When the rumor mill started swirling about former MVP Mookie Betts being a potential trade candidate, it’s something people had a hard time believing. Betts, a generational superstar who slashed .295/.391/.524 with a .229 ISO last season, and a player who was a homegrown icon and still another year away from hitting the free agent market, was being shopped because of financial constraints. For nearly any sporting franchise, trading away a player of Betts’ caliber is practically unthinkable, except for the most dire of circumstances. Those dire circumstances include a trade demand or complete inability to retain that player. Maybe it’s because an organization is a small market team incapable of finding $300M+, or maybe it’s a team who hasn’t won in years and their star player has signaled they plan to leave next summer. However, when you have to find an example of a big market team rich in history and tradition and owned by a guy who’s net worth is $2.7B trading away arguably a top-3 player in baseball over financial reasons, the examples only include one team: the Boston Red Sox.
While it might seem damning to fully unload on the Red Sox, who are already deep in luxury tax penalties, for many Boston fans, it feels like an appropriate response. The Boston Red Sox aren’t supposed to be a penny-pinching franchise; no, that’s reserved for the “Moneyball” Oakland A’s and constantly rebuilding Miami Marlins, but not the powerhouse like the Boston Red Sox. A team like Boston isn’t supposed to be giving away stars; that’s reserved for teams who can’t compete for World Series titles. A team like Boston isn’t supposed to be forfeiting a prime, title-contending window to save some money; that’s reserved for small-market teams that cannot fill the seats. Yet, in February, we’re at the exact scenario many Red Sox fans didn’t think possible.
Understanding the Financial Premise of the Trade
While there is no salary cap in Major League Baseball, a de facto salary cap of sorts does exist, and it’s known as the luxury tax. For the 2020 MLB season, the tax line was at $208 million of player payroll, a figure only few big market teams come close to hitting (for reference, only the Yankees and Dodgers are above $208 million while eleven teams aren’t even spending $100 million). However, exceeding the luxury tax does come with penalties, specifically ones that progressively get harsher as a team becomes a “repeat offender”. To understand the situation with the Boston Red Sox, this is important, because the progressive penalties get “reset” once the team avoids the tax for a single season. For example, the Yankees and Dodgers have both done this in previous years and it’s allowed them to make splashy acquisitions, including New York signing Gerrit Cole this summer. In 2018, the Red Sox had a luxury tax bill of $12 million and in 2019, they also had a tax bill of about $12 million. However, for a third time offender, the costs are astronomical. For every dollar spent on player payroll above the $208 million threshold, Boston would’ve been taxed at 50%; for reference, even if the Sox had a payroll of just $220 million, their tax bill would’ve been at $6 million. Giving Mookie Betts $30M in arbitration along with a future mammoth extension would’ve crippled Boston’s books. While owner John Henry could certainly afford a tax bill that even hits $30 million, for a team that just missed the postseason, would it be worth it? Evidently, Henry and the Red Sox felt like it wasn’t, and opted to find the easiest way to reset their penalties, by moving Mookie Betts and David Price.
What are the Ramifications of this Move?
Now, while Boston received nowhere near fair value for Betts and Price, the revised version of their three-team trade with the Minnesota Twins and Los Angeles Dodgers is much better than their initial return would have been. Alex Verdugo, the main centerpiece of their trade, had a slash line of .294/.342/.475 last season to go along with a .341 wOBA and a 114 wRC+. Jeter Downs, a top-100 prospect, is a talented infielder who can eventually be Boston’s long-term answer at either shortstop or second base depending on how the Red Sox opt to deploy him and Xander Bogaerts, and the Red Sox also acquired a solid catching prospect in Connor Wong. It’s a decent haul for Betts, albeit it doesn’t come close to matching not only his on-field production, but also his off-field personality. Betts is one of the premier human beings in baseball, as he famously handed out food to the homeless in Boston after a World Series game and became annoyed when it was shared throughout the media. Not only do the Red Sox have to replace a former MVP, but they also lost a key community presence. And, in this entire discussion, we haven’t even mentioned David Price, who is due for positive regression this season, evident by his 3.62 FIP last year (a more accurate predictor of ERA) compared to his 4.28 ERA number. If Price can get his bad luck to positively regress to the mean, the Dodgers will have added another quality starter to give them a lethal Walker Buehler, Clayton Kershaw, and Price rotation.
Specifically for the Red Sox, trading Betts likely removes their hopes of making the postseason this year. While Boston did miss out last season, the advanced numbers indicated that their record was actually worse than their physical performance, indicating that with more of an average line of luck, Boston could’ve theoretically competed for a playoff berth this year. Instead, Boston is essentially forfeiting their postseason hopes. Not only are Betts and Price gone, but the Red Sox made zero upgrades to their rotation and bullpen, their two clearest areas of weakness, they lost another starter in Rick Porcello, and saw the manager, Alex Cora, fired in the Houston Astros cheating scandal. Now, would the Red Sox have made the postseason if they kept Mookie Betts and David Price? Maybe, but it wasn’t a guarantee. However, it’s a tough argument to make to your fanbase, that saving money (for a guy worth billions) was more important than retaining a beloved player and pushing for competitiveness.
