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Luxury tax equals a middle reliever.
Eric D. Schabell
Contributing Writer

The free agent signings have been fast and furious for the Red Sox the last few days with press conferences to announce both Pablo Sandoval and Hanley Ramirez.

The dust has yet to settle and the Red Sox are showing all signs of expecting to bring Jon Lester back with a multi-year mega contract.

There are even more rumors of Andrew Miller becoming the fourth free agent signing this off season, meaning another multi-year multi-million dollar contract.

What does this all mean when the penalties are put into effect, known as the luxury tax in Major League Baseball?

Well for the Red Sox, in this case, not much.

Wait, what?

The whole idea of this tax was to prevent teams that in the past blew through any sort of salary threshold, from continually doing it year in year out. It is also in place to protect the lesser funded teams from having little chance in the market, hoping that traditional big spenders like the Yankees would then have reason to stop spending before buying up all free agents in the market.

Well there are some details that might clarify the flexibility of MLB in applying these penalties.

With their attempts to sign Lester, the Red Sox have indicated a willingness to exceed the $189 million luxury tax threshold as part of that pursuit.

"The way it's structured, you can blow through [the threshold] one year," Henry said. "Again, for next year we have tremendous flexibility, so we could go through for one year. It would not overly affect us [trying to re-sign Lester], but we're hopeful."

So this means the penalty is minimal, how does that work?

The Red Sox have stayed under the threshold for three consecutive years. This means they would not absorb a huge tax hit, just 17.5 percent on the amount they go over the threshold, compared to 50 percent for multiple offenders.

How much could that be in 2015?

If the Red Sox added another $35 to $40 million in pitching, along with Lester there is also left-handed reliever Miller, the Red Sox could be looking at a tax bill of around $5 million.

That is on or about the cost of a decent middle reliever.

They can do this as even after signing Ramirez and Sandoval the Red Sox have only $101 million in salary obligations for 2016.

"Because of the trades we made in '12 and '14, we're able to have this kind of financial flexibility and still go after pitching," Henry said. "We're in extremely good shape, I think."

Red Sox general manager Ben Cherington echoed Henry's thoughts. "The payroll is something that is not a static thing," he said. "Whatever it looks like on Thanksgiving is not necessarily where it ends up and it can go either way. I think we feel we're in a strong position to pursue all sorts of pitching options, either through trade our free agency."

The next time you hear someone referencing the luxury tax threshold as a reason that the Red Sox will not make a run as some free agent this off season, you can point them to the fact that it is just a small fee that they can easily absorb.

Who needs a decent middle reliever when you can have Lester and Miller?

Post a comment or via twitter @erics_redsox with your thoughts.

More by Eric D. Schabell

Eric D. Schabell 11/26/2014 07:00:00 AM Edit
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