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Friday, January 13, 2012

Stark: Looking for a lower tax bracket

the new labor deal has created millions of dollars in incentives to get under the threshold when it rises to $189 million in 2014.

What are those incentives? From the Yankees’ point of view, they come in three forms:

1) The top luxury-tax rate for four-time repeat offenders (in other words, THE YANKEES) will rise to 50 percent from 40 percent beginning next year. (That rate phases in at 42.5 percent for 2012.)

2) For the first time, under this labor deal, a team that drives its payroll below the threshold, even for one year, can hit the reset button. So if it then goes back over that threshold in a future season, it’s treated as a first-time offender and taxed at only 17.5 percent…

[3)] a new rule preventing teams in the 15 biggest markets from receiving ANY revenue-sharing handouts. So if any of those teams generate so few dollars that they ordinarily would have gotten revenue sharing, that money instead will get rebated to the teams that pay into the pool. At the moment, this rule, which also will be phased in, would affect only the Nationals, Braves, Blue Jays and Astros. But who knows what the impact will be down the road?...

the Yankees have been telling people in the game that if they play their contract cards correctly, avoid big, dumb long-term contracts for the sake of giving out big, dumb long-term contracts, and structure future deals right, it could be worth up to $40 million a year… The Yankees have no hope of getting below the current threshold ($178 million) this season or next. But by 2014, when the goal is to nudge below $189 million, they conveniently have more than $50 million in guaranteed money disappearing off their books…

But is this abrupt attack of frugality really inspired primarily by the labor deal? There are skeptics around baseball who aren’t so sure.

For one thing, they say, The Boss, the all-powerful George M. Steinbrenner III, is no longer ruling their universe… For another thing, the cynics claim…the Yankees started working to reduce their payroll—and their luxury-tax bill—even before this labor agreement came around…

maybe the labor deal fine print explains what’s going on in this market. And maybe it doesn’t. Either way, if we’re charging toward a world in which NOBODY is going to pay a luxury tax in a $7 billion industry, recognize what that means for this sport.

If this where we’re heading, we’re looking at a revolutionary shift in the landscape of baseball… When the Yankees and Red Sox—of all people—turn thrifty, the entire sport feels the ripple effects.

The District Attorney Posted: January 13, 2012 at 07:35 PM | 14 comment(s) Login to Bookmark
  Tags: business, red sox, yankees

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   1. The District Attorney Posted: January 13, 2012 at 09:51 PM (#4036805)
Nothing that's occurred today would contradict this theory.
   2. cercopithecus aethiops Posted: January 14, 2012 at 08:35 AM (#4036960)
the Yankees have been telling people in the game that if they play their contract cards correctly, avoid big, dumb long-term contracts for the sake of giving out big, dumb long-term contracts, and structure future deals right, it could be worth up to $40 million a year…


Why would it matter how they structure future deals? Tax is still based on AAV, isn't it?
   3. Non-Youkilidian Geometry Posted: January 14, 2012 at 08:45 AM (#4036961)
Future deals will be structured to compensate players in part with Derek Jeter gift baskets, which don't count against the luxury tax.
   4. Swedish Chef Posted: January 14, 2012 at 08:48 AM (#4036962)
Why would it matter how they structure future deals? Tax is still based on AAV, isn't it?

I bet there are still games that can be played with that. At least they could use front loading to make a more valuable contract with the same AAV. I don't know if the hockey shenanigans with absurdly long contracts would go down well in baseball, but that is also a way.
   5. Juan V Posted: January 14, 2012 at 08:53 AM (#4036963)
Signing bonuses would be a way to play games with that, wouldn't they?
   6. cercopithecus aethiops Posted: January 14, 2012 at 09:11 AM (#4036966)
At least they could use front loading to make a more valuable contract with the same AAV.

Signing bonuses would be a way to play games with that, wouldn't they?


Good points I guess, but how much is that really going to help? You can make a contract for the same nominal value more appealing with upfront money, but you'd have to some really extreme things for it to have a big luxury tax impact.

They only have three long-term contracts that extend beyond 2013. AAV of those is $74.4M (plus whichever of A-Rod's bonuses kick in -- not sure how those get handled; if averaged over the life of the contract it's a max of $3M per, but if averaged over the remaining life of the contract they could have quite an impact).
   7. Darren Posted: January 14, 2012 at 09:25 AM (#4036973)
I think they mean that the Yanks can do give (pulling a name out of a hat) Fielder a 2 year/$70 mil. deal, which would be off the books by 2014. Stuff like that, both big and small, can probably add up for them.
   8. TVerik - Dr. Velocity Posted: January 14, 2012 at 09:45 AM (#4036981)
We've all spent years probing the luxury tax code for loopholes, and a few ideas have caught on. But regardless of that, the evidence is that the Yankees do not care about the luxury tax - someone in some board room said "This thing will never keep us from pursuing the player that we desire."
   9. cercopithecus aethiops Posted: January 14, 2012 at 10:16 AM (#4036985)
I think they mean that the Yanks can do give (pulling a name out of a hat) Fielder a 2 year/$70 mil. deal...


Is Prince really at a point where he'd consider that sort of thing? Compared to six years or more from someone like Washington, even if it's less money than he was hoping for?

We've all spent years probing the luxury tax code for loopholes, and a few ideas have caught on. But regardless of that, the evidence is that the Yankees do not care about the luxury tax - someone in some board room said "This thing will never keep us from pursuing the player that we desire."


But that was all based on the last set of luxury tax rules. The possibility of paying 10% instead of 50% on a big splurge in 2015 is a very different animal.
   10. KronicFatigue Posted: January 14, 2012 at 12:29 PM (#4037022)

But that was all based on the last set of luxury tax rules. The possibility of paying 10% instead of 50% on a big splurge in 2015 is a very different animal.


This nails it. MLB has greatly increased the incentive to get under just once.. AND there's a year coming up where it's possible (bye bye AJ and Soriano). Plus, b/c of some cheap young talent, the Yankees don't have to sacrifice too badly in '12 and '13. There's no such thing as "the yankees have an infinite payroll and don't care at all about the luxury tax". Everything is relative, and the goalposts just got moved.
   11. joeysdadjoe Posted: January 14, 2012 at 05:26 PM (#4037153)
# 10 does nail it. It's not about staying under, it's about resetting the escalators.
   12. TH Posted: January 14, 2012 at 06:42 PM (#4037171)
Could the Yankees do something like sign Edwin Jackson for 3yrs/$33mm but structure it as 15/15/3. Then before the 2014 season they can trade 1 year of Jackson at $3M to one of many teams and knock that $11mm off of their luxury tax payroll. Obviously they don't need Jackson anymore but I can't see why the general structure wouldn't work.
   13. cercopithecus aethiops Posted: January 14, 2012 at 06:53 PM (#4037172)
Luxury tax is based on AAV.
   14. Greg K Posted: January 14, 2012 at 10:33 PM (#4037257)
Luxury tax is based on AAV.

I think he means that the third year of the deal won't count against the Yankees because he won't be on the Yankees anymore. And it won't count against the new team because they won't be at the luxury cap.

EDIT: So the AAV luxury tax hit is is $11 mil/$11 mil/$0

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