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Let's start with Danks.
Obviously the Sox want to bring him back. He's their youngest, cheapest (for now), and probably their best starter. He will get a raise in arbitration, but the Sox will try to get him to sign a long-term extension.
Danks still has two arbitration years, so I would guess the target deal for the Sox would be for three years (buying out a free agency year) at around $10 mil a year (typically back-loaded), much like previous contracts signed by Jon Garland, Jose Contreras, and Javier Vazquez.
If they can't come to an agreement, the Sox will have to decide if they want to pay market value for a mid-20's left handed starter with an ERA+ of about 120 over the last three years (which will be quite high) or try to deal him before he becomes a free agent.
As for the rest of the rotation, it looks very good on paper. However, you could have said the same thing entering 2010, and the Sox finished in the middle of the pack in starter ERA.
As you may have noticed, it's also a very expensive rotation. Roughly half of their payroll will be tied up in the rotation once the arbitration/extension figure for Danks comes in. That massive commitment will make things difficult while the Sox try to sign players at other positions.
It would probably make sense for the Sox to try to trade a starter for a good, young hitter given that they appear to have five good starters on the roster and Chris Sale (more on him later) and Freddy Garcia as potential options behind them. They also don't have much high-value talent in the minors, so it may be the only way they could acquire an impact player.
However, Peavy's injury makes it difficult for them to plan. Will he be ready at the start of the season? Will he be as effective as he has been in the past? It's a bit risky to go into the season with a somewhat suspect fifth starter when you're not totally sure what you will get from your expected ace.
It also would probably be difficult for them to get the value they want. They would free up the most money by moving Peavy or Buehrle, but their contracts limit their potential destinations. Peavy is coming off two injury-plagued years and has two years at $34 million left on his deal as well as a sizeable option/buyout. Buehrle is signed at $14 million and is a free agent at the end of the year.
Edwin Jackson is somewhat similar in that he will make $8.75 million this season, the last of his deal. He also has a pretty inconsistent past, and I have a hard time seeing the Sox get someone as talented and MLB ready as Daniel Hudson back.
Can they trade those guys and still get major league caliber talent back? I don't know.
They would find far more suitors for Gavin Floyd and John Danks, but they're far more valuable to the Sox for the same reasons people want them (they're good, young and affordable).
I would like to see them keep this rotation together, but we don't totally know what that means for the rest of the roster yet.