The Red Sox are positioning themselves to stay under the luxury tax in either 2025 or 2029.
Earlier this month, the Red Sox avoided arbitration with Jarren Duran, inking him to a $3.75 million contract for the 2025 season. The contract also includes a $100,000 buyout option for the club in 2026, which is worth at least $8 million.
The immediate and appropriate reaction from the vast majority of Red Sox fans was relief. Arbitration is an ugly with process even for parties who don’t take things personally, so with these two, it would have been a 4th of July fireworks display if it got to a courtroom (or a mediation room, maybe; wherever these things happen).
But beyond that, buried in the boring budgeting details of the bookkeeping, is a brief glimpse into what the Red Sox are building. Or perhaps, more accurately, not building in 2025.
The Red Sox and Duran almost certainly arrived at the $3.75 million salary figure as the midpoint between the original arbitration numbers exchanged during the first part of the month.
Arbitration exchange update: Jarren Duran filed at $4 million; the Red Sox filed at $3.5 million.
— Mark Feinsand (@Feinsand) January 10, 2025
But then they decided to do something a little bit different. The front office worked with Duran to create what essentially amounts to a two year contract. For Duran, he’ll more than double his salary in 2026 if he puts up a year anywhere remotely close to his 2024, and for the Red Sox, they give themselves leverage to pull the plug if something goes horribly wrong.
On one hand, this is just a compromise between a club and a player who had a career year. The team isn’t sure he can duplicate it, and wants to ensure there’s an escape hatch built in. Duran, meanwhile, is sure he can duplicate it, and wants a 2026 contract that’s virtually guaranteed if he does. It’s a win-win for everybody if Duran keeps playing well.
However, the most interesting part of this contract may be the the fact it also reflects the actions of a team desperately trying to stay under the luxury tax threshold in 2025. Since this tax is dictated by the Average Annual Value (AAV) of all the contracts on the books, the length of the guaranteed contract is all that matters within this arena, meaning Duran’s club option for 2026 is not factored into the 2025 AAV number. (Only the $100,000 buyout is included. This is how Duran’s 2025 AAV ends up at $3.85 million.)
If the Sox choose to pick up Duran’s club option next year, the AAV hit in 2026 will be equal to just that single year part of the deal (somewhere between $8 million and $12 million, depending on where Duran finishes in the MVP voting. He can earn $9 million in the finishes in the top 20, $10 million if he finishes in the top ten, $11 million for the top five, and $12 million if he wins the 2025 MVP award).
To complete the thought exercise, we need to circle back to what would have happened if the Sox just gave Duran a guaranteed two year deal worth $3.75 million in 2025 and (let’s split the difference and go with the middle ground guess) $10 million in 2026. That would have created a guaranteed two-year, $13.75 million contract with an AAV hit of $6.875 for both the 2025 and 2026 payrolls.
In other words, by placing the bulk of Duran’s money within a 2026 option, the Red Sox saved themselves about $3 million dollars in AAV space for the 2025 season, which seems like the pretty important detail to note when they have just over $30 million left to negotiate before hitting the first 2025 AAV tax threshold. (According to Roster Resource at Fangraphs, the Red Sox AAV number for 2025 currently sits a $210,499,167, and the first threshold for this season is set at $241 million.)
So this raises a very important big picture question: Do the Red Sox plan on being under the luxury tax threshold in 2025? Well, maybe, but if my suspicions are correct, it may not be as bad as it sounds.
Here’s what I think is going on: The Red Sox are trying to position themselves to stay under the luxury tax in either 2025 or 2029. It sounds strange, but this is where the financial breadcrumbs lead. Here’s the three main factors in play:
1) The luxury tax system is designed to hammer teams increasing penalties when they cross the threshold multiple years in a row. It’s a 20% penalty for a first year offense, a 30% penalty for a second consecutive year, and a whopping 50% penalty for going over it a third consecutive time. However, if a club dips below the luxury tax threshold for a season, the penalty resets.
This means clubs who are actually trying to win but also want to strike a balance over the long haul will do two things: One, they’ll try to create windows every few years where they can dip below the tax threshold to reset the penalty percentage, and two, when they do jump over the luxury tax threshold, they’ll jump over it by a wide margin, because it doesn’t matter if you cross the line by a penny or by tens of millions of dollars. Either way it’s strike one.
