With the World Series over and the offseason officially underway, it’s time to take inventory of how much payroll the Mets already have committed heading into the winter.

Simple Guaranteed Contracts

• OF Brandon Nimmo | 8 yrs/$162.0M (2023-2030) [$20.25M AAV]
• OF Starling Marte | 4 yrs/$78.0M (2022-2025) [$19.50M AAV]
• RHP Kodai Senga | 5 yrs/$75.0M (2023-2028) [$15.00M AAV]
• RHP Jose Quintana | 2 yrs/$26.0M (2023-2024) [$13.00M AAV]
• IF/OF Jeff McNeil | 4 yrs/$50.0M (2023-2026) + $15.25M club option for 2027 or $2.0M buyout [$12.50M AAV]

Total Salary Guaranteed Contracts: $80.25M

For MLB Luxury Tax calculation purposes, salaries for players on guaranteed deals are determined by the Average Annual Values of their contracts. An easy simple ($/years) calculation. One thing to keep in mind though is how option years and/or buy-outs are calculated.

Contracts with player options are considered guaranteed years and as such the AAV calculation will include the option year. All other options (club, vesting, mutual) are considered non-guaranteed. Any buyouts associated with these options are included in the AAV calculation but the options themselves are not.

For example, Jeff McNeil’s contract pays him $48 million during the life of the contract, however, since it has a $2.0M buyout with his 2027 club option, the AAV ends up being $12.50M instead.

• SS Francisco Lindor | 10 yrs/$341.0M with $50M deferred (2022-2031) [$32.35M AAV]
• RHP Edwin Díaz | 5 yrs/$102.0M with $26.5M deferred (2023-2027) [$17.38M AAV]

Total Deferral Contracts: $49.73M

Alright, folks strap in, grab some paper, and a pen as we take a trip down Financial Accounting 401. For any contract that includes deferred compensation, a standard $/years AAV approach cannot be used. This is because of a concept known as the “time value of money (TVM)”. Said in its simplest terms, money is worth more now than it will be at a future date due to its earnings potential.”

We are all suffering through inflation in our personal lives as we speak so I think we can all understand that a dollar right now can’t get you as much as a dollar did 10 years ago.

With this in mind, in order to factor in this devaluation of money, for AAV purposes, deferrals on a contract must be recalculated and factored in based on their “net present value (NPV).” This in turn generates a cost savings for teams against the luxury tax based on three main factors:

1.) How much money is deferred.

2.) How long the money is deferred for.

3.) The discount rate applied at the time of contract signing [Generally based on JP Morgan Bank’s Prime Rate].

For Lindor, $50 million of his compensation ($5M per year) is being deferred for 10 years and discounted at 4.0%. So the NPV of his $50.0M is only $32.48, a $17.52M luxury tax savings across 10 years (-$1.75M AAV reduction). So, instead of his contract having a $34.10M AAV, the team is only hit for $32.35M.

For Díaz, although only $26.5M of his compensation is being deferred, it is being deferred at a 7.0% discount rate, and for a time frame ranging from 10-to-15 years. So, the NPV of his $26.5M is only $11.39M, a $15.11M savings across 5 years (-$3.02M AAV reduction) reducing his AAV from $20.40M to $17.38M

For Ottavino, since his option is of the player controlled variety, his 2024 salary and associated deferrals were included in last year’s calculation, thus the AAV carries over. In total, $8.0M of his 2023-2024 salaries are being deferred at a 7.5% discount rate, and for a time frame ranging from 4 to 7 years. So, the NPV of his $8.0M is only $3.10M, a $4.90M savings across 2 years (-$2.450M AAV reduction) reducing his AAV from $7.25M to $4.80M.

Dead Money

• RHP Justin Verlander | 2 yrs/$86.6M (2023-2024) + $35M conditional player option for 2025, $16.98M on Astros books for 2024 and $17.5M in 2025 if option vests and is exercised [$26.36M AAV]
• RHP Max Scherzer | 3 yrs/$130.0M (2022-2024), $16.8M on Rangers books for 2024 [$26.53M AAV]
• C James McCann | 4 yrs/$40.6M (2021-2024), $650k on Orioles books for 2024 [$9.50M AAV]
• RHP Adam Ottavino | 1 yrs/$7.75M (2023) + $6.75M player option with $8M total deferrals. (Player option declined. $0.86M balancing adjustment) [$0.86M]

Total Dead Money: $63.25M

Now, for the depressing part of this segment, the flip side of the trades former general manager Billy Eppler made last season. At the deadline, the Mets sent Scherzer + $35.5M to the Rangers and Verlander + $35.0M to the Astros.

For MLB Luxury Tax purposes, the pro-rated amount of remaining salaries on both contracts are used to determine the cash impact split between 2023 and 2024. So, for Scherzer, that means 74.7% of the cash the Mets sent are on the books for 2024, and for Verlander, 75.3% of the cash applies.

Since McCann was traded before the season began, the $19M of cash sent with him is a more simplistic standard AAV calculation spreading it across the 2 yrs that were remaining on his deal.

{Updated 11/6/2023}

Oh boy…..as if payroll isn’t complicated enough….

With Ottavino declining his 2024 player option, an obscure luxury tax “balancing adjustment” is going to affect the Mets payroll for 2024. When Ottavino signed his contract, his player option was considered a “guaranteed” year for luxury tax purposes. On top of that $8M of the total $14.5M in the contract were deferred for payment between 2025 and 20235. As a result the calculated AAV was only $5.63M each year instead of the simple math amount of $7.25M.

With Ottavino off the books now, we need to recalculate what the AAV would have been for only the 1 yr of pay + deferrals. The difference between this calculation and the original AAV calculation is the “balancing adjustment” the Mets will need to account for in 2024. Nerdy mathematics below!

Arbitration Contracts (estimated per MLB Trade Rumors)

• 1B Pete Alonso | Arbitration Year 3 ($22.00M)
• DH Daniel Vogelbach | Arb 3 ($2.60M)
• IF Luis Guillorme | Arb 3 [Super 2] ($1.70M)
• RHP Drew Smith | Arb 3 ($2.30M)
• RHP Joey Lucchesi | Arb 2 ($2.00M)
• RHP Trevor Gott | Arb 3 ($2.00M)
• RHP Sam Coonrod | Arb 2 ($0.90M)
• LHP David Peterson | Arb 1 ($2.00M)
• OF D.J. Stewart | Arb 1 [Super 2] ($1.50M)
• RHP Jeff Brigham | Arb 1 ($1.10M)

Total Arbitration Contracts: $38.10M

Once a player reaches three years of service time (or two for players with “super 2 status”), their salaries for subsequent seasons, until they reach six years of service time, are determined based by an arbitrator based on their career and prior season performances in relation to their peers who have also gone through arbitration. Unless of course, the two sides agree to a deal before the hearing is scheduled to occur.