Although we knew negotiations would likely last through the night and up to the point at which the Cardinals and Cubs needed to head to Wrigley Field for their afternoon game, we chose to stay up and follow the progress of the talks until there was some resolution either in an agreement or a strike. As you likely know by now, an agreement was reached and a strike averted. The Red Sox boarded buses for the airport where their charter to Cleveland waited, while St. Louis and Chicago headed to the ballpark to take batting practice.

Owners and players still need to officially ratify the documents, but the content of the agreement is in place. As the structure of the agreement is available in a number of places, I won't go into those facts myself. Here is a link to one of the more comprehensive settlement descriptions. Now I'd like to discuss the details of how this will affect the activities of teams, beginning with the Luxury Tax.

Due to the costs that are included in the calculation of the payroll and the agreed-upon base payroll over which teams will be charged a tax, at least three teams, including the Yankees, Red Sox, and Dodgers will likely pay tax next season unless they take action to move contracts. The Red Sox aren't currently over the $117M base for next season but will almost certainly add payroll this off-season, while Texas, with a payroll over $117 this year, will likely decrease their payroll by a significant amount before next year. Fortunately the contracts that will inflate Boston's payroll over the next several years should be those of players contributing to the success of the team rather than merely draining resources.

Given the likelihood that the Red Sox will be the primary team currently under the base and contemplating moves that would cause them to pay tax, I'd like to use them as an example of the result of the luxury tax on premium free agents. Tom Glavine was at the negotiations as the National League Player Representative and should be acutely aware of the possible effects of the tax. He's also a pending free agent and will be one of the first players to experience the new labor environment established by this CBA.

If he doesn't re-sign with Atlanta, many have speculated Glavine and the Red Sox might be mutually interested in working out a deal as he originally hails from Massachusetts. At this point, he'll likely finish as high as third in the Cy Young Award balloting and command a conservative contract of $40M for 4 years. There's no need to break out the individual amounts for each year as teams figure payrolls using the average annual value of a player's contract, which would be $10M in this case.

With the cost of extending and retain the majority of their current players, the Red Sox can expect to increase their payroll by about $5M a year. The following tables show how signing Glavine to the aforementioned contract would affect Boston's payroll.

First, we'll look at how the Red Sox's payroll goes over the threshold with the addition of Tom Glavine's contract, causing them to pay tax. All numbers are in millions of dollars except for the Rate of Tax (%).

Payroll	w/ TG	Base	Diff.	%	Tax
115	125	117	8	17.5	1.4
120	130	120.5	9.5	30	2.85
125	135	128	7	40	2.8
130	140	136.5	3.5	40	1.4
					8.45

This next table shows how much the tax calculated from the last table increases the cost of his contract. On a $40 contract for four years, the Red Sox would pay an additional $8.45 million in luxury tax.

year	TG	Tax	Total Cost
2003	10	1.4	11.4
2004	10	2.85	12.85
2005	10	2.8	12.8
2006	10	1.4	11.4
Total	40	8.45	48.45

Even as the Red Sox must pay an average of $12.1125M each year of his contract, Glavine only receives approximately 82.6% of their expenditure. Of course, the majority of teams won't be affected by the tax, but because the most generous spenders are curtailed, some players will receive smaller contracts. Additionally, having achieved this level of concession from the players, the owners will look for more in the future. The players are at the distinct disadvantage in that their ideal would be to maintain the status quo, so they have few points to trade off with management.

I'll continue this analysis tomorrow with a greater focus on how the tax will affect teams' spending habits.