SSTN Weekly Mailbag: Jock Tax, The Rotation, And A Judge Update!
The anticipation is killing me. The Winter Meetings are slated to take place next week, and while there's been plenty of churning in the rumor mill and moves have occurred at the fringes, the seismic moves have yet to occur. Fortunately for bloggers and writers everywhere across the MLB spectrum, the logjam is going to clear earlier than usual this offseason. In all likelihood, multiple sources are reporting that Aaron Judge, the best free agent on the market, is going to sign a free agent deal by the end of the Winter Meetings. While that's a stress-inducing reality for Yankee fans, it doesn't surprise me at all that Aaron Judge wants this process to move quickly. It's easy to say that we want the Yankees to make moves agnostic of whether or not Judge returns, but the reality is that the two paths forward look wildly different in terms of what happens on the free agent and trade markets. While everyone holds their breath, I think the Yankees should be thankful that Judge's free agency should be over soon.
Of course, I think there is much more on the way besides Aaron Judge, and the moves themselves or the seeds for those moves will likely be planted at the Winter Meetings. For those of you who enjoy the hot stove, this is the hottest the stove will be all offseason. Some things I'm watching:
Gleyber Torres is playing Winter ball in Venezuela. He has never done this before, not even as a prospect. I find this to be an eyebrow raising event. It's not like Gleyber lost at-bats this season. From the clip I saw of the homer he hit yesterday, I don't see any mechanical changes he's working through, so I find it very odd that he's playing Winter ball. Is he trying to show-off for prospective teams? Did the Yankees ask him to go down there? Very strange...
As numerous writers have discussed here, two very good Japanese players, Masataka Yoshida (LF) and Koudai Senga (SP), are likely to be posted this offseason. The whispers are that the Yankees have done extensive homework on both. I like Yoshida quite a bit more than Senga as a fit for the Yankees, but I'd be happy to see the Yankees get involved in the bidding for either.
My sense is that the Yankees will be active on the trade market. They have two players whose contracts make them negative value assets (Donaldson and Hicks), but who I am sure the Yanks would love to move on from. They also clearly would like added depth in both the rotation and the bullpen, and there isn't enough value on the free agent market to satisfy those needs (outside of the best free agent starters on the market, Verlander, DeGrom, and Rodon). Expect the Yankees to be active in the next month on this front.
Keep some of this in mind as you read through the rumor mill and news in the next week.
As always, thanks for the great questions and keep them coming to SSTNReadermail@gmail.com. In this week's SSTN Mailbag, I'll look at the impact of state income taxes on prospective free agents, give my quick take on the Yankees' starting rotation, and opine on the current leaks surrounding the current offer to Aaron Judge! Let's get at it:
Robert asks: RE: Free Agents and Income Tax - This is one to which I've never seen a clear answer: How do state taxes affect contract value? For example, if you are a resident of New York, you pay a substantial percentage in state tax; if you are a resident of Texas or Florida, you don't pay any. I know there was a movement afoot a while back by some jurisdiction to tax visiting players for the percentage of games they played there, but I don't know how that was resolved. Can a New York player get around the problem by being a resident of, say, Florida and being present in New York State for less than 180 days? I have to assume there's some kind of work-around or else the low/no-tax state teams would have a tremendous advantage over high-tax state teams.
This is a question about which I've often wondered, but never done the leg work to really understand with any depth...until now. Unfortunately, the answer contains some concrete information...and more ambiguity. Such is the case when delving into the minutia of both state and city tax laws.
Robert is right; multiple states (and cities, as I found) have laws on the books that seek to ensure that visiting workers pay state and city income taxes for the days that they perform work in that city or state. Colloquially, these are often referred to as "Jock Taxes," given that the most prominent workers in most cities and states from out of state are athletes. Everyday workers are often able to skirt these laws by staying under the radar without record of having worked while in town, so the argument many lobbying groups working on behalf of players' labor unions make (unsuccessfully, as of this writing) is that the laws dictating that out of town workers pay income tax in the visiting city or state are arbitrarily enforced and by that fact, are actually discriminatory as athletes are disproportionately harmed due to their profile.
Most famously, the state of California publicly enacted "Jock Tax" laws following the Lakers' loss in the 1991 NBA Finals to Michael Jordan and the Bulls, meaning that the Bulls (and other teams' workers) were forced to pay income tax in the state of California. The state of Illinois countered by enacting Jock Taxes of their own following California's very public announcement.
