Yankees today announce that they have re-signed Derek Jeter to a one-year, $12 million contract for the 2014 season.
— Yankees PR Dept. (@YankeesPR) November 1, 2013
It appears the previous reading of the Yankees luxury tax situation as described below is not 100% accurate.
After further digging into baseball’s CBA, it appears the Yankees won’t actually save on their 2014 luxury tax burden. BUT, by choosing to “do right” by their captain and working out a new deal, the Yankees avoid a great back tax burden for the previous years of Jeter’s deal, all of which might have cost the Yankees MORE than the increase in 2014 tax suggest.
Whew. The CBA is a dense document full of perplexing legal jargon, so getting a direct handle on the specific tax due to player options and the like gets very tricky in a hurry.
Either way, the Yankees have money to burn and chose to hand a fistful to Derek Jeter just because they think he’s swell. A good gig if you can get it (putting 20 years of Hall of Fame-level performance under your belt goes a long way in doing so.)
Derek Jeter played a mere 17 games in 2013, hobbled by an ankle injury suffered in the 2012 playoffs. He looked a shadow of his Hall of Fame self, recovering slowly and disappearing quickly as his nagging bumps and bruises persisted.
Given his age and track record of health, Derek Jeter doesn’t profile as the kind of player due for a 33% percent increase in pay. The $9MM option seemed more than sufficient for a potential part-time player and shortstop who long since outlived his utility as a middle infielder.
But, as always, there is more to this signing than what we see on the surface. As per the conditions of the current MLB collective bargaining agreement, picking up the 2014 option on Derek Jeter’s contract would make his salary for next season part of the deal his signed in 2009.
Paying $9MM for Jeter in 2014 would bring the total value of his contract to $60.5MM over four years, which works out to an annual average value of $15MM.
As per the CBA, that means the Yankees carry a $15MM tax hit in 2014. By declining the option and paying Jeter $12MM in 2014, it actually lowers their tax burden for next season.
This $3MM is not an insignificant amount for the Yankees, who went to great lengths to get under the $189MM luxury tax threshold last season. With the money they owe Mark Teixeira, CC Sabathia, Alex Rodriguez et al – not to mention the upcoming Robinson Cano contract – every penny counts.
So the Yankees pay for Jeter more in order to get taxed less. A $3MM surtax on avoiding the significant penalties put in place. A perfect and creative way for a big budget team to use their financial heft to their advantage. And the player (minus some performance bonuses), benefits, too.
Everybody wins! Except Yankees fans who think this is anything more than a make-good deal for their once great captain. Let the victory lap around the league begin!