El Guapo's Ghost Rambles on about the Red Sox

In today’s Globe, Gordon Edes believes that the only way the Sox could stay under the luxury tax with the acquisitions of Curt Schilling and Keith Foulke would be to trade Manny for A-Rod, then trading Nomah freeing up his $11.5 million salary. It is one possible solution to staying under the $120.5 million ceiling – the likely Sox budget - but Edes luxury tax accounting appears to have at least one critical error. He is using 2004 contracted salaries as a part of his luxury tax salary calculation. As Doug Pappas of Baseball Prospectus, Chairperson of SABR Business of Baseball Committee and practicing Attorney states
More importantly, for luxury tax purposes each year of a multi-year contract is valued at the average annual value of the contract, regardless of how the salaries are actually distributed. For example, the contract of a player earning $3 million in 2003, $4 million in 2004 and $5 million in 2005 will be valued at $4 million for each of these seasons.

A number of the Sox contracted players are in the last year of their back-loaded agreements – Pedro, Nomar, Lowe, V-Tek – which causes a significant variance between their 2004 salary and their luxury tax number. For example, V-Tek’s number is roughly $4.97 million and NOT his 2004 salary of $6.7 million. Edes is correct when he states that the Sox have roughly $87 million committed to twelve players in 2004, but that is not their luxury tax number; it is $73 million.

Since most are under the impression that the Sox budget is the luxury tax figure, then it is very important to understand how to accurately calculate it before proposing any major moves. A more depth look at the Sox luxury tax situation for 2004 will be the first component of my State of the Sox Address.