Derek Jeter's Player Option and $189 Million

Update: William did this issue a much better service on his own blog earlier this month. Definitely take a look. It appears that some of my assumptions are wrong, particularly about how a Jeter opt-out would affect the 2014 cap hit. It looks like the better scenario is to take my same logic, but extend Jeter right now, before the season starts.

An interesting thought came to my mind during an otherwise slow baseball week this morning. After the 2010 season, Derek Jeter signed a 3-year, $51 million contract with a player option or buyout for the 4th year. That player option can get bigger if Derek Jeter satisfies some criteria in 2013, but for now let’s call it a $9.5 million player option.

If Derek Jeter exercises that option, the Yankees will pay him $9.5 million in 2014. However, because the option is a continuation of the contract he previously signed, and assuming I’m not reading the luxury tax rules wrong, his AAV/Cap hit would be $15.125 million. Given how tight the Yankees are going to be in 2014 with the $189 million threshold, the $5.625 million difference is significant: it could be the difference between being able to afford to resign Robinson Cano or not, or any number of other moves.

The Yankees should have an incentive to get Jeter for as low a cap hit as possible. The simplest version of this is to strike a handshake deal with Jeter: He does not exercise his option, receives his $3 million buy out, and the Yankees resign him for $6.5 million. Its all the same to Jeter, while the Yankees free up some roster space to help make Derek Jeter’s team more competitive.

Great idea! Of course, it probably can’t work out that cleanly. First off, I don’t think there’s a lot of evidence that the Yankee front office has that kind of great business relationship with Derek Jeter and his legal team to pull off a handshake deal. The last round of contract negotiations were very messy, and there is a lot of money at stake, even if the incentives line up for both Jeter and the Yankees to do it. Second, I think Derek Jeter will want use the opportunity to both secure more money and guarantee him long term playing time as a Yankee, going into his old age.

Still, I think that there is a scenario that works out for both sides. The Yankees want to lower their cap hit, and Derek Jeter wants some extra cash and/or long term security. I don’t think that a one-year deal would work, but this certainly sounds like a longer term deal could be in the cards. Let’s say that Jeter has a solid but not extraordinary 2013 season: something like a 110 wRC+ season where his defense is about as bad as it was in 2012, valued at about 2.0-2.5 wins. What about a 3-year, $25 million deal? Jeter’s cap hit would decrease to$8.3 million, and he would probably earn more money than he would by taking the $9 million option and hitting the market as a free agent.

The Yankees have a lot of roster space to fill in 2014. They’re going to need every penny. There’s no room for negotiating down the unholy trinity of Arod/Teixeira/CC contracts, and a potential Robinson Cano contract could be just as odious. They should start exploring these kinds of options.

10 thoughts on “Derek Jeter's Player Option and $189 Million

  1. TheOneWhoKnocks

    I get what you are trying to say, but honestly
    Option A) Pay Jeter 9.5m in 2014
    Option B) Pay Jeter 8.3m in 2014, 8.3m in 2015 and 8.3 in 2016

    I choose option A.
    Saving 1m in 2014 isn’t worth committing another 2 years to Jeter.

    • See the link I posted below. Jeter could cost the Yankees anywhere from $15 million to $23 million in terms of 2014.

      • Miguel

        That’s a bad hit, but I agree with TheOneWhoKnocks. I really don’t wanna see Jeter on the Yanks passed 2014.

  2. TheOneWhoKnocks

    I didn’t mean for that to sound like a knock on Jeter either, because overall he’s still an above average SS. There’s a chance he performs well over the next year or two and we feel comfortable giving him another 2 years at that price. I just think at his age as he continues to decline we shouldn’t be short sighted and tack on another couple years to his deal for the sake of saving a million bucks. Let him play out his deal and we’ll likely reap more savings in the end as his play declines and his leverage decreases.

  3. I covered this possibility a few weeks back. The link below has a financial breakdown of different possible scenarios.Unfortunately, if Jeter opts out by taking the buyout, it creates a tax penalty that would be even more costly to the Yankees. The only way to avoid what looks like a 2014 lux tax hit is signing him to a new extension before this season.
    http://www.captainsblog.info/2012/12/06/what-if-d

    • Ooh, sorry about that William. I missed the post on a crazy month for me.

      • No need to apologize! I am glad to see someone else shares the same mindset. I’ve been looking at ways around the 189 million, including potential loopholes, and hope the Yankees are doing the same thing.

  4. Duh, Innings!

    EJ lay off the drugs if you think Derek Jeter is 1. worth a mil less than 2013-15 Cody Ross who just signed a three-year $26M contract with Arizona and 2. taking three years and $25M or a year and $9.5M either by exercising his player’s option or opting out, taking the $3M buyout, and re-signing for a year and $6.5M. He’s not taking two years either.

    Jeter will want another three years and at least $15M (his 2011 salary) a year and what are the Yanks gonna do, let him go? They starting Eduardo Nunez at shortstop? No and no. In fact, if I were Jeter’s agent, I’d advise Jeter to just ask for the exact same contract: $15M in 2014, $16M in 2015, $17M in 2016, $8M player’s option with $3M buyout for 2017.

    ‘Say Jeter collects an even 200 hits in 2013 for 3504 hits through 2013. If he re-signs for three more years and collects just 510 hits (an average of just 170 hits a season), he would have 4014 hits through 2015, only 176 hits shy of becoming the AL hit king and 243 hits shy of becoming the MLB hit king. No way the Yanks are letting Jeter reach either historic/record milestone in another uniform. I mean they’re re-signing Ichiro through 2014 to reach 3000 hits (which he’s not doing cuz he’s not collecting the 394 hits he needs to get to 3000 before 2015) but they’re not re-signing Jeter to collect the most hits by a righthanded batter then 4000 hits, the most hits by an AL player, and the most hits by a player ever, all as a Yankee? No way.

    If the Yanks let go of Jeter after 2013, it would be a fan/media/public relations disaster, attendance would plummet, the team’s worth would drop somewhat, and A-Rod would never hear the end of it even more.

    Like it or not, Jeter is the face, heart, soul, and identity of the Yankees and has been since I’ll say 1998. Whoever doesn’t want him back for more than a year will have to grin and bear him for three more years. ‘Dude’s not taking a year or two. A year is an insult and two years is halfway to being one. Three years no matter what he does in 2013.z

  5. Paco

    I thought player options were considered new contracts under the new rules. Maybe I have it the wrong way around, but my understanding was that it would appear as a new 1 year deal at the new salary rate. Team options are counted in the annualized value because the team holds the chips.

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