From the outside, the Red Sox have made what seems like a big shift in spending, from the top spenders in the league in 2018 and 2019, down to 6th in 2021 (with the additional mystery of why they didn’t get under the luxury tax), all the way down to 13th this year. Many people have wondered whether there’s been a big change in John Henry’s spending philosophy due to his investments in other teams like the Penguins.
After doing some analysis, I think I understand his spending philosophy, which is pretty much what it’s always been, and pretty much how almost all baseball owners (with one new exception) operate: **He spends the amount that maximizes his profits**. I think once you dig in, this pretty much explains his historical spending decisions.
I’ll dig into the economics of the team a bit more to explain more. The Red Sox are estimated to make $500M in revenue, and maybe more via NESN. They are in the group of teams that pays revenue sharing to smaller market teams. Now, a small market team can cut their payroll to a tiny number, lose 100+ games per year to tank for good draft picks, receive revenue sharing, and basically give up a relatively small amount of profits to do so. If the Red Sox ever did a multi-year tank, they’d probably lose $200M+ per year in income. They’re just never going to risk that revenue stream by going super-cheap. They might lose because of bad baseball decisions or bad luck but it won’t be because they run a tiny payroll.
Now, how do they protect/increase their $500M+ revenue? The first major goal is to play competitive games as far into the year as possible. That keeps most of the viewership. So ownership is going to value staying in the race, even if your actual chances of a deep playoff run are minimal. This explains why we didn’t do a full sell at last deadline or this deadline – the fans lose interest in the last third of the season and you might lose tens of millions.
Let’s look at the weird 2022 deadline as an example – in hindsight, people were wondering why we didn’t just salary dump some players to get under the luxury tax, which would have preserved the compensatory picks. How much did that cost us? Well, we would have saved $6-8M in salary and tax and had two 2nd round comp picks instead of 4th round; I’ve read many times about how huge a mistake it was. If you look at FanGraphs [draft pick valuations](https://blogs.fangraphs.com/an-update-on-how-to-value-draft-picks/), the second round picks are worth $3.8M each and the fourth round picks were got instead are worth $2.5M. That means we lost $2.6M in value – small change, in context.
Next, let’s look at the economics of the playoffs. The National TV money is split among all the teams so we’re mostly talking about hosting home games and the revenue you get from associated programming and future ticket sales. In this case, we can get a ballpark value by looking at the [value of postseason shares](https://www.mlb.com/news/breaking-down-2022-mlb-postseason-shares) that are given to the players. The total players’ pool is $108M which is a 60% split of the first 3 games of the division series and 4 games of the Championship and World Series. And most of the money is made in the late rounds. So a deep playoff run might be worth something like $100M+ to a team like the Red Sox, both during the run and in future years when you raise ticket prices, luxury box prices, and advertising rates.
But a short run is worth very little. This is partly why we’ve had this unwillingness to really buy at the deadline as well; they want to stay in contention, but adding a win or two doesn’t move the needle that much financially. If they barely make the playoffs or barely miss, it’s not enough of a difference to justify selling a top prospect that might be worth $10M+ in future surplus value.
When ownership feels like they’re on the verge of competing for a championship, they open their wallets; this is true of other teams as well, which is probably why we saw the Padres running up a surprisingly large payroll. This is maybe in part because they want the excitement of hoisting the trophy and bragging to their friends, but it’s also because they make a lot of money if it works out.
So when will the Red Sox start spending big again? I’m guessing that it depends on how this team finishes the rest of the year, now that it looks more like how it probably will next year with Story and the pitchers back. If they look really strong, they might go for it as soon as this offseason, although they’ll probably stay close enough to the tax line to go under if things really go sideways. If I had to guess, 2025 is when they really see a big opportunity, with Sale’s contract off the books, the first wave of Chaim draft picks arriving, and guys like Casas and Bello still making the minimum (or hopefully on team-friendly extensions).
TLDR: John Henry is a profit-maximizing businessman but he will spend again if the Sox look like they’re ready to make deep playoff runs.
4 comments
Im going to circle back around and read your whole write up but I agree with you TLDR.
I want to see an increased spending in INTL pool players, because we can outspend other teams there, and none of that ends up hitting our Lux Tax threshold.
There is a time and place to exceed the Lux Tax, and that is when you dont have a ton of A class Qualified Free agents that are about to leave, and When it can really push you over the limit to a WS, not a playoff berth.
I don’t think most of them are trying to maximize profits. Some certainly are, and Henry may be one of them, but I think for most of the owners, their team is a toy that they don’t want to lose money on. If they can win a title while breaking even, I think most will do it
I agree that the only logical explanation for not selling at the deadline the past 2 years was for business reasons and not for pure on-field baseball reasons.
Everyone knows fan engagement is directly correlated to how good the team is and if the front office signals that they don’t care about how the team does in August and September fans will stop caring too and that would lose the team massive $$$.
It’s unfortunate that these things get in the way of maximizing on-field performance in the long run but at least the Sox are a big market team that has spent in the past and they have a track record suggesting they will spend again if the team is close to contending (and the 2023 Sox are pretty close but not quite there IMO)
John Henry doesn’t want to maximize profit he makes in a year, he wants to grow the brand to be as big as possible. The best way to do that is to win the world series. And so far he’s been successful at this, as the Red Sox are worth more than 6x what he paid for it back in 2002. That has beaten the S&P 500 over the 21 year timeframe which means he has done a good job at growing the brand all things considered.