MLB

Yankees can hit tax threshold with creative contracts

(
)

Creativity has not really been a Yankees strong suit when it has come to contracts.

Their financial caveman ethos has been: See what like, buy it.

In recent years they have tried to employ some financial discipline. Now creativity also will be a requirement if they are to honor a vow to drop under the $189 million luxury tax threshold in 2014 and receive the financial benefits for doing so within the new collective bargaining agreement.

The Yankees’ goal is to slice payroll while still filling the roster with stars that keep the win total and fan interest high. As counter-intuitive as it seems, the answer could, of all things, be to extend Alex Rodriguez’s contract after the 2013 season, and extend Robinson Cano and Curtis Granderson now.

Keep in mind when it comes to multi-year contracts, the average annual value is used for luxury tax purposes. So we already know the 2014 value of Rodriguez ($27.5 million), CC Sabathia ($24.4 million) and Mark Teixeira ($22.5 million) equals $74.4 million. Add Derek Jeter’s $8 million option and the roughly $10 million each team is charged for items such as insurance and pension, and the Yankees would have less than $100 million to assemble the rest of the roster and stay under $189 million.

Complicating matters is that those four signed players almost certainly would be in some form of decline while the Yankees’ two best current prime-aged players — Cano and Granderson — are free agents after 2013.

This is why creativity is needed. I offer the following ideas not as the only solutions, but to show some possibilities. I ran them by both the Commissioner’s Office and the union. Neither side gave its full blessings, seeing some potential monkey wrenches. Purposeful circumvention, for example, is a big issue for MLB, while the union always wants to make sure that players are not artificially lowering their pay in any way. Nevertheless, both sides saw these ideas as the kinds of viable avenues to pursue to potentially lower the Yankees’ luxury tax burden:

1. EXTEND A-ROD: He already is declining and still has six years at $143 million left. But in a quirk, Rodriguez’s lowest-salaried years begin in 2014 — $25 million, $21 million, $20 million and $20 million or $86 million for four years.

He also has five bonuses worth $6 million each for milestone homers. At the end of 2013, he likely will have reached only one (660 homers), while not being a lock to reach the other four (714, 755, 762, 763).

Historically, when an extension is done for luxury tax purposes, what remains on the previous contract is added to the extension to create a new total. So if after the 2013 season, the Yankees and Rodriguez mutually agreed to covert the $24 million left in uncertain bonuses into a $14 million add-on for 2018, then the new contract would be viewed as five years at $100 million.

The Yankees would shrink his average value from $27.5 million to $20 million — a $7.5 million savings toward the tax. Remember, the Yankees essentially budgeted to pay that $30 million in bonuses when they gave Rodriguez his 10-year, $275 million extension. The budget problem arises if they do nothing about those bonuses now, because they are financial landmines to the organization. Each time one is triggered, that also goes toward the luxury tax payroll. So the Yankees would have to budget well below $189 million just in case Rodriguez reaches one — or more.

Why would Rodriguez do such an extension? He potentially could make zero in bonuses. In this case, he is guaranteed more than half the bonus money, and a five-year, $100 million deal would give him a third, nine-figure contract in his career. He now would get a sure payday for 2018, when he will turn 43, at a time when teams have shown they don’t want to pay older players — even historic older players. Also, considering his steroid history, Rodriguez would look additionally bad taking a check when/if he passes Babe Ruth and Hank Aaron. Instead, a person who seeks approval/love would come off looking magnanimous to the Yankees’ fan base because this would help the team shoehorn in other good players around him. Which brings us to …

2. EXTEND CANO AND GRANDERSON NOW: Hal Steinbrenner said the organization would not revisit long-term deals until after this season. But why forfeit the benefits of Cano having two years at $29 million left and Granderson two years at $25 million? Remember, you add the remainder of a contract to the extension to get a new average value.

Thus, hypothetically, if the Yankees gave Cano $138 million for the six years from 2014-19, rather than being charged the annual value of that extension ($23 million), the whole contract (with the $29 million currently left) would become eight years at $167 million, or $20.875 million annually.

Say the Yankees gave Granderson a four-year, $80 million extension from 2014-17, or $20 million per year. Add on the $25 million and it becomes six years at $105 million, or $17.5 million.

This is not a perfect exercise, in part because we are just making educated guesses at extension numbers. We have no idea if the players would accept, and we have no firm way to know how the Commissioner’s Office/union would compute those extensions. For example, the $10 million Granderson is making this year is part of a pre-existing, long-term deal that has not been fully taxed yet. In addition, the Yankees have to consider that extensions done now would increase their tax burden in 2012-13 and potentially their insurance burden, because they tend to insure their larger pacts. Also, the Yankees historically shy away from extensions before players reach free agency because they do not like taking on the risk of injury or declining performance before it is necessary.

Nevertheless, that was part of their caveman ethos, when they could wait then just pay as much as needed for those they wanted to keep even when the players had the leverage of free agency. The Yankees are in a brave new world now, by their own choosing. So they also have to choose a new operating principle in which creativity is as vital as deep pockets.

joel.sherman@nypost.com