FG on Fox: Johnny Cueto’s Calculated Gamble

On Monday, the San Francisco Giants reportedly agreed to terms with free agent starter Johnny Cueto on a six-year contract that will guarantee him $130 million, a pretty nice haul for a pitcher who struggled significantly in the second half of the year. And when you factor in that Cueto also obtained an opt-out after the second year, which could allow him to re-enter the market after the 2017 season and land a significant raise if he pitches well over his next 400 innings, this deal offers a lot of reasons for Cueto and his representatives to be happy with how the market has developed.

However, it’s interesting to see Cueto sign with the Giants for $130 million, when just a few weeks prior, his agent had publicly stated that a reported six year, $120 million offer from the Diamondbacks was a “low offer for the market”. In fact, his agent made it sound like they were going to be aiming quite a bit higher.

“It was a low offer for the market,” Dixon said. “We didn’t have to think hard to reject that offer. Arizona wanted to do something fast, but we didn’t want to take something below market value for a No. 1 starter, and with the recent events, I think that time gave us the reason.”

Agents are known for public comments that may not be reflective of reality, since their job is to get as much money for their clients as possible, not be objective sources of information. But in light of Dixon’s comments, it’s worth noting that Cueto actually took a smaller guaranteed income by accepting the Giants’ offer than he would have received if he had taken the Diamondbacks’ offer, due to the very different tax climates in California and Arizona.

For high-earners like Cueto, California has the highest marginal tax rate of any state in the country, coming in at 13.3% of all income over $1 million. Meanwhile, Arizona has one of the lowest tax rates in the country, with their highest marginal rate topping out at 4.5%. Of course, the tax code is complex, and it’s never just as simple as looking at the top marginal rate to figure out equivalent offers between teams in different states.

Read the rest on Fox Sports.





Dave is the Managing Editor of FanGraphs.

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Michael
Guest
Michael

According to the linked article:
http://www.sloansportsconference.com/wp-content/uploads/2015/02/SSAC15-RP-Poster-Paper-MLB-Jock-Tax-Index.pdf

Mets players pay more taxes than Yankees. Anyone have a guess as to why?

Dave T
Member
Dave T

That’s almost certainly based on the location of other teams that they play.

As the paper summarizes, the calculating the tax due is a complicated mix of both the tax rate of a player’s home state (and assumes that he’s a resident of that state), the number of “duty days” that he spends in other jurisdictions, and potential credits for the out-of-state taxes for home state taxes.

While the home state tax situation should be the same for both the Yankees and Mets, they obviously play different road schedules.

Bobo
Guest
Bobo

Is this a result of the cities they travel to? Aren’t players partly taxed based on other states’ tax laws?