David Price’s New Deal a.k.a The Extra 4.6% | The Process Report

David Price’s New Deal a.k.a The Extra 4.6%

The Rays never make a move for the sake of just making a move. There is reasoning for every transaction — or non-transaction for that matter. In some cases there is even reasoning behind the reasoning. Take the recent signing of David Price to a one-year contract as an example.

In late December, the Rays and Price avoided arbitration with a one-year deal worth just over $10 million dollars. The timing of the deal was a bit of a surprise as it came weeks before the mid-January deadline for teams and players to formally exchange figures. As a “file-and-go” team, the Rays try to get all their deals done before the deadline; however, those deals do not typically involve eight-figure salaries. That said, getting some cost certainty with understanding that Price was set to break the bank either way seemed like incentive enough for the organization. For Price, signing early guaranteed a salary that more than doubles what he made in 2012 while also beating most of the projected figures for his second year of arbitration. There was enough reasoning here for both sides, but Jon Morosi of FoxSports.com provides more.

Price’s one-year, $10 million deal may seem ordinary. On the other hand, Morosi’s findings prove it is anything but. Take a look at the breakdown of the deal in rough estimates:

$1 million base
$5 million signing bonus (immediate)
$4 million deferred to 2014

The base salary is what it is: a million dollar salary (or close to it) to be paid on a regular basis through out the season. From there it gets interesting.

On January 1st 2013, the American Taxpayer Relief Act of 2012 went into effect, raising the highest federal income tax rate by nearly five percent. As a multi-millionaire this impacts David Price. Meanwhile, by signing his new contract in 2012, the $5 million signing bonus counts as wages earned in 2012. This effectively avoids part of the hike and saves Price six figures in taxes.

Some might say that was a nice present from the Rays, but they do not walk away without a gift of their own. Price and his agent, Bo McKinnis, agreed to defer four of the $10 million deal to 2014 . In the short term, Tampa Bay can take that money and spread it to another area(s) of need like the bullpen or designated hitter. In the long-term, the team may never pay a dime of the suspended salary.

It is widely speculated that Price, like Scott Kazmir, Edwin Jackson, Matt Garza, and James Shields before him, will be traded by the Rays as he begins to price himself out of the budget. That could come as soon as next winter; especially when you consider the lack of attractive free agent starters in next year’s class could potentially increase Tampa Bay’s asking price even more. If the 28-year-old lefty is to be traded prior to the 2014 season, the Rays can pass off the deferred money to his next team as part of the trade negotiations.

Whether trying to gain the extra two percent advantage over the competition or save four-and-a-half percent from Uncle Sam, the Rays are always up to something even when it appears as if they are doing nothing.

One Comment

  1. This is effing brilliant.

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