And this brings us to point No. 2 …
2) The Red Sox are apparently only willing to offer Alex Bregman a deal of up to four years in length. This has been rumored in a few places, but Alex Speier confirmed this in his piece on Saturday.
Part of this is the penny pinchers at Fenway not wanting to give anybody a long-term deal nowadays, but it also kind of makes sense when you look at the way the books break and line it up with everything else they’re doing. Specifically, if the Sox were to blow by the luxury tax threshold in 2025, the end of the 2028 season would be their next logical window to duck back under it and reset the penalty.
Right now, the Red Sox have Trevor Story’s $23.3 million AAV that could run through 2028 (there’s a player opt-out after 2025 that the Red Sox could void by guaranteeing the contract out through 2028), Masataka Yoshida comes off the books after 2027, Garrett Whitlock’s team control ends with a $10.5 million option in 2028, Jaren Duran’s last year of arbitration eligibility falls in 2028, and Tanner Houck and Kutter Crawford are each under team control through 2027 and 2028 respectively.
So if you give Alex Bregman a four-year deal, he also then lines up as an AAV hit that drops off the books in 2029. As soon as you go to a guaranteed five-year deal, that AAV number drags into 2029 and makes it getting under whatever the luxury tax ends up being that year a sticky predicament. (Yes, it’s asinine we have to think of baseball in these terms, but this is what happens when owners want to run the sport like a Fortune 500 company. Blame them!)
Now on the other hand, if you like math — and let’s face it, the only way you made it so far into this article is if you like dealing with numbers on some level — you’re probably saying “Wait, the Red Sox have about $30 million in AAV money space to negotiate in 2025. Can’t they sign Bregman and stay under the luxury tax in 2025?”
Well yes, they could, but they’d be complete idiots if they played their hand that way. Here’s why:
3) In the next 90 days, the Red Sox need to start handing out some serious extensions. If they don’t extend Garrett Crochet and at least one of Roman Anthony and Kristian Campbell by May, I’m not going to be a happy camper. I’ve already detailed why they need to extend Crochet, but they’ve also made it pretty clear that they’re hitching their wagon to these young guys too. And let’s face it, if you’re wary of signing free agents to long contracts because you’re afraid of the AAV you’re going to be saddled with when they’re old and on the back end of the contract, then the corresponding move you have to be willing to make is handing out long-term deals to young players you believe in to lock them down and lower the AAV on the back end of their contracts.
That’s how you build a long-term sustainable winner! You identify what you believe are young, championship core pieces, and then you hand them seven or eight year deals in which the AAV is lower than what they’re getting paid in real dollars on the backend of the contract. This is how the Sox should be spending that last $30 million they have in AAV space in 2025, regardless of what happens with Bregman or Nolan Arenado or whoever. They’re going to wait until after the Bregman and Arenado verdicts are resolved to know how precise they need to be with their numbers. (Or at least that better be what’s happening!)
If the Sox go out and get one of the big right-handed bats on their terms, great! Then you go well beyond the luxury tax threshold in 2025 by handing out extensions to the young guys and worry about getting back under the tax in 2029.
On the increasingly likely flip side where they don’t get one of the big bats because the price didn’t come into their wheelhouse, then you use that last $30 million in AAV space and still hand out extensions. Only this time, you perfectly construct them in a way that’s not only fair to your future cornerstones, but also massaged in such a way that you slide just under the tax threshold in 2025. This gives you more leverage in the years going forward where you should keep slowly getting better for a while.
Unfortunately, that second scenario is becoming increasingly likely, but if it does play out, the extra $3 million of AAV space from the Duran negotiations quickly becomes extremely useful. For instance, if you’re handing out say a seven-year deal to Crochet, Anthony or Campbell, you can add $21 million more in real dollars while only adding $3 million in AAV space.
In other words, it’s all connected. The Duran deal was designed to save money on their 2025 AAV. The Alex Bregman and Nolan Arenado markets will determine if the Sox are going to go way over or just under the 2025 tax threshold. And then once that decision is made, they will turn to extensions for their young players who may or may not need contracts that fit like puzzle pieces into their AAV allocations.
If there’s one thing that’s becoming increasingly clear, it’s that the Craig Breslow front office really, really loves leverage. Now they need to use it properly.