Friday, January 23, 2015

Interesting Way to Get Around the Luxury Tax

When teams sign or trade for big time free agents the art of deferring payments is not something new in Major League Baseball but the Max Scherzer contract brought up an interesting aspect of the deferral. As we all know Scherzer signed with Washington for seven years and $210 million with 50% of that money being deferred out over an additional seven seasons. So many times we have seen the Bobby Bonilla’s of the world getting paid millions of dollars for being retired due to deferrals and do not blink an eye but could a team that is looking to get under the luxury tax threshold use this to their advantage?

I found it interesting when Jon Heyman tweeted out that, for luxury tax purposes anyway, the Nats were on the hook for a shade over $191 million rather than $210 million due to the deferral of money. Now while an AAV of $27.29 million is a miniscule discount from $30 million it is a discount nonetheless. Could a team like the Yankees, the Dodgers, the Phillies or any other big market team with staying power financially take advantage of this loophole?

Naturally these deals would have to be reasonable as I am sure MLB and the Player’s Union have to come to terms and agree on them but this could work for New York. With an absolute ton of money coming off the Yankees books after the 2016 and 2017 seasons the Yankees, while employing this strategy, could conceivably still go large with their spending and get under the cap for one season to get the fiscal benefits of the penalty reset.

Whether Rob Manfred and the league would allow this on a large scale remains to be seen but I personally would rather the Yankees be ahead of this curve than behind it. Try it out, all the league can do is continue to show their bias against the team and say no. 

No comments:

Post a Comment

Sorry for the Capatcha... Blame the Russians :)