Weekly Mailbag: Luxury Tax Loophole, Gerrit Cole, Rachel Balkovec, and a Trade Proposal!
I thought this would be an exciting week, but I admit to being surprised that Gerrit Cole signed so quickly. This year’s Winter Meetings have certainly brought a lot more movement than the last couple of years. It’s nice to talk about actual player transactions again instead of competitive balance, the Luxury Tax as a barrier to signings, and the overall demise of the Free Agent market.
I’m excited to see Cole in pinstripes and thrilled to see Gardy re-sign, but I’m heartbroken that Didi left on a 1-year deal. Salute to Sir Didi for his time manning SS for the Yankees – I’ll miss him.
In this week’s mailbag, we’ll talk about a Luxury Tax loophole, Gerrit Cole, Rachel Balkovec, and a trade proposal! Llet’s get at it:
Mark asks: Can you explain to how Yankees are still paying Arod $5m in 2020 but aren’t paying luxury tax on it? Seems like teams would be able to offer deferred compensation in years they have payroll beneath the luxury tax and pay later, at a cheaper inflation rate. Seems to skirt around the luxury tax, doesn’t it?
Mark is 100% correct – deferred money is a planned loophole in the current system. The deferred money is counted as part of upfront contract for Luxury Tax purposes. For instance, if a player signs an 8-year/$200 million contract with $25 million of that deferred over 25 years, the Luxury Tax hit is still $25 million over 8 years. Basically, we’d be talking about a modern version of the Bobby Bonilla contract.
This makes sense because a contract’s Luxury Tax hit is based on its Average Annual Value (AAV). If the number of years over which money is deferred were counted towards this average, teams would surely sign players to contracts with an insane number of years with deferred money. In my scenario above, the Luxury Tax hit for that contract would be $6.06 million/year for 33 years. This is an even worse loophole than the current system.
To Mark’s point above, money now is always better than money later based on inflation. For that reason, players generally only agree to deferred money in contracts in very particular scenarios. Based on the current rules, I don’t see any teams increasing the number years over which they offer deferred money to players. Even if the rules for deferred money were changed, I would not expect to see more players sign contracts with significant amounts of deferred money.
Brian asks: It is being reported that Gerrit Cole is going to sign with the Yankees for 9 years and $324 million. That seems like it’s insanely long. I understand that the Yankees have wanted him forever, but I’m worried about the length of the contract. What do you think?
Brian sent me this question right after the deal was announced. Many other writers here at SSTN have posited their opinions on the Gerrit Cole signing in the last few days, but since real life has had me tied up, I haven’t said anything about it. I highly recommend you go back through our site and check out what everyone else here at SSTN has had to say about the deal, but I’ll give you my thoughts here.
This HAD to happen. The puzzle pieces all lined up for the Yankees to blow everyone else out of the water. The Strasburg contract with the Nationals a day earlier set the bar, and it was clear that the Cole deal would blow beyond that. Gerrit Cole has been the Yankees’ white whale since he was 17 years old, and they weren’t going to come away empty-handed again.
Do I think that the Yankees would have preferred to keep the contract to 7 or 8 years instead of 9? Of course! But a 9th year and a record-setting AAV would get the job done quickest, so I’m OK with it. If everything breaks perfectly, it is likely that all of us will be upset with what the last 3 years of the deal, but the 3-4 years are likely to be sensational. If it helps the Yankees win a couple of World Series’, I’m more than OK with it.
More importantly, I am not so sure that Gerrit Cole’s eventual decline will be typical. Cole was an effective pitcher with the Pirates, but he reinvented himself from a sinker-baller into a high fastball, power curveball pitcher with relative ease. By all reports, Cole is bright, excited by analytics and research, coachable, and receptive to ideas from the front office. It was part of the reason that Cole’s time with the Astros was such a success. Cole pitches in the high 90-MPH range, but he is likely to retain at least mid-90s velocity for the majority of the deal, so I am confident that Cole can find ways to be effective for a fair number of years. Cole has already re-invented himself once, so I think he’ll be able to do it again when the time comes.
In the near-term, the Yankees are acquiring a pitcher who is at worst the 3rd best pitcher in all of baseball, but I think you’re splitting hairs picking between any of Cole, Scherzer, or Strasburg when they are at their best. Cole has proven that he can pitch in the bright lights of the playoffs and World Series, and he has some of the best pure stuff in baseball while showing the ability to command and control all of his weapons. Pitchers like Cole don’t come around often, so the Yankees were right to throw the kitchen sink at him to make sure he finally became a Yankee.
A rotation that includes Cole, Severino, Paxton, and Tanaka quickly becomes one of the best in baseball, and Yankee fans should be excited – I know that I am.
Jim asks: Rachel Balkovec was interviewed by the Giants for a Major League coaching job. Aaron Boone also spoke highly about her. What does this mean? Will the Yankees be able to keep her?
As of yet, while Rachel Balkovec was interviewed, she was not hired. However, the fact that she interviewed for a Major League position should indicate just how valuable she can be to developing Yankee minor leaguers. From everything I’ve read about her research related to player mechanics and pitch tracking, Balkovec is at the forefront a new wave of people who have value both on the field as coaches and in front offices performing research and analysis. While the old meme of stat-guys vs. gritty ballplayers was always a bit overblown, the lines are blurring more than ever before.
Rachel Balkovec is part of this wave, and the Yankees are lucky to have her. I look forward to hearing more about her work with the Yankees, and I hope that she eventually lands an MLB job.
Ray asks: The Yankees are supposedly asking the Brewers about Josh Hader. What will it take to trade for him and what does this mean for Dellin Betances?
I’ll start with Dellin. As much as it pains me to say this, it looks like the Yankees are out on Dellin Betances. We have not heard so much as a whisper that the Yankees are even keeping tabs on the Betances market, so I think that the Yankees are going to accept the fact that they got 5+ seasons of surplus value out of one of the best relievers in baseball, and they will let him walk.
Josh Hader would be a significant luxury, but there is little question but that he has been one of the best relievers in baseball over the last three seasons. Hader’s K/9 rate has gone up for each of the last 3 seasons, peaking this year at 16.4 K/9 (!). Hader allows hardly any baserunners, posting a representative 0.806 WHIP in 2019, so even though his home run rate is very high, the homers don’t hurt him as much because he rarely has runners on base. Hader’s contract situation is also extremely team-friendly, as he is only just reaching his first year of arbitration eligibility, and he cannot be a Free Agent until after the 2023 season. In short, he is one of the more valuable commodities available on the trade market.
The Brewers need starting pitching and young talent to remain competitive. Trading for Hader would hurt…a lot. Using the Baseball Trade Values Simulator, I traded Deivi Garcia, Clarke Schmidt, Clint Frazier, and Nick Nelson to the Brewers for Josh Hader. The Simulator says that this is a minor overpay for the Yankees, but I also believe that the system way overrates Clint Frazier’s real-world value. That trade hurts, so it feels almost realistic. Does it make sense for the Yankees? I’m not so sure. Sure, the Yankees get a high-end reliever, but I think that the Yankees have bunch of young arms who might be very interesting if the Yankees asked them to relieve full-time. I’ll talk about this more in a post tomorrow, so stay tuned!
That’s all for this week. Thanks for all of the questions, and keep ‘em coming. As always, email me your mailbag questions at email@example.com. See you all next week!