The Yankees announced today that they have re-signed Derek Jeter to a one-year $US12 million contract.
On the surface the contract looks like a head-scratching move as Jeter had a $US9.5 million option for the 2014 season and was unlikely to get more if he wanted to test the market as a free agent. However, this move wasn’t about Jeter’s abilities on the baseball field.
Giving Jeter a one-year contract may potentially save the Yankees millions in the long run and the timing of the deal may help sell more tickets.
By signing Jeter to a one-year contract, the average annual value of his contract dropped from $US14.4 million on his old contract to $US12.0 million on his new contract. This is important because the average value is used to calculate how much a team owes in luxury tax and the Yankees are now $US2.4 million closer to getting under the threshold ($189 million in 2014).
This season, the Yankees paid a record $US29.1 million in luxury tax. As a repeat offender, the Yankees were subjected to the maximum tax rate (50%). However, if their payroll is below the threshold in 2014, their tax rate will reset and even if they go back above the threshold in 2015, they will only have to pay a 17.5% tax rate.
In addition, the Yankees sent out 2014 season-ticket invoices this week. By signing Jeter now, there is no doubt that the team’s biggest star will still be wearing pinstripes next season which will likely help season-ticket sales.
Jeter may not have deserved a raise, but it is clear that the Yankees benefitted by giving him one.
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