Much digital ink has been spilled about the Yankees’ 2014 payroll, and their possible goal of getting below the $189 million luxury tax threshold to greatly reduce their luxury tax and revenue sharing obligations. In order to get their payroll below that threshold for 2011, the Yankees would likely have to employ some measure of austerity (for the Yankees, at least). This may explain why we have not seen them be very active on the market this offseason, and may lead them to curtail future expenditures.
Because we know that the Yankees are perpetually in “win-now” mode, austerity and rebuilding are not really in the Yankees’ repertoire. When Joel Sherman reported on the potential restrictions in 2014, people around the blogosphere wondered whether backloading existing contracts would provide a solution, by lowering the amount that the Yankees owed in 2014 and paying more at another time. However, since payroll for luxury tax purposes is calculated by the average annual value of the existing contracts, front or back-loading would have no effect.
With that option off the table, I have wondered whether there would be another way for the Yankees to the 2014 payroll restrictions, allowing them to get under the threshold without resorting to major cutbacks. I was inspired by a recent conversation with a friend who happens to be a fan of the New Jersey Devils, which reminded me of some recent NHL contract shenanigans.
In particular, I was thinking about the infamous Ilya Kovalchuk contract that the Devils negotiated, primarily as a way of reducing their salary cap hit. Kovalchuk, a star forward, initially signed a 17-year deal worth $102 million, but the contract was strongly frontloaded. The last few years of the contract, which would last until Kovalchuk was 44, would be worth about $500,000 per year. Presumably Kovalchuk would have hung up his skates by 44, but if not, he would be relatively cheap. By adding in the extra low-salary years, the Devils would be able to reduce their cap hit on the contract from just under $8 million per year to around $6 million, a potentially significant difference in a league with a hard salary cap. The NHL eventually vetoed this deal and changed the way cap hits (on contracts that go into a player’s 40′s) are calculated, but did allow Kovalchuk to sign a similar deal (15 years for $100 million) that allowed the Devils to accomplish a similar goal.
Could a similar deal be possible in the MLB? The text of the Collective Bargaining Agreement is not particularly specific on whether this would actually be allowed, so this would seem to be potentially grey area. Article XXIII Section G suggests that “any terms designed to defeat or circumvent” the luxury tax would not be allowed, however it does not really specify what would count as circumvention of the cap. There is precedent for teams circumventing the cap without punishment, and both recent examples involve the Boston Red Sox.
reached an agreement for a big multi-year extension with the Red Sox after being acquired in an offseason deal, but the team waited to officially announce the extension until the season began. Because Gonzalez’s 2011 salary was a reasonable $6 million, waiting to announce the extension allowed the Red Sox to calculate their luxury tax using the $6 million rather than the $22 million, which allowed them to just stay under the threshold for 2011. Another cap-circumventing move involved their signing of Adrian Beltre in 2010. Beltre received a 1-year deal worth $9 million with a player option for $5 million for year 2. It was pretty clear that Beltre was not going to pick up the option, but the existence of the option allowed the Red Sox to reduce their cap hit by $2 million for 2010.
It’s certainly possible that neither of these causes would be as flagrant CBA violations as giving out a Kovalchuk-type contract, but for the sake of curiosity let’s see how much the Yankees could save. For example, by giving a 2-year extension of $1 million annually, the Yankees could reduce the average annual value of his contract from $27.5 million (possibly more if he reaches his incentives) to about $23 million. Similar deals could be done for other players who are likely on their last contract, such as or , which could also save a few million each on the Yankees’ cap hit. A deal like that could go a long way to reducing the Yankees’ 2014 cap number, potentially allowing them to get under the $189 million threshold.
I’m no lawyer (maybe Moshe or someone else could enlighten me), but it seems to me that this type of deal would not be explicitly illegal under the collective bargaining agreement. It’s certainly in a grey area, and it is probably within Bud Selig’s rights as commissioner to veto such an extension. Whether it would be in Bud’s interest to do so is unclear. An extension such as this, if allowed, would certainly cause Selig and MLB to reconsider contract rules to prevent these types of deals from having an impact on cap numbers. On the other hand, from the Yankees’ perspective, they may only need to pull these shenanigans once. As a result, a new rule against these types of extensions may not apply to the Yankees because it would be an ex post facto rule. This would probably never happen, but if the Yankees are projected to be a few million over the cap, this could be an option to consider. Are there any reasons that I’m overlooking that would prevent this type of contract from happening?
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The other day I thought of a creative way to get under the cap that while MLB would hate, should work under the rules.
At the end of the 2013 season the Yankees could trade AROD for a low level minor leaguer to a team that is far under the cap. At the end of the 2014 season they would buy him back for $20 million. What would this accomplish?
From the Yankee standpoint in 2014 it would recuce their cap payroll by $27,500,000. That would save over $10 million in luxury tax for 2014 and reduce the luxury tax from 50% to 15% in future years saving tens of millions more. The Yankees would temporarily save $25 million in AROD’s salary but would have to pay $20 million after the year to the other team to buy him back. The Yankees would also get benefits from reduced revenue sharing for being under the cap. The Yankees would only lose AROD’s production for 2014.
Why would another team do this? Obviously no one will want to acquire AROD’s contract for his last 4 years given the salary. But if one could acquire him for one year and get back 90% of what it paid in salary after the year when it sells him back, it would provide a way of having a big name player with some decent production for one year at $5 million or less. As long as that team is not over the cap, it is a good deal.
A win win for both teams.
Interesting thought, but I can’t imagine it would be worth giving up a year of A-Rod’s production to accomplish that.
Actually their is an example while not intentional prove the theory of the piece.
John Lackey contract with the Sox. He signed a 5 yr/$82.5MM deal which is an AAV of $16.5MM per. However his contract had a clause that if he missed significant time due to and elbow injury (AKA: Tommy John Surgery) the Sox has an option to add a 6th year at league minimum say $500K for simple math. His contract now is 6yrs/$83MM or $13.83MM per. A savings of about $2.7MM per
Interesting concept. I don’t think it’s that big of a leap to take it to the level mentioned in the article.
True, another good example. Once again it is the Red Sox engaging in said activity, interesting.
Just my opinion. But Bud Selig seems to turn a blind eye to some of the things the Sox have done in the past concerning the luxury tax. While the Sox may not have violate the CBA they certainly are violating the “spirit” of it.
Agreed. I would be interested to see how Selig would respond if the Yankees were engaging in such shenanigans.
Real easy. Stop giving shit deals to so so players
That would help.