Poll: Circumventing The Luxury Tax

Rumors of a long-term contract extension between the Red Sox and Adrian Gonzalez were made a reality yesterday, when the first baseman agreed to a seven-year, $154MM deal. While Gonzalez’s surgically repaired shoulder was a legitimate concern, there’s some belief that Boston waiting until after Opening Day to announce the deal to avoid a competitive balance (a.k.a. luxury) tax penalty. The same was true of Josh Beckett‘s extension last year.

The Red Sox aren’t breaking the rules here, in fact they deserve credit for finding a creative way to save money. But as Jon Paul Morosi of FOX Sports mentioned yesterday, “the spirit of the [luxury tax] isn’t being honored here.” He wonders if the upcoming Collective Bargaining Agreement will push the deadline back to avoid such shenanigans. Between the Gonzalez and Clay Buchholz extension, the Sox have saved upwards of $10MM against the tax this year by announcing the deals after the season started.

Of course the luxury tax only impacts a handful of teams, so altering a rule that effects only a small number of clubs may be unfair. As Cork Gaines showed at Business Insider recently, the Yankees have been paying the tax every year since it’s been in place, with the Red Sox, Angels, and Tigers all contributing at some point as well. The luxury tax is based on the annual average value of the contract, and the 25% of the money goes to the “industry growth fund” while the remaining 75% is used to fund player benefits.

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