywhere else. Management's desire to get under the threshold is well-known, but the magnitude of the savings certainly was not common knowledge. Speier presents two tables:

Consider two scenarios: In one, the Red Sox maintain a $243.5 million payroll in 2020, 2021, and 2022. In the other, the team spends $205 million in 2020 then returns to $243.5 million in 2021 and 2022. ...

If the Red Sox don't reset:

Year    Payroll  Luxury Tax   Revenue Sharing    Total
                              Rebate Penalty*
(All figures in millions)
2018    239.5      12              0             251.5
2019    243.5      12              2.25          257.75
2020    243.5      19.61           6             269.11
2021    243.5      18.61           9             271.11
2022**  243.5      17.61          12             273.11
Total  1213.5      79.83          29.25         1322.58

If the Red Sox do reset

Year    Payroll  Luxury Tax   Revenue Sharing    Total
                              Rebate Penalty*
2018    239.5      12              0             251.5
2019    243.5      12              2.25          257.75
2020    205         0              0             205
2021    243.5       8.32           0             251.82
2022**  243.5      10.83           3             257.33
Total  1175        43.15           5.25         1223.4

* - estimated reduction of revenue sharing rebate for market disqualified teams.
** - new CBA year (assumes $212 million luxury tax threshold in 2022)

Using these numbers, the Red Sox would save $99,180,000 by the end of the 2022 season.