Red Sox, Phillies Cautionary Tales of Big, Long-Term Contracts in Luxury Tax Era

by NESN Staff

August 13, 2012

Red Sox, Phillies Cautionary Tales of Big, Long-Term Contracts in Luxury Tax EraIt used to be so easy to find a sucker in Major League Baseball.

Have a bad contract you want to get rid of? Well, in the pre-luxury tax days of MLB, all you had to do is eat a minimum of salary and not expect much in return, and you could be well on your way to ridding yourself of an albatross of a contract and freeing up money for the future.

The past is full of examples. After three seasons in Anaheim (one of which he missed the entirety of), the Angels shipped Mo Vaughn and the four-year remainder of his $13 million a season salary to the Mets for Kevin Appier. It wasn't an equal-value trade, but the Angels rid themselves of a bad contract, and Appier ended up helping them win the 2002 World Series.

Despite all the initial criticism that their payroll would be too top-heavy, the Rangers shipped Alex Rodriguez to the Yankees after three years in Texas for the team-controlled contract of Alfonso Soriano and prospects, taking Rodriguez's $25 million annual hit off the books.

In what is widely considered one of the worst contracts ever signed, the Rockies condemned Mike Hampton to eight years of starts at Coors Field for $15 million a season, only to jettison him to the Braves in the 2002 offseason after just two years in Colorado, getting Atlanta to take on the entirety of Hampton's contract in its last three years.

In December 2003, Kevin Brown was traded to the Yankees from the Dodgers for Jeff Weaver, other spare parts and $2.6 million in cash. Aside from that small bit of chunk change, the Yankees otherwise took on the final two years and about $31 million of the monstrous seven-year deal Brown had signed with Los Angeles prior to the 1999 season.

What's the connection between all of these contracts and subsequent trades? They all involved contracts that many speculated were bad investments when they were signed, and they all occurred immediately before or after (or before it was taken seriously) the luxury tax — sometimes called the "competitive balance tax."

In the years since, it's not that salary dumps don't happen — Francisco Rodriguez and Vernon Wells immediately come to mind — but they're a lot less frequent. This is partially because more and more teams are wary of long-term contracts, but also because fewer and fewer teams are willing help bury those contracts by taking them on after the fact, even if some salary is eaten in the process.

Case in point, until he was shipped away to the Marlins for two marginal prospects, the Astros had been trying to rid themselves of outfielder Carlos Lee for years. The original six-year deal that Lee signed was an aberration insofar as it was almost unanimously decried as a bad contract when it was signed — by everyone else except the Astros, of course. So it wasn't surprising that Houston couldn't find a sucker to take Lee and his $16 million annual salary off its hands when the Astros were no longer a competitive ballclub.

So that's what we have now in Major League Baseball. Teams seem to be pickier about who they sign to long-term deals and for what duration, simply because they have to be. The Yankees no longer have the monetary incentive to pick up every Kevin Brown they can get their hands on.

But, while the rest of baseball is largely trying to eschew long-term deals, or at least keep their length to a minimum, a couple of clubs have piled on with veterans locked in for the long haul. They've essentially hamstrung their respective budgets and made it much, much more difficult to change the team dynamic by adding or subtracting impact players. Nowadays, financial flexibility is the name of the game — and it's a game these teams aren't winning at.

This is precisely why teams like the Red Sox and Phillies are in so much trouble going forward.

Both Boston and Philadelphia own several contracts they're probably desperate to rid themselves of but likely won't be able to. As a result, they're probably going to see their ability to bring in new players and compete hindered greatly. The Phillies jettisoned about everyone they could at the non-waiver trading deadline, sending out Shane Victorino and Hunter Pence, but those are both players with current value who aren't locked in to long-term deals.

The Phillies are basically stuck with their core, for better or for worse, for the foreseeable future. Chase Utley is signed through 2013 at $15 million a year. Jimmy Rollins is signed through 2014 at $11 million a year, with a vesting option for 2015. Roy Halladay is inked through 2013, with a vesting option in 2014, at $20 million a year.  Cliff Lee is signed through 2015, with his own vesting option for 2016, at a hefty $25 million a season. Of course, Cole Hamels just signed through the 2018 campaign at $22.5 million a season. And Ryan Howard is on the books through 2016, with a $20 million salary in 2013 and $25 million every year after.

That is an astounding amount of money committed to players years and years down the line, and varying levels of questions mark each case. By far the worst contract is Howard's deal, and that was before he missed the majority of the 2012 season with a David Ortiz-like Achilles issue. Since putting up OPS marks of 1.084 and .976 in 2006 and 2007, respectively, Howard has only had one season with an OPS above .900, and that's just plainly unacceptable for a $25 million power hitter with no other skills.

Utley is regressing as he enters his mid-30s. Rollins owns a .714 OPS a year after signing his $11 million-a-year extension. Halladay has shoulder issues that should scare everyone given the number of innings he's racked up over the years. Lee has a 3.85 ERA in his 33-year-old season.

Basically, this is a team that is rife with old age and players on the decline, but one that's likely stuck financially and stuck with those aging and underperforming former stars. General manager Ruben Amaro is likely hoping that the threesome of Halladay, Lee and Hamels can put together one more transcendent campaign before contracts start expiring after next season, but this was a team that wasn't playing well with Victorino and Pence in the lineup. Now the team has lost two of its most productive players and welcomed back the question marks.

The Phillies are stuck with what they have and can only hope that, somehow or some way, things turn around on their own.

The Red Sox find themselves in an eerily similar situation. In a season where twin aces Josh Beckett and Jon Lester have woefully underperformed, the Fenway Faithful need only be reminded that Beckett is signed through 2014 at $15.75 million a season, and Lester is inked signed through the same season at a more reasonable average of $12 million. Likewise, John Lackey is also signed through 2014 at $15.25 million a year, Carl Crawford is inked through 2017 at $20 million a season, and Adrian Gonzalez is signed through 2018 at about $12 million on average.

This is precisely why the Red Sox aren't necessarily jumping at the chance to take on more salary, and why they didn't want to give up prospects to chase someone like Zack Greinke, for instance, who the team would then be pressured to sign to another long-term deal as he hits free agency this winter. It's the same reason Jacoby Ellsbury's future in Boston is up in the air, with his agent, Scott Boras, usually insisting his clients determine their value on the open market rather than sign an extension.

However, the Red Sox are in a slightly more enviable position than the Phillies, with several talented young players under team control for a number of years. Clay Buchholz is signed to a team-friendly deal through 2014 and then has two years of $13 million team options remaining. Jarrod Saltalamacchia will be entering just his second year of arbitration in 2013. Will Middlebrooks won't see arbitration for another two seasons.

Nonetheless, the trio of Lester, Beckett and Lackey aren't going anywhere any time soon, and that's a lot of money invested in three underperforming and oft-injured players. It limits what the Red Sox can do with their rotation.

Likewise, Crawford and Gonzalez are going to be in the lineup for years to come, any decline with age be damned.

It's a fine line to walk, as premium talent comes with a premium price. But it's also a clear trend across Major League Baseball that teams are becoming more and more reluctant to sign veteran free agents to long-term deals, extend their own players under circumstances they're not comfortable with or take on salary through trades. And it's for good reason.

Teams like the Phillies, Yankees and Red Sox have the resources to bury a bad contract or two, but the luxury tax had only made that more and more difficult.

So, for better are for worse, the cores of the Red Sox and Phillies are what they are. Neither team likely has the ability to bring in more impact players for at least a couple seasons, and that's a scary prospect looking at where they each are in the standings right now.

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