December 16, 2006
Wells in the Money
Vernon Wells accepted the Blue Jays offer made earlier in the week.
Here's the structure of the contract:
The extension calls for a $25.5 million signing bonus, payable in three $8.5 million installments each March 1 in 2008, 2009 and 2010.
He will receive a salary of only $500,000 in 2008 and $1.5 million in 2009, but his salary jumps to $12.5 million in 2010 and $23 million in 2011. Wells receives $21 million in each of the final three seasons.
Under the extension, Wells has the right to terminate his agreement after the 2011 season and become eligible for free agency.
He gets a full no-trade clause and could earn bonuses of $250,000 for MVP, $200,000 for World Series MVP, $150,000 for League Championship Series MVP and $100,000 for receiving the most votes in his league in all-star balloting.
Does anyone know if there is a difference between how bonuses and salary are treated in relation to the salary cap or team taxes? It's interesting that the opt out is after the 2011 season, just after his salary goes way up. So the Jays are on the hook for just $69 million (counting his 2007 salary), and if salaries continue to sky rocket, Wells would likely opt out after the 2011 season. So the Jays could end up getting five good years at $14 million per season, and then someone else ends up paying for his declining years at a much higher price. It's a clever contract.
Hey, I can help you with that. It doesn't have anything to do with the luxury or team taxes. But, there is a significant tax savings due to the signing bonus in Canada for the player. All of our major free agents (Ryan, Burnett, Thomas) have gotten bonuses because of the tax savings. It's fascinating, because Canada, the socialist country it is, has higher income tax rates than the US, but this bonus technique ends up making the taxes paid lower than in the US. In fact, the after-tax dollars of the 4/40 contract offered to Lilly would have been higher from Toronto than Chicago.
Its because there are no taxes on winfalls. If you win 27M in the lottery, you come home with 27M. The bonus given falls into that category.
is the bonus not considered income for tax purposes in canada? how could that be?
No, it is taxed, but at a much lower rate than regular income (I believe only 15%). It is not counted as a windfall, like a lottery (which is not taxed in Canada). I believe there's a maximum percentage of the total contract that can be devoted to a signing bonus.
The details are complicated, and I don't quite understand them, but the reason for the signing bonus is definitely lower taxation to the player.
I can't believe baseball has made me interested in Canadian Income Tax laws...
