Red Sox And Adrian Gonzalez Finalize Highly-Anticipated Seven-Year Extension

The Red Sox and 1B Adrian Gonzalez have finalized a seven-year, $154 million contract extension. The highly-anticipated agreement, which has been speculated on for the last four months, will be formally announced by the parties at a 3 PM press conference this afternoon.

It is the ninth-largest contract in Major League Baseball history, and the second-largest contract ever to be signed by the Red Sox organization — trailing only the eight-year, $160 MM deal signed by Manny Ramirez in 2000. The deal sets a new benchmark for the current ownership group, leapfrogging the deal signed by free agent outfielder Carl Crawford in December. The average annual value (AAV) of the agreement is $22 million – the eighth largest in baseball.

Gonzalez will receive a $6 million signing bonus, a salary of $21 million per year from 2012-16, and a salary of $21.5 million in both 2017 and 2018.

Multiple sources are reporting that John Boggs, Gonzalez’ agent, arrived in Boston this morning in anticipation of attending the press conference.

And so all of the speculation over whether / when the parties would get the deal finalized will come to an end. Many pundits, myself included, have consistently conjectured that the player and team have actually had an agreement in place since shortly after the Sox consummated the trade with San Diego. In the opinion of many observers, it made no sense that this ownership group and front office (by that I mean, GM Theo Epstein) would ship three of its top six prospects (P Casey Kelly, 1B Anthony Rizzo and OF Rey Fuentes) to the Padres without having an agreement in place on a multi-year deal.

While both the team and the player (through Boggs) have denied such reports, some of us still believe that a deal HAS been in place all along, with only the dotting of the I’s and crossing of the T’s left to be finalized.

The team has said all along that the reason for the delay was that the team wanted to be able to monitor the first baseman’s health throughout the spring to ascertain that his right shoulder, which was operated on at the end of the 2010 season, was fully healed. It is an explanation that certainly has a veil of saliency, but I have never bought into it (and still don’t).

The team HAD to give an explanation that the Commissioner’s office would accept, otherwise they could have been subjected to a league investigation… but the trade was such a departure from the organization’s track record that it is hard to believe they would have shipped Kelly, et al, to San Diego if it had sincere questions about Gonzalez’ health.

In my opinion, the health explanation masked the club’s REAL rationale for holding off on the extension – the fact that it was not in the club’s best interests to finalize the last few details of the deal due to the impact the extension would have had on the team’s 2011 finances.

If all of the terms of the deal HAD been finalized, the parties would have been obligated to tell the world that the deal was “done”; but by agreeing to the financial terms and the larger items within the contract and leaving the smaller details unresolved, the sides could declare that negotiations were still “in process” — and they were able to do so honestly and without fear the league would discover otherwise.

From the perspectives of team finances and team-building, the Red Sox HAD to wait until after the start of the season to finalize Gonzalez’ extension… it was a maneuver that gave the front office the flexibility to sign Carl Crawford to man left field for the next seven years without suffering crippling financial consequences.

Gonzalez’ salary for 2010 is $6.2 million under the terms of his existing contract. If his new extension had been agreed upon prior to opening day, the $6.2 million would have been rolled into the $154 million extension for the purposes of determining the team’s “tax” obligations under the competitive balance tax (CBT) on the team’s 2011 payroll. It goes without saying that there would have been a much larger hit under the CBT had the deal been finalized in March, as the AAV of Gonzalez’ contract would have been $20 million ($160 million over eight seasons) instead of $6.2 million.

The delay allowed the team to sign both Gonzalez and Crawford, and still come in near (under?) the 2011 CBT threshold of $178 million.

The team exceeded last year’s CBT threshold of $170 million and paid a “tax” of $1.49 million – calculated at a rate of 22.5% (the CBT threshold is determined by totaling the AAV of the player’s contracts, plus signing bonuses, performance bonuses and various benefits).

If the Red Sox exceed the $178 threshold in ’11, they will pay a tax of 30% for all of their expenditures over $178 (as the tax rate is graduated and increased in each consecutive year the threshold is surpassed). Prior to 2010, the club last exceeded the threshold in 2007. Thus, it was critical to the club that the deal with A-Gon got done AFTER Opening Day. In this way, the front office was able to fit both Gonzalez AND Crawford into the club’s salary structure for 2011 without exceeding the threshold (or at least minimizing the extent to which they will exceed it).

And although the ballclub is now on the hook for $20 million (+/-) to both players for each of the next seven years, it will lose some larger contracts at the end of 2011 (ie JD Drew, David Ortiz, Marco Scutaro). That fact, in combination with the ever-increasing CBT threshold, should leave them in good shape in relationship to the CBT.