No one is ‘circumventing’ the luxury tax threshold

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Thanks to a rumor about the Padres considering a 14-year, $400 million contract to then-free agent Aaron Judge, there have been some rumblings about how Major League Baseball would have reacted to such a deal. Jon Heyman reported at the New York Post that, “sources say they would not have been allowed, as MLB would have seen the additional years as only an attempt to lower their official payroll to lessen the tax.” That’s just one side of any conversation on this, though: MLB might have tried to get rid of it, and are within their rights to given that circumventing the threshold goes against the collective bargaining agreement, but what are the chances that the Players Association would have allowed them to do so, and what are the chances MLB would have successfully erased the deal when challenged on it?

My guess is “not good,” and Ken Rosenthal’s own reporting echoes that:

“And if the league acted, it would face a fight. The Players Association almost certainly would file a grievance if MLB disapproved a deal on the basis of its length, according to a source with knowledge of the union’s thinking. The players also would object if the league sought to limit the lengths of contracts in bargaining, viewing it as a restriction on the market.”

MLB could try to fight a deal like Judge’s, but I just find it hard to believe they’d be able to present a convincing case to an arbitrator. And if forced to actually consider whether they should allow or not allow a deal like Judge’s because it’s actually happened, I actually imagine someone in MLB’s offices would come to that conclusion, too, and avoid the fight altogether. It’s easy to say you wouldn’t allow it now when it’s just a hypothetical, but once the phone calls and texts start rolling in about how this is going to go to an arbitrator and your case isn’t as solid as you think it is, well, feelings can change.

Regardless of whether did try to fight about this or not, the point is that there is no there there, in terms of Judge’s deal being the kind they’d be able to successfully argue against. A 14-year, $400 million deal for Aaron Judge is one that brings him to age 44, and pays him nearly $29 million per year. Maybe he’d be underpaid in his remaining peak years, but he would also be making $29 million as a 44-year-old. Do you think Judge is going to still be hitting dozens and dozens of dingers at 44? It’s an open question if the guy who has played in at least 150 games in a season exactly twice before reaching free agency will be doing that five years from now, never mind 14. It’s not “circumventing” the luxury tax threshold and penalties when the cap hit is still that large, when the team in question is creating a scenario in which they’re still going to have to pay significant piles of money to a guy who might not be playable at that point, but will still count against the luxury tax threshold.

The NHL’s Ilya Kovalchuk is the example everyone always goes to, because the league did reject that contract and even punished the New Jersey Devils for signing it. Judge’s hypothetical offer was for 14 years and $400 million, and AAV of nearly $29 million. Kovalchuk’s deal was for 17 years and $102 million, with $95 million of that coming in the first 10 years of the contract. That is circumventing a cap’s rules: years 11 through 17 would have cost the Devils nothing in real dollars — considering the way inflation works, Kovalchuk might have had to pay them to play at that point — and in terms of possible penalties, the cap hits would have been significantly lower than on a 10-year, $95 million contract. The AAV of 17/$102M is $6 million, while the AAV for 10/$95M is $9.5 million. That’s a drop of more than one-third, and with no penalty to the Devils, who easily could have cut Kovalchuk and swallowed the cap hit while paying him to not play without missing a single dollar of that cost.

If the Padres signed Judge and cut him after 10 years, they’d still owe $116 million in actual dollars, and have four more years of $29 million counting against the luxury tax calculations. Even if they structured the deal so that it was frontloaded, so that Judge was getting more of the present-day value of the deal and less of an inflation hit as it went on, that $29 million AAV would still count against the luxury tax. The Yankees ended up signing Judge for nine years at $360 million, an AAV of $40 million. That’s significantly higher than what the Padres considered offering on an annual basis, yes, but it also has five fewer years of luxury tax considerations to worry about, and the difference isn’t so stark that I think it makes what San Diego thought up obviously an attempt at “circumventing” the luxury tax threshold.

Now, if a deal is paid to a non-elite or non-star player who isn’t making hundreds of millions of dollars on it, but it’s stretched out over an absurdly long time? That feels like more what MLB would have to argue against in order to prove there’s something nefarious going on. D.J. LeMahieu’s six-year, $90 million contract isn’t quite long enough to do anything but raise an eyebrow, and neither is Brandon Nimmo’s eight-year, $162 million contract. If players of that caliber start to pull in 10-year deals — it’s kind of hard to imagine someone like Nimmo signing basically a lifetime contract as he enters his 30s, or LeMahieu doing so at this age and his position, with the teams able to justify why they’d do that — MLB might be in a position to say something is up. Your Judges and Bogaerts and Turners and Correas, though? Not a chance with the way things have been structured for them and their talent. There’s still risk being absorbed by the team, and related to the tax threshold, too.

Basically, none of this is more “circumventing” the luxury tax threshold than a team-friendly extension to a pre-arbitration player they don’t want to risk commanding large sums of money in that process would be, but you won’t see the league getting in the way of that sort of thing happening. The league can leak that they would have said no to Judge’s deal, and imply that something similar won’t be allowed, either, but I’d genuinely like to see them try to stop it from happening, because my hunch is they don’t have as much there to stand on as they’re suggesting.

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