Does This Lead to a New Trend?
Perhaps the biggest takeaway with the Mookie Betts trade is what the future of baseball could look like. If big market teams like Boston have to trade away superstars nearing monster contracts, what will that mean for teams like the White Sox, Marlins, Orioles, Indians, or Pirates as they see their own stars near free agency? Will it lead teams to continue to manipulate the luxury tax system, by resetting their penalties every three years (the penalties are the same for a third year and beyond offender)? For example, let’s look at a potential impending case. Francisco Lindor, the star shortstop for the Cleveland Indians, has been a trade candidate for the past several months as he’s slowly inching towards free agency. It appears as if the small market Indians won’t be able to afford a possible 8-10 year, $200M+ contract, leading to some speculation that he’ll be moved. Now, this allows large market teams to swoop him and acquire him, possibly for a reduced package (like the Dodgers did with Betts). This works even more clearly if a large market team has recently reset their luxury tax penalties, which would allow them to be able to take on Lindor’s salary burden with either a minor luxury tax infraction, or potentially, none at all. This strategy is what the Boston Red Sox are betting on; by resetting their tax penalties with this trade, they’re likely hoping to make a splash sometime soon with their newfound wiggle room. Perhaps that means Nolan Arenado will make his way to Fenway, maybe it leads to signing George Springer and trading for an accomplished starter like Noah Syndergaard. Whatever it is, the Red Sox have positioned themselves in a way financially where they’re ready to strike the next time a star player is on the move.
Boston’s justification for this move is frankly, fairly weak, but it’s an approach teams have done in the past and seem to be embracing. The Yankees reset their tax penalties and it led them to signing Gerrit Cole to a record-breaking contract this summer. The Dodgers reset their tax penalties and it enabled them to acquire Betts. However, the biggest difference between Boston, New York, and Los Angeles is that the Yankees and Dodgers didn’t give up a top-3 player in baseball to escape financial harm. The Yankees didn’t pay the tax in 2018 and naturally cleared a lot of salary without taking a ton back in return. In a way, the Yankees decided that resetting their payroll was worthwhile, but it came at the expense of a weak starting rotation (and they had star players on rookie deals, including Aaron Judge, Gleyber Torres, Miguel Andujar, etc.). The Dodgers also reset the penalties in 2018, opting not to re-sign Manny Machado and Yu Darvish in free agency. This eventually led to Los Angeles acquiring Betts, but it’s also important to note that like New York, L.A. had plenty of talent on super cheap deals, including Cody Bellinger and Walker Buehler. Both the Yankees and Dodgers easily survived by resetting the tax because their teams were well-stocked with talent on cheap deals; Boston’s roster is not at all. Resetting the penalties does give the Red Sox major financial flexibility going forwards, but let me ask this question: if Boston utilizes the financial resources on a star player, can they acquire someone who’s either equal to, or better than, Mookie Betts? In my opinion, the answer is clearly no, which begs the question of why Boston opted to move on from Betts instead of J.D. Martinez? Yes, there was the risk that Betts would’ve left this summer regardless, but seeing that this deal was primarily financially motivated, it’s one that has left plenty of people scratching their heads, including me.
Overall, I think the Mookie Betts blockbuster sets an interesting precedent in baseball, one that could be followed by a plethora of large market teams who are coming dangerously close to facing harsh financial penalties for repeatedly infringing upon the luxury tax. A quick reset of the tax penalties can open up financial possibilities for a lot of these teams, leading them to take advantage of teams who have to shop around their players for legitimate financial reasons, such as being in a market so small that they simply cannot afford a massive payroll. This is a cycle that could be continuous; instead of teams rebuilding, they could simply offload a massive contract or two, acquire some cheap prospects, and set themselves up for the next star who becomes available. My concern is not only will this manipulation lead to an eventual revision of the luxury tax penalties, but it could also worsen the current talent gap we’ve seen in Major League Baseball. There’s a massive disparity between the top five teams and the bottom fifteen teams and it is a river that could quickly widen into a gulf as large market teams undergo quick tax resets to reload for the future. I’m not sure the Red Sox played this strategy right by trading away Betts, but the underlying motive is incredibly obvious. The question now becomes, are teams ready to follow the financial blueprint laid out by the Yankees, Dodgers, and to the extreme, the Red Sox, or are they willing to take a more traditional approach and run the course with their current rosters.
The Chirp 