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MLB contract negotiations are well underway for baseball’s free agents. Many players have already been signed. For example, David Ortiz re-signed with the Red Sox and Torii Hunter signed with the Tigers. However, many other players are still in the process of negotiating, including Josh Hamilton and Zack Greinke. For a complete list of the MLB free agents and their expected destinations, click here.
For the players who are still negotiating, many factors may be considered. Teams may consider “hefty contract[s], injury history [and] a player’s clubhouse reputation.” An article published by the MLB details the factors that teams may consider in negotiations with specific players. Teams are also now taking “sabermetrics,” advanced statistics about players, into consideration.
Players traditionally consider factors such as salary and contract length. However, an article by the Associated Press has predicted that a new factor may be considered during MLB contract negotiations this offseason: the tax increases that are expected at the start of the new year. As a result of the Affordable Care Act, the changes will include an increase of 0.9% in Medicare tax for individuals with a salary of $200,000 or higher. As the minimum salary within the major league is $480,000, this increase will affect every player. As a result, contract negotiations may incorporate increased signing bonuses, so that the players can get as much income as possible before the tax increases take effect in January.
The increased federal taxes may also affect the players’ interest in certain teams. With federal taxes increasing, the teams that are based in states with lower state taxes may be at an advantage when contracting with highly desired players. For example, states like Florida and Washington, which do not have a state income tax, may be at an advantage over states like California, which as a 10.3% income tax. Jack Zdurienck, the general manager for the Seattle Mariners, was quoted in the AP article as stating, “[w]hen we sit down with players, that’s a huge benefit. I think any player out there that has an opportunity to play in a no-tax state gets benefits, enormous benefits. We hope that weighs in our favor.”
The AP article included an example, provided by a tax lawyer, to illustrate the potential consequences of the tax increase on baseball players. A player in Florida with a $10 million salary will see a $640,000 increase in taxes. If that player were traded to a team in California, he would see an increase of $950,000.
It remains uncertain exactly how much the tax increase will affect contract negotiations. It may be a factor, but it is uncertain if it will be so significant as to change players’ destination teams. As the AP article states, “[i]n the end, most free agents choose teams based on where they want to play, not on lowering the tax cut on their income.” However, it is also possible that we are now dealing with an entirely different game.
– Samantha Taylor
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