Joel Sherman

Joel Sherman

MLB

How Jeter’s new deal counts against Yankees’ $189M goal

Both the union and MLB described Derek Jeter’s contract as the most complicated for computing for the Competitive Balance Tax (CBT) in history.

Here is an attempt to explain how his contract was viewed as worth $12.81 million for the purposes of the luxury tax – with the Yankees trying to get under $189 million:

After the 2010 season, Jeter signed a three-year contract with a player option. The guaranteed three years were worth $48 million, the player option was worth $8 million. For the purposes of CBT, a player option – since the player, not the team controls it – is counted as guaranteed money. Thus, Jeter’s contract was viewed as a four-year, $56 million deal.

In general, you would divide four into 56 to come up with an annual average value of $14 million. But for the 2011-13 portion of the contract, Jeter had $2 million deferred annually at no interest. So from 2011-13, Jeter should have cost the Yankees $13.91 million against the luxury tax payroll.

However, Jeter’s option was for considerably less than the guaranteed portion of the deal. Both MLB and the union said that triggered “an obscure” part of the collective bargaining agreement that attempts to prevent certain skirting of the rules by doing this. Thus, money from the option is moved to each of the guaranteed years as a way to avoid the problem.

In Jeter’s case, there was $1.553 million moved back to each season. So rather than count as $13.9 million against the payroll from 2011-13, Jeter counted $15.46 million.

Thus, when the Yankees signed Jeter for one year at $12 million rather than just charge that amount toward the luxury tax payroll, there had to be a re-calculation between what the Yankees were charged from 2011-13 and what they actually paid the player.

So MLB subtracted the amount charged to the Yankees for Jeter’s contract from 2011-2013 from the amount actually paid to Jeter from 2011-2013. Because the amount paid to him exceeds the amount charged for CBT, MLB added the difference, which was $810,000. Thus, for CBT Jeter is viewed as costing the Yanks $12.81 million next year.

One other item to remember that made this more confusing is that Jeter’s option became worth $9.5 million. He earned a $1.5 million bonus in 2012 for winning the Silver Slugger and his contract stated that any bonuses were added to his option year. Thus, $8 million became $9.5 million.

However, for CBT purposes the option would have cost the Yankees roughly $10.75 million in MLB’s eyes. You get that, again, by justifying the money actually spent previously. So it would have been the $15.46 million the Yanks were being charged annually minus the total ($4.4658 million) of having $1.553 million extra that the Yanks were being charged in each year from 2011-13.