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Home Maury Brown Derek Jeter's $51M Contract: Why It Was Reached Now, And How it Stacks Up

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Derek Jeter's $51M Contract: Why It Was Reached Now, And How it Stacks Up PDF Print E-mail
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Written by Maury Brown   
Saturday, 04 December 2010 20:24

Derek JeterThe saga between the New York Yankees and Derek Jeter over a new contract has come to a conclusion as the sides have worked out the deal. Jack Curry on breaks down the particulars:

Jeter and the Yankees agreed to a three-year, $51 million contract that could also include a fourth year. Jeter has a player option for $8 million in the fourth year, which could boost his guaranteed money to $56 million. In addition, Jeter has the chance to earn up to $9 million in incentives in the fourth year.

The deal averages to $17 million for the first three years, which includes a $3 million buyout in the fourth year. If Jeter doesn’t exercise the $8 million option in 2014, he will make $51 million. If Jeter exercises the $8 million option, he loses the $3 million buyout and is guaranteed $56 million over the life of the contract. But Jeter can increase his fourth-year salary by reaching some incentives. That is where the Yankees and Jeter got creative.

Curry goes on to add that the incentives are based on a “point system” and centers on postseason awards such as MVP, Silver Slugger, and Gold Glove awards. After the three years, depending on the number of points accumulated, Jeter earns a particular bonus amount. With that, he can earn as much as $9 million in incentives, making the maximum amount he could earn in the final year of the deal at $17 million. The most Jeter could earn in all four years is $65 million.

Another key is salary deferment, which Curry does not say how far out the money is spread over, or at what interest rate the deferred salary would be.

At $51 million over 3 years, the Jeter contract has an AAV of $17 million. As I wrote earlier this week (see How Troy Tulowitzki’s Mega-Deal Relates to Derek Jeter Contract Talks), the Tulo deal, has an AAV (when not factoring in his option year) at $ 15.775 annually.

But, the deal had to get done, and get done no later than Sunday (see my comments earlier in the day on Saturday), as it allows Cashman to know his budget entering the Baseball Winter Meetings which begin on Monday. He can then determine how much he has to spend on making possible deals the likes of Cliff Lee, Carl Crawford, or Jason Werth.

Speaking of the Meetings... While the official announcement could come on Sunday, leveraging the Jeter extension in Orlando makes sense.

I’ve been saying for a while that the deal could get done. I am republishing the following which was published on October 28, 2010 on The New York Times Freakonomics blog (see What’s Derek Jeter Worth? A Freakonomics Quorum).

The Yankees have a conundrum: How can you be reasonable with the face of an organization when he’s coming off the worst year of his career? With Derek Jeter’s 10-year, $189 million contract set to expire this off-season, the question may well be, is Derek Jeter, the brand, greater than the New York Yankees brand?

There’s no denying that the Yankees will renew Jeter’s contract. But, given that his stats are at, or near, the worst of his career, determining his value will be a tricky blend of player value, projecting his decline as he continues to age, his brand value, and intangibles such as respect.
In the pantheon of Yankee greats, Jeter ranks up with them all. To say that his legacy is within the realm of Mantle, DiMaggio or Ruth is not only realistic, it seems a near given. He has been nothing short of a perfect citizen for the Yankees on and off the field without controversy, and a level of class rarely seen in professional sports.

His ability to personify the “Yankees image” has allowed him to be a perfect pitchman for large companies. He pulls in more endorsements and money than any other player in the league, earning $9 million annually through deals with the likes of Gillette, Gatorade, Ford Motor Corp, and Nike.

And while his postseason stats are a near carbon-copy of his regular season performance, he has become a highlight reel for MLB. Be it “The Flip” in Game 3 of the 2001 ALDS against the A’s, his “Mr. November” 10th inning game winning home run against Byung-Hyun Kim in Game 4 of the 2001 World Series, Jeter has been, and will continue to be, part of MLB’s indelible fabric.

So, what do the Yankees do? In looking at complete season stats, his .270 batting average, .370 slugging pct, and .669 OPS are all career lows. His 10 home runs are the lowest total since 2003, while his 106 strike outs are the 6th highest of his career.

In terms of framing what his upcoming contract might look like, you have to look at where his current contract is. In terms of total value, Jeter’s current contract ranks second only behind teammate Alex Rodriguez’s $252 million deal that expanded into a $272 million extension that expires in 2017. The average annual value of the contract (AAV) – the total value divided by years – at $18.9 million ranks him in the top 14 players of all time. There was also a $16 million signing bonus included the deal, adding icing to Jeter’s hefty haul at the time of signing in 2001.

What Jeter, his agent Casey Close, [Yankees' general manager] Brian Cashman and the Yankees will need to determine is, how much is Jeter worth now, and what he will be worth over the life of his contract as Father Time continues to take its toll on his play?

At 36, his age is now a key factor. The contract will most certainly have fewer years than his current contract. A 2- or 3-year deal with 1 to 3 option years in play could be possible. In terms of salary, Jeter pulled in a steep $21 million this season, after seeing $20 million each year from 2007-09. Trying to keep that intangible respect factor in play, a lower annual salary in favor of a signing bonus with the addition of incentive clauses to see if Jeter’s 2010 isn’t the beginning of a steeper decline, or even a way to help edge him closer to his 2009 numbers, and that fine balance of honoring the Captain while not going overboard is in check.

At some point, Jeter, like Mantle, DiMaggio, Jackson and a host of other Yankee greats, will dance off into the sunset. He will be forever a Yankee. How it all ends is not quite clear yet. There will likely be a well-planned, choreographed affair between two iconic brands forever tied at the hip sometime in the not-too-distant future. Surely, it will be done with class, something that seems synonymous with Jeter and his relationship with the Yankees.

New York Times, Oct. 28, 2010

Maury BrownMaury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey, as well as a contributor to FanGraphs and Forbes SportsMoney. He is available for hire or freelance. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.

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