Monday, March 12, 2012

Use Extensions To Help Austerity Budget

This morning I learned that, according to Joel Sherman, that extensions are added onto the current contract. Extensions don't simply take the place of a current contract.

For example, CC Sabathia signed an extension at the end of last season, avoiding free agency. At that point it was figured that CC's contract was 5 years and $122 million, which has an AAV of $24.4 million. Instead, CC's extension would be added onto his contract at the time, making his current deal for 8 years and $182 million (when viewed from the perspective of the Luxury Tax). Which works out to be an AAV of $22.75 million.

The reason Joel brought up this fact was to show how the Yankees could retain Robinson Cano and Curtis Granderson passed their current contracts (assuming the club options will be picked up, both of them will be Yankees through 2013). Which is to extend their current contracts, bringing down the AAV of each player's deal. Robbie and Curtis will still get their money, but the Yankees will save on the Luxury Tax (and Revenue Sharing).

Here is what Mr. Sherman said about possible extensions for both players...
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.
The same thing could be done to bring down Alex Rodriguez's contract by extending it for one year at a lower dollar amount. Sherman says they should get rid of the $30 million marketing agreement for milestone home runs, since the team can't predict those, and give ARod a lump sum of $14 million for another year. I guess Sherman is assuming ARod won't believe he'd reach all the milestones, and therefore take the guaranteed money instead.

I read at River Ave Blues the other day, that Randy Levine has a plan for Cano and Granderson, in order to get the team under $189 million in 2014. Perhaps the above is that plan. We'll see soon after the World Series ends this season.

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