The Boston Red Sox — and the rest of Major League Baseball — no longer need to stress about the timing of contract extensions.
The new collective bargaining agreement, which went into effect in 2012, eliminated the recalculation of a contract’s average annual value (AAV) as a result of an extension, WEEI.com’s Alex Speier points out. In other words, officially signing David Ortiz and/or Jon Lester to a contract extension before Opening Day would not have luxury tax implications for the Red Sox in 2014.
This is noteworthy because the Red Sox have approached contract extensions with caution in recent years. The Red Sox waited until after Opening Day to announce several extensions — including those given to Ortiz, Coco Crisp, Josh Beckett, Clay Buchholz and Adrian Gonzalez — because doing so kept each player’s then-current luxury tax figure intact. If the extensions became official before the start of the season, the players’ salaries for the season for which they were under contract would have been recalculated for luxury tax purposes.
For instance, as Speier notes, Gonzalez — now with the Los Angeles Dodgers — made $6.3 million with the Red Sox in 2011. If Gonzalez’s seven-year, $154 million extension — announced in mid April of that year — became official before the start of the season, his deal would have been treated as an eight-year, $160.3 million contract. That would have meant a luxury tax figure of just over the average annual value of $20 million a year, so the Red Sox saved millions of dollars by waiting until after Opening Day to announce the extension.
Fortunately for teams across baseball, waiting in order to avoid a larger luxury tax hit no longer is necessary under the new CBA. It doesn’t matter when the Red Sox officially announce contract extensions for Ortiz and/or Lester, because Ortiz’s luxury tax hit for 2014 will remain at its current $17 million while Lester’s will remain at its current $9.37 million.
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