Although Wells’ seven-year, $126 million contract has been looked at as an albatross for the Angels, the deal could actually be quite beneficial for the Yankees financially. Despite Wells’ bloated salary, his arrival may help the Yankees achieve their goal of staying below the luxury tax threshold next year.
Okay, I had to read the article twice and draw a little diagram to understand what's going on.* Let me try to explain.
* Really just a map of America with Vernon Wells flying from L.A. to New York in a rocketship.
Wells is owed $42 million dollars over the next two years, $21 million in 2013 and $21 million in 2014.
The Angels will pay about $29 million of the $42 million remaining on his contract.
Backstory: The Yankees very badly want to reduce their payroll in 2014 to $189 million, MLB's luxury tax (officially the "competitive balance tax") threshold. The first year a team exceeds the threshold, they pay a 22.5 percent tax on all payroll above it. If they remain above the threshold in year two, the tax rises to 30 percent. Every year after that is 40 percent. If the Yankees can get under the threshold, they can "reset the clock," so that the next time they're over the threshold, they'll pay the lower 22.5 percent rate. The Yankees have paid almost $200 million in luxury tax fees since 2003.
Now, Wells' salary, for luxury tax purposes, is not quite as high as it would seem. He'll be paid $21 million in each of the next two seasons, but the average annual value (AAV) of his current deal—7 years, $126 million—is $18 million, and it's the AAV that counts when calculating a team's luxury tax bill. But that's small potatoes, don't worry about that.
The real accounting jujitsu is this: Rather than splitting the $29 million the Angels are contributing evenly over the next two years, the Yankees are paying a much larger share of Wells' salary in 2013.
2013: Angels pay Wells $9-11 million, Yanks pay $10-12 million.
2014: Angels pay Well $18-20 million, Yanks pay $1-3 million.
The Yankees have no hope of avoiding the tax this year, but a ton of money comes off the books next year.
Derek Jeter $17M $8M player option (or $3M buyout)
Curtis Granderson $15M Free agent
Hiroki Kuroda $15M Free agent
Andy Pettitte $12M Free agent
Kevin Youkilis $12M Free agent
Mariano Rivera $10M Free agent (retiring)
Phil Hughes $7.1M Free agent
Plus, the Yankees are paying A.J. Burnett $8.5 million to play for Pittsburgh this season. That goes away in 2014.
Now, some of those players have to be replaced, obviously, and they'll no doubt want to keep Robinson Cano, who becomes a free agent after this season. But the Yankees are hoping they can replace the above players for a lot less than the ~$88 million they'll make in 2013 AND sign Cano.
By paying Wells a lot this season and comparatively little the next, the Yankees won't have to pay any tax on Wells' salary in 2014. They may even receive a tax credit. But don't ask me how that works, my mind is already going a mile a minute.