*The following piece is from my pal Boggy, whose Payroll spreadsheet is below our header

This Chris Sale trade and its luxury tax implications were wild to dig in to and after getting it all figured out, I’m convinced AA is a genius and/or he has a financial guru in his inner circle that runs the numbers for every single deal before it goes through.

Prior to the Chris Sale trade, my CBT estimate is $268M, a full $31M over the luxury tax threshold, and just $9M away from having the top draft pick moved back 10 spots. Then the trade happens…

Trade: Braves get Chris Sale and $17M, Red Sox get Vaughn Grissom

Sale contract details: 5-yr, $145M contract $30M annually from 2020-2022 $27.5M annually from 2023-2024 $20M team option for 2025 that automatically vests with a top 10 Cy Young finish in 2024 (and not being on the IL at the end of the season) $10M annually deferred to the years 2035-2039

Because of the deferrals, the present day value of his contract when it was signed was only $128M instead of $145M. So the AAV was $25.6M. This is similar to the Ohtani contract – same exact concept, on a smaller scale.

Now, for CBT purposes, AAVs are recalculated after a trade based on the money and years left on the deal. So Sale’s CBT salary for Atlanta is $27.5M minus the $17M from Boston for a total hit of $10.5M, which would put them $1.5M into the third tier, which is taxed at 75% and drops the draft picks down.

BUT WAIT!

$10M of the $27.5M is deferred until 2039! This is how the Braves are only on the hook for $500k cash in 2024 ($27.5M – $17M cash from BOS – $10M deferred = $0.5M). But this also changes the present day value of the $27.5M. Using a complicated calculation and the current imputed interest rate in the US (the same exact equation used to calculate Ohtani’s present day value), the present day value of Sale’s 2024 contract is only $24.1M. Subtract the $17M included from BOS and it’s a total CBT hit of just $7.1M for the Braves in 2024.

Which leaves them UNDER the third tax threshold by almost $2M!

So $0.5M cash salary to Sale ($10M cash paid in 2039) and a luxury tax hit of only $7.1M for 2024. From a health standpoint, it’s definitely risky, but the upside is huge. Sale’s experience is extensive and the financial risk is heavily mitigated.

BUT WAIT…AGAIN!

UPDATE:

After some deeper investigation over the last 24 hours, I’m now convinced that the present day value of Sale’s contract with the Braves is actually LOWER than the $24.1M above, which is taken from Roster Resource. Using the NPV (Net Present Value) equation below, the actual luxury tax hit comes to only $5.7M instead of $7.1M

NPV = DM / ((1 + IR)Y)

DM = Deferred Money ($10M) IR = Interest Rate (4.43%) Y = Years deferred (15)

That calculation yields an NPV of $5.2M for the deferred portion of Sale’s contract. Add back the un-defered portion ($17.5M) then subtract the amount Boston included in the trade ($17M), and you get the total luxury tax hit of $5.7M.

But….NO KIDDING…WAIT AGAIN! Braves Extend Chris Sale

Alas, it is not to be. In typical AA trade-and-sign fashion, Chris Sale inked a 2-year deal with Atlanta worth $38M guaranteed today. He’ll make $16M in 2024, $22M in 2025, and there’s a team option for $18M in 2026 that could bring the full guaranteed deal to 3 years and $56M. This new contract completely replaces the remaining year on Sale’s 5-year deal he signed with Boston in 2020. That remaining $27.5M contract for 2024 and it’s deferrals, option, and incentives are completely gone.


From a straight cash standpoint, the Braves will actually MAKE $1M for Chris Sale in 2024, since his salary is $16M but Boston is giving them $17M. You could even think of the new Sale contract as effectively being a 2-year, $21M deal ($10.5M AAV), or a 3-year, $39M deal ($13M AAV) which is a dead-ass steal in a market where Seth Lugo is making $15M annually.


The new deal has an AAV of $19M ($38M / 2 years), so that’s his Luxury Tax salary for 2024: $19M. The good part is that the $17M cash from Boston still counts for 2024. So Sale’s net 2024 Luxury Tax salary is only $2M, which is a savings of $3.7M from what the AAV was before the extension.


Since the Braves are currently in the 2nd Luxury Tax tier, they save the taxes on that $3.7M as well. The 2nd tier is taxed at 42% for second-time CBT payors, so the $3.7M difference comes to an additional savings of $1.55M in taxes. That makes for a grand total of Luxury tax savings of $5.25M in 2024 for Sale’s new contract.


For 2025, the AAV is still $19M, so that’s the Luxury Tax allocation next year as well. That’s $19M more than was guaranteed for 2025, but it’s only about $1.4M higher than it would have been if the Braves had simply picked up the original $20M option for 2025. And of course, there’s now some team control for 2026 as well, with the $18M team option that has no buyout.
All told, the new estimate of the Braves 2024 Luxury Tax payroll is currently $270M, which carries a tax payment of $11.4M, which is crazy to consider for anyone who remembers the “financial flexibility” days of the Braves re-build. $270M leaves the team a $7M buffer before they cross into the 3rd surcharge threshold, where their top draft pick in the 2025 draft would be dropped 10 spots in the order, and every dollar over $277M would cost $1.75 bc of the 75% tax.