The Red Sox and lucrative contracts

You might think the impending release of Julio Lugo has nothing to do with their negotiations with Jason Bay or their possible interest in Roy Halladay.

Wrong. All three have everything to do with each other.

When the Red Sox do eventually cut ties with Lugo -- they designated the shortstop for assignment on Friday -- they acknowledged that the four-year, $36 million contract they bestowed upon him before the 2007 season was as big a mistake as they've ever made.

"Sometimes the best organizations make mistakes,"general manager Theo Epstein told reporters in Toronto. "It was a free-agent signing that didn’t work out. We ended up paying for past performance, not current performance. It was a mistake, and as the decision-maker, that’s on me. We'll move on. We're a better organization having gone through it, and we'll make better decisions going forward."

Had the Red Sox merely signed Lugo for $3 or $4 million a year, the release of Lugo wouldn't have been nearly as big of a deal. Heck, the Red Sox probably would have been able to trade him to the Mets or the Cubs or the Reds without much trouble, kicking in a little cash but not being on the hook for anything close to the $13 million Lugo still is owed now.

The point seems obvious, but it's worth spelling out: The more money for which you sign a player, the costlier it is if the player doesn't work out.

And that's where Jason Bay and Roy Halladay come in.

Halladay, of course, is the preeminent player available on the trade market. The Blue Jays are commanding a huge ransom for him, and for his new team truly to get their prospects' worth, that team will have to sign him to some sort of contract extension. Halladay is earning $15.75 million this season and is well aware that former teammate A.J. Burnett signed a contract last winter for more than $16 million a year.

He's in line for a hefty raise, and he knows it.

Bay and the Red Sox broke off contract talks during the All-Star break -- did anyone see that coming? -- despite having made an "aggressive" offer that Bay said left him "definitely more encouraged" about the direction the money was going.

If the Red Sox had offered him $16 million a year for four or five years, though, you'd better believe Bay would have said he'd "definitely" sign that deal.

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Let's spell it out again: The more money for which you sign a player, the costlier it is if the player doesn't work out.

The Red Sox have learned that lesson the hard way.

Check out the contracts the Red Sox have handed out since 2000 that have been worth at least $9 million in average annual value:

* Manny Ramirez, $20 million a year over eight years
Manny was just about to turn 29 years old at the time. It didn't go well all the time -- as evidenced by the number of times the Red Sox tried to trade or release the All-Star outfielder -- and ended badly, but the Red Sox probably don't win the World Series twice without him.

* Daisuke Matsuzaka, $17.1 million a year over six years
(This includes the posting fee of $51.1 million.)
The jury is still out, but this one doesn't look good so far.

* J.D. Drew, $14 million a year over five years
He's an on-base machine who appears to be a nice fit at the top of the lineup. He might not be the type of player you'd want to be your highest-paid player, but he's far from the bust some make him out to be.

* Curt Schilling, $13.5 million a year over three years
The Red Sox don't get him if they don't overpay to get him to waive his no-trade clause. The Red Sox also don't reverse the curse without him.

* David Ortiz, $13 million a year over four years
It looked like a bargain a couple of years ago -- but given how much trouble he had earlier this season, how much do you like the sound of paying Ortiz $13 million next season?

* Mike Lowell, $12.5 million a year over three years
This deal still has a year to go on it -- and, like that of Ortiz, might be a year too long.

* Pedro Martinez, $12.5 million a year over six years
For the greatest run of pitching baseball has ever seen? A bargain.

* Jason Varitek, $10 million a year over four years
He's done pretty much with the Red Sox expected: Decline with the bat but remain a steady presence behind the plate for one of the best pitching staffs in baseball.

* Edgar Renteria, $10 million a year over four years
On the bright side, if you don't sign Renteria, you aren't able to land Ramon Ramirez in a trade.

* Josh Beckett, $10 million a year over three years
He looks like a Cy Young Award candidate so far this year. A bahgain.

* Julio Lugo, $9 million a year over four years
Yeah, about that...

With all of that to work with, you're looking at about a 50-50 chance of getting a positive outcome out of bestowing a big contract. The contracts of Lowell and Ortiz could leave the Red Sox paying more than $25 million for a pair of either injured or ineffective players next season, and the exorbitant Matsuzaka deal already looks like a disaster on its own. Even the successes -- $20 million for Ramirez and $14 million for Drew -- required a huge percentage of the team's budget.

The more you pay for a player, the more you'd better get out of him to make your investment worthwhile. The more you pay for a player in his 30s -- as Halladay and Bay both are -- the more you risk paying huge sums of money to a player who can't play to the best of his ability by the end of the contract.

That's why the Red Sox hold onto their prospects so tight. If you make a mistake on Clay Buchholz or Lars Anderson, it costs you maybe $1 million in wasted salary. If you make a mistake on Roy Halladay, it could cost you upwards of $50 million in wasted salary.

And before you point out that Bay is an All-Star or that Halladay is the best pitcher in baseball, remember this: Lugo had a better on-base percentage than Miguel Tejada, Rafael Furcal and Jimmy Rollins in 2005 and was considered by advanced fielding metrics to be an above- to above-average defensive shortstop in 2004, 2005 and in his first year in Boston in 2007.

No one thought he was Juan Uribe when he signed.

"You just talk to anyone in opposing dugouts, and there's a ton of respect in baseball for Julio Lugo," assistant general manager Jed Hoyer said at the time. "He plays hard every day. He plays with high energy. He's a rare impact bat at shortstop that can hit at the top of the order. There's a lot of reasons we want Julio Lugo to be our shortstop for a long time."

The Red Sox, thanks to their deep pockets, have made plenty of mistakes with long-term, big-money contracts. It's only thanks to those deep pockets that their mistakes haven't crippled them as a franchise. But no general manager wants to throw money away that he could use elsewhere to create a juggernaut -- and no owner wants to see his money thrown away.

But if Epstein truly has learned from those mistakes, well, you're likely to see that manifest itself in the way he negotiates with the Blue Jays and Halladay and in the way he negotiates with Bay. The Red Sox have an unbelievable player-development "machine," as one competing executive put it. The more Epstein puts his faith in young players, the less money he's potential flushing away on expensive disasters.