Idea: Save money on A-Rod with a contract extension

This idea comes to us via Joel Sherman of the NY Post and it really isn’t as crazy as it sounds.

The Yankees have a goal of getting below $189 million in payroll by 2014 to avoid newer and more harsh penalties under the new collective bargaining agreement. Sherman’s idea to help them reach that goal is to offer Alex Rodriguez a one-year $14 million contract extension in the place of a possible $24 million in historic incentives that he will get for reaching certain home run plateaus.

The reason this could work is that the average annual value of a player’s contract is counted toward the luxury tax. However, if a player signs an extension the league takes the remaining portion of the contract plus the extension and takes the average of that.

In A-Rod’s case, the average annual hit is $27.5 million. However he is owed just $86 million over the final four years of his deal. If the Yankees extended him after the 2013 season for just one year at $14 million as Sherman suggests, the average annual value would shrink to $20 million.

That would not only shave $7.5 million a year off the Yankees payroll for luxury tax purposes, but it would getting hit with A-Rod’s historic bonuses. He is due $6 million when he reaches 660, 714, 755, 762, and 763 home runs. That creates a couple of problems in that it is hard to predict exactly when or if he’ll reach those marks and it also counts against the cap each time.

So let’s say A-Rod has 700-something homers by the start of the 2014 season (unlikely but possible) and then has a monster year where he not only reaches 714 and 755 in the same season (this is more unlikely, but still possible), he potentially would be worth $39.5 million against the cap all by himself in 2014. That is a nightmare scenario that will kill any chance the Yankees have of cutting payroll and remaining at the same competitive level.

If A-Rod would agree to such a move and the league approved it (Sherman said he ran this by the league and they reluctantly agreed it could work) than this is a no-brainer for the Yankees. It’s hard to say how many homers he will finish with, but it isn’t hard to imagine him getting to at least 714 at some point. So that means they are likely going to have to pay out at least $12 million in bonuses anyway, an extra $2 million guaranteed would give them a huge amount of payroll flexibility.

The downside of course is that A-Rod still has a whopping six more seasons on his contract and this extension, even at just one year, would mean he would be playing as a 43-year-old. For a guy who is going to need to be moved to DH well before that it’s really a hard prospect to imagine.

The problem with this idea is the Yankees have never been overly creative when it comes to contracts. Then again, the Yankees only ever heard of the word budget about two years ago so things can change.

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10 Responses to Idea: Save money on A-Rod with a contract extension

  1. Jim says:

    First- I think the team would be better on and off field w/o ARod at this point– but why would he do this deal? He needs to ave just over 22 hr a year over his existing deal to get the 30 mil bonus + salary– taking this deal would be a 16 mil salary cut for one more working year- ?

    • The two reasons he might do the deal that Sherman brought up were, he would look good in the eyes of Yankees fans and bragging rights as that would technically be three $100M+ deals he signed. He would also be trading a possible $30M for $16M guaranteed. For a guy that has struggled to stay healthy for the past 4 years that might not be a terrible tradeoff.

      Not saying he would, be it's not like there aren't reasons he might do it.

  2. klaus says:

    I don't think it's such a good deal for the team. I really question Arod's ability to cash in on those
    bonuses…

    • Well he's going to get at least some of them. If he even gets one, his average annual salary is already $27.5 million. In a year where he reaches one benchmark that'll be a $33.5 million tax hit. Pretty harsh. This would give them some cost certainty.

  3. Jim says:

    If Arod would do it the team should do it– and other athletes have restructured their Ks to assist teams, this though would be a tacit admission by Arod that he may not reach those milestones– a level of humility he has never shown– as for signing a third $100 mil deal being some badge honor for him I do not see that having any sway given the hollow nature the third "100 mil deal" would have. Call me an Arod cynic but I think his recent club house speech was more about him realizing he is going to morph into a mediocre DH who is below average in clutch situations so he needs another form of presence- there will come a day, hopefully not too soon but maybe, where cutting him will be wiser than keeping him at his price-

  4. Bronx_Knight says:

    A-Rod's career average is 42 HR's per 162 games, but he's 36 going on 37 now. Since hitting 54 HRs in 2007, he's hit 35, 30, 30, and 16 — not a great trend. If he gets his health back, though, it wouldn't be surprising to see him top 30 again. He's at 629 HRs right now. If he were to average 20 HRs for the next seven seasons, that would be 140, which would put him at 769 for his career.
    Everybody out there who sees A-Rod hitting 20 HRs at age 43, raise your hand …

  5. Jim says:

    Ave HR per season since PED admission 25. He will not be on the field at 43.

    • Bronx_Knight says:

      Very valid points …

    • Mike Sommer says:

      He needs 32 to pass Mays. Prediction: he finishes with more than Ruth (needs 86 to pass), less than Aaron (needs 127 to pass). Will finish behind Bonds and Aaron.

  6. I think it all really depends on health. If he averages 130+ games a year over the rest of his contract then I expect him to break the home run record. To me it's really hard to imagine that. I agree with Mike, I think he will finish ahead of Ruth, behind Bonds and Aaron.