Today, the unofficial count is that there are between 20-25 states that have enacted Jock Tax laws, and an untold number of cities (like Pittsburgh) that have their own Jock Tax laws. This tax can be calculated in one of two ways:
Take the number of games played in a season as the denominator, set the number of games played in the visiting state as the numerator, multiply that fraction by the player's salary and then again by the tax rate in that state to assess the income tax incurred in that state.
Determine the number of days in which that year's contract runs for a player, or "duty days" which can include pre-season report schedules, post-season locker cleanout, etc., and use that as the denominator.
Most players are able to make the case to the states in question that "duty days" are the proper denominator for tax purposes. This obviously works in favor of the player, as there are significantly more "duty days" in a year than games played. When using duty days, a yearly contract from a tax perspective in MLB is +/- 270 days.
To Robert's question regarding skirting the home team disadvantage for a player that plays for the New York Yankees: as long as the player has residence elsewhere aside from the regular season, it is pretty easy to avoid living in New York for 180 days or more using the following math:
+/- 45 days in Florida for Spring Training
81 games away from New York, minimum
Those numbers alone move a player below the 180 days of residency required in NY to claim it as your primary residence.
Now, for the impact of Jock Taxes on high priced players:
Let's imagine that a $37 million/per year player (can't imagine who I'm referencing...) works 270 duty days.
Based on that denominator, the player has a pre-tax income of $137,037/day
Let's imagine that 55/81 away games have some form of Jock Tax (could be more, could be less). Let's also assume the worst case scenario for tax rate (the highest I found was 13.3%).
55 away games is $7.54 of income for the player in question.
In this scenario, that's a tax burden of just over $1 million, not including any city Jock Taxes, though that should just add at the margins.
It's hard to list hard and fast numbers, but the reality is that Jock Taxes can take quite a bit out of a player's salary if the player doesn't have some good CPA's on their payroll.
Michael asks: How comfortable are you with the Yankees' rotation right now and how do you think it stacks up to other teams?
Everyone always wants more starting pitching. So do I, more so because pitcher is a Greek word for "breaks often." That said, much of the worry over the Yankee rotation is overblown. Not totally illogical, just overblown.
Over the last 5 seasons, the Yankees have had a top-5 rotation and bullpen by fWAR, with the numbers even better over the last 2 seasons. Until some injuries in the second half, there was an argument to be made that the Yankees had the best pitching staff in baseball. That's why teams need depth, because it is necessary to expect pitchers to get hurt, as almost no one makes it through a season with 5 starters.
However, I also think it is illuminating to look at sober projection systems when determining where things stand for the pitching staff. ZiPS is my favorite, but their 2023 rankings aren't out yet. Steamer, however, does have their individual player projections posted for the 2023 season. I thought it would be instructive to compare the Yankees to the Astros, as that is the team to beat in the AL.
Here's how the Yankees line up at rotation today:
Cole - 4.4 fWAR
Montas - 2.4 fWAR
Nestor - 2.3 fWAR
Sevy - 2.3 fWAR
German - 1.0 fWAR
Schmidt - 0.7 fWAR
Krook/Spence/Brito - 0.2 fWAR
Total: 13.3 fWAR
Here's how the Astros line up today:
Valdez - 3.7 fWAR
Javier - 2.3 fWAR
Garcia - 1.9 fWAR
McCullers - 1.9 fWAR
Brown - 1.3 fWAR
Urquidy - 1.1 fWAR
Durbin/Whitley - 0.3 fWAR
Total: 14.4 fWAR
The Yankees are right there with the Astros from a projection perspective. I think it's possible that Nestor and Cole overperform those projections, though I think those projections are pretty safe. The Yankees are far more top heavy in the rotation, whereas the Astros have significantly more depth at 4/5.
I think it's highly likely that both teams go out and get a starter, as the Astros could use an ace, and the Yankees just need another 2 WAR (or better!) arm. However, I don't think it's critical to begin the season with another arm.
Steven asks: What do you think of the latest contract leak on Aaron Judge? Is it a good offer?
Yes, 8 years/$300 million is a very good offer considering the fact that the whispers also say that Judge will give the Yankees the last bid. I don't like that the contract offer leaked, however. The leak has the Yankees written all over it, and we know that Judge was very unhappy with the fact that the Yankees divulged their final extension offer last spring. Maybe it won't matter, but I wish that all of the negotiating stayed behind closed doors.
I predicted 8 years/$320 million as the final number. I think the final contract will be close to that, wherever Judge signs. I hope it's with the Yankees.