Yankees captain had $9.5MM option.
Would it feel wrong if there was no Derek Jeter in pinstripes? That wasn’t going to happen for 2014, but there was a deal today that could get a little confusing.
Derek Jeter will be making a little more cash for the 2014 season thanks to a one-year, $12MM deal with the New York Yankees. The Yankees captain and shortstop held a $9.5MM option (Base $8MM plus another $1.5MM for his 2012 Silver Slugger), but the club saw fit to extend a little more his way.
According to Joel Sherman…
$12M deal actually will cost #Yankees more toward '14 luxury tax than if let Jeter just pick up his $9.5 million player option (cont)
— Joel Sherman (@Joelsherman1) November 1, 2013
I know Sherman cites another tweet, but it’s honestly not necessary. Here’s why.
There’s a bit of a disagreement on this. Dave Cameron of Fangraphs states that the Yankees, wanting ever so much to get below the $189MM luxury tax, will actually have a lower number than Sherman implies.
Cameron provides this as an explanation:
Here’s how this works. On multi-year deals, the luxury tax takes the average annual value of the deal and applies it evenly to each year, so the actual salary earned by the player in that season is less important than the total figure earned during the life of the deal. Because Jeter’s expiring deal was for $51 million over three years, if he had exercised his $8 (or $9.5) million option, that would have been a continuation of the deal, so the calculation would have been $59 (or $60.5) million over four years, or essentially $15 million per year.
Because this is a new contract and not a continuation of the old contract, Jeter will count $12 million against the team’s luxury tax payment for 2014 instead, so by paying Jeter more than he was scheduled to make, they’ve actually lowered their luxury tax calculation by about $3 million. Which, you know, is pretty silly, but this is how the calculations work.
You’ve just had your Luxury Tax 101 course.
To tie these loose ends here…
Having Jeter on a this one-year, $12MM deal provides them a little relief concerning the luxury tax. Instead of being “on the hook” for $15MM toward the luxury tax (had Jeter picked up his option), the team negotiated a new deal, paying Jeets $12MM. The Yankees have thus “created” $3MM.
Bottom line: Jeter gets more money, the Yankees get “relief”. A win-win proposition for Jeter and for Cashman and Co.