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Sunday, February 3, 2013

READING THE FINE PRINT IN THE LUXURY TAX INCENTIVE

This off season we have constantly heard about Hal Steinbrenner’s plan to get the Yankees under $189M by 2014 and avoid the luxury tax. The money we save today will benefit us in the future. But it is slightly flawed.
Ken Rosenthal recently released a statement HERE saying that the benefits of this may not be as much as the Yankees originally planned.

 Rosenthal writes:

"The Yankees’ benefits for reducing their payroll below the $189 million luxury-tax threshold in 2014 might not be as lucrative as they originally envisioned.

 The team would realize one financial incentive by meeting its payroll target — a rollback in its luxury-tax rate from a potential 50 percent to 17.5 percent if it again exceeded the threshold.

But the second anticipated benefit — a rebate in the new market-disqualification revenue-sharing program — might fall well below the Yankees’ expectations.

Under the labor agreement, the 15 clubs in the largest markets will forfeit an increasing percentage of their revenue-sharing proceeds starting in 2013, and become ineligible for any such money by '16....


The Yankees anticipated $10 million from the market-disqualification program if they got below the luxury-tax threshold one time and $40 million if they stayed under it from 2014 to '16, according to Joel Sherman of the New York Post.

If those figures turn out to be less than the Yankees projected, it would raise the question of why the team acted so diligently to get under $189 million by 2014.

Yankees officials, however, maintain that the team’s offseason strategy has not been influenced by future luxury-tax considerations. They say the front office simply is not enamored with the players on the market."


In English...basically, the Yankees were expecting money from the market-disqualification pot, but if the fifteen lower revenue-generating teams do well, the amount of the money in the pot lessens, as does the amount of money that they Yankees will receive. Looks like there is some really fine print behind this tax incentive.

Even if the Yankees do not get the full amount anticipated back, getting under the luxury tax is still a pretty good idea. The simple fact is, with this market, spending the way the Yankees do is not only a bad idea but also irresponsible. Why not save nearly $40M now so we can save it for 2015 and field a better team?

Ultimately, Hal’s plan is about smart money management. This might mean that we won’t spend on super stars now and it also might mean that we may go a few years without seeing a playoff.

But it also means that when players like Justin Upton and Andrew McCutchen become free agents, the idea that the Yankees could go after them, wouldn’t seem so outlandish.

The penny pinching is frustrating for us as fans. We have become very spoiled by the Dynasty era. But the truth is, the market this year just wasn’t great and didn’t warrant spending. Now that there are more details to this money saving strategy, what do you think? Do you agree that Hal should be saving the money OR do you think that since the money isn't guaranteed that we should be using it to improve our team?

Make your case. Comment and tell us!


--Erica Morales, BYB Writer
Twitter: @e_morales1804



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