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More to contract negotiations than the CBA and the luxury tax

Posted By Chad Jennings On January 22, 2013 @ 11:49 am In Misc | 78 Comments

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[2]In roughly 10 months, Derek Jeter will decide whether to accept his player option for 2014, and that decision could have a significant impact on the Yankees desire to get below $189 million.

Is Jeter going to be thinking about the collective bargaining agreement and the luxury tax when he makes his choice? Probably not. Certainly not nearly as much as he’ll be thinking about his own longevity and earning potential.

We’ve spent so much time discussing the luxury tax threshold – what it means, how it’s calculated, and why the Yankees are trying to avoid it – that it’s easy to forget there are other factors at play when it comes to payroll and contracts.

A team’s payroll might be determined based on average annual value, but as Joe explained this morning, that doesn’t stop players from preferring a front-loaded deal, and it doesn’t stop ownership from wanting a back-loaded deal. Rafael Soriano’s deferred payments might not matter according to the rules of the CBA, but you can bet they matter to the folks who are actually paying his salary, and you can bet they played a role in Soriano landing in Washington.

Payroll might be the most discussed Yankees expense, but it’s certainly not the only expense that weighs on the organization and affects Hal Steinbrenner’s decision making.

How might the time value of money, as explained by Joe, play a role in the Yankees attempt to get below the luxury tax? The only thing I can think of would be front-loading contracts instead of back-loading them. By paying more money up front, a deal would be more valuable for the player without actually costing more in terms of average annual value.Of course, that would also make the contract more expensive for ownership, which might negate some luxury tax and revenue sharing savings.

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