A Minor CBA Change Could Create Contract Wrinkles

If you weren’t looking for it, you’d miss it. Buried in a blow-by-blow account from The Athletic’s Matt Gelb of how the Phillies ended up signing Kyle Schwarber, FanGraphs newsletter writer Jeffrey Bellone spotted something interesting:
“However, under the new CBA, a traded contract is recalculated to reflect the remaining actual dollars. That means contracts that are backloaded will be harder to trade (if the acquiring team is concerned about the luxury tax threshold).”
This change was an afterthought in the piece, an offhand justification the Phillies made for not acquiring Kevin Kiermaier. His remaining average salary outstrips the average annual value of his deal, which means that under the terms of the new CBA, he’d carry a higher tax hit than he would have in the old regime. The ownership group’s desire to abide by the sport’s soft salary cap made Kiermaier’s salary an untenable addition.
With the benefit of hindsight, it seems that ownership didn’t actually care about the dollars very much, given that they signed Nick Castellanos and ticked over the first CBT threshold anyway. And given that the tax rate is 20%, the difference in Kiermaier’s tax hit under the old and new agreements is a hair under $6 million; the total monetary difference would have been roughly $1 million in assessed tax. That’s a vanishingly small difference on a $230 million payroll.
I’ll level with you: I don’t think this is going to be an earth-shaking change to the economics of baseball. Only five teams look likely to pay any tax this year, with a few other in hailing distance of the barrier. The differences aren’t huge; $6 million a year isn’t quite a rounding error, but it’s hardly a life-and-death number. Remember: teams are not actually paying Kiermaier $6 million more than they would have before. Salary is salary. This is merely an accounting game that affects teams who pay at least some amount of tax.
Still, we analysts love financial tomfoolery, so let’s consider a few contracts that are interestingly shaped now that trades can trigger the re-calculation of tax numbers. First, a quick disclaimer: I haven’t seen the exact text of the new agreement. It’s unclear how the Rays’ CBT number would be affected by trading Kiermaier; I’m assuming no effect, but if that isn’t the case, that obviously changes the calculus. It’s not clear how signing bonuses will be handled, either; it appears that it would be spread evenly across each year, but again, I’m working from the outside.
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