The acquisition of Frankie Rodriguez gives the Detroit Tigers the closer that they have been shopping for. K-Rod is as proven a closer as you can find in Major League Baseball these days, representing the National League in the All-Star Game the past two seasons. So, that roster slot is filled.
What about his contract, though? What impact does his current deal have on the Tigers' shopping plans, the luxury tax, and their budget going forward?
According to Cot's Contracts, Rodriguez has a salary of $7.5 million for the 2016 season. Of that salary, $2 million is deferred until 2018, interest free. So, if you're calculating the 2016 Opening Day payroll, he counts for $5.5 million.
Rodriguez also has a team option for 2017 which would cost $6 million to exercise, or $2 million to buy out. The impact of that option on the payroll for luxury tax purposes is a bit complicated. When calculating payroll for luxury tax purposes, use the amount that the player will actually be paid. Deferred salary counts in the season that the salary is earned. So, although Mike Ilitch doesn't have to write the check in 2016, that deferred $2 million counts towards the Tigers' 2016 luxury tax hit. So, we're back to the original $7.5 million contract, but we're not done yet.
A team option does not count the salary for the following season unless and until the team exercises that option. If there is a player option or a buyout, that money is considered "guaranteed." If Rodriguez's contract is bought out, that $2 million also counts against the luxury tax in 2016. That brings K-Rod's tax salary to $9.5 million for 2016, which is the amount they will pay K Rod. But we're still not done yet.
As we have explained previously, the payroll for luxury tax purposes uses the average annual value of a player's contract with that team. In Rodriguez's case, the Tigers are on the hook for $9.5 million if they buy him out after 2016, and for $13.5 million in total salary if they exercise his option (divided over two years). In 2016 alone, the Tigers would be on the hook for $9.5 million if they decline Rodriguez's 2017 option and $6.75 million if he sticks around.
The Tigers don't have to make a decision on Rodriguez's 2017 option until five days after the 2016 World Series is finished, so we won't know for sure what impact his contract will have on payroll for tax purposes. The luxury tax formula is concerned only with money actually paid to the player by the team. So, it may look like the Tigers are set to pay a luxury tax based on a $9.5 million "hit" to the payroll in 2016, but that can change if Rodriguez's 2017 option is exercised. The luxury tax for a given season is not calculated until December 2 of that year.
Sources: For the rules on how luxury tax is calculated, see the Collective bargaining agreement, article XXIII, and scroll down to page 100.
Caveat: There are often clauses in major league players' contracts that are not made public. The information in this article is based on what is given by Cot's contracts.