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Contracts Move Game Off Field

By Alan Schwarz
January 23, 2005


See Also:
Great Moments In Contract History
A General Manager And An Agent Chime In
10 Killer Contracts . . . And Ten That Killed

MOVIN' ON UP

 Year 

Average
MLB Salary

Minimum
MLB Salary

Per Capita Income (U.S.)

2004

$2,486,609

$300,000

n/a

2003

2,555,476

300,000

$31,459

2002

2,383,235

200,000

30,795

2001

2,654,403

200,000

30,580

2000

1,998,034

200,000

29,847

1999

1,720,050

200,000

27,939

1998

1,441,406

170,000

26,883

1997

1,383,578

150,000

25,334

1996

1,176,967

109,000

24,175

1995

1,071,029

109,000

23,076

1994

1,188,679

109,000

22,172

1993

1,120,254

109,000

21,346

1992

1,084,408

109,000

20,854

1991

891,188

100,000

19,892

1990

578,930

100,000

19,477

1989

512,084

68,000

18,520

1988

438,729

62,500

17,331

1987

412,454

62,500

16,240

1986

412,520

60,000

15,442

1985

371,571

60,000

14,758

1984

329,408

40,000

13,891

1983

289,194

35,000

12,618

1982

241,497

33,500

11,935

1981

185,651

32,500

11,246

1980

143,756

30,000

10,114

1979

113,558

21,000

9,146

1978

99,876

21,000

8,245

1977

76,066

19,000

7,405

1976

51,501

19,000

6,754

1975

44,676

16,000

6,172

1974

40,839

15,000

5,707

1973

36,566

15,000

5,231

1972

34,092

13,500

4,717

1971

31,543

12,750

4,342

1970

29,303

12,000

4,085

1969

24,909

10,000

3,836

1968

n/a

10,000

n/a

1967

19,000

$6,000

n/a

Sources: Associated Press, Baseball1.com, U.S. Bureau of Economic Analysis

No baseball onlooker, whether fan or writer or player or executive, can watch a free-agent season without at least once muttering, "What are they doing? I can do a better deal than that."

Few who make such proclamations actually know all the balls that must be juggled for a prospective deal to go from brainstorm to bargain. From club flexibility to player security, from options to incentives, from bonuses to buyouts, almost every part of a contract is subject to hemming and hawing from each side pursuing its interests and protecting its hide. And not in a vacuum, either. Similar negotiations are crisscrossing the major leagues, with different teams and agents playing one against the other in a tangled web that makes airline flight maps look simple.

Getting a deal done requires both player and club to sort out priorities in at least a half-dozen arenas. The following primer presents the tallest hurdles they must clear to wind up first at the finish line:

SALARY

It's pretty easy to zone in on a player's market: Simply compare his performance to that of other players at his position and adjust his salary relative to theirs. Deciding which statistics to use is a matter of debate, of course, but there are bigger problems than that.

The main issue is that what a player has produced is not necessarily what he will produce. A 28-year-old player is far more likely to maintain his skills than a 35-year-old one. It's here that each side will play to its strengths. A club will try not to be seduced by an aging player's past, while a young player will emphasize his potential.

When comparing players, salary for any specific season matters less than the average annual value of the contract, which is defined as guaranteed money (including signing bonus and option buyouts) divided by seasons covered. For example, even though Barry Bonds will earn $20 million in 2005, he's typically characterized as an $18 million player by virtue of his five-year, $90 million deal.

Generally, salary level is less of a sticking point than . . .

LENGTH

It's here that teams and players most lock horns. Players, understandably, want to extend their salaries through as many years as possible. Teams, on the other hand, don't want to commit top dollar for too long, fearing a player's decline in performance, predictable or not.

Club executives have become much more reluctant to sign deals that extend far into the future. While hard data isn't available, recent history suggests that deals are averaging about one season less than they did several years ago. Too many clubs have been caught with bad money on the books to not be more careful; non-collusive advice from the commissioner's office has educated teams as well.

The catchword today is "flexibility," with clubs ensuring that enough of their contracts expire each year to allow them options on the open market. A shorter contract for a higher salary is often preferred over one for a year too long. For example, Carlos Delgado's $17 million average annual value from 2001-2004 was high, but at least Toronto's deal ended this year. Toronto certainly prefers that over a $16 million AAV extending through 2005.

Many deals get done when a team steps forward and commits to one more year than the competition. As Jon Lieber's agent, Rex Gary, told the New York Times: "Players, if they like a place, generally want to know that they're going to be there for a while."

Then again, they rarely offer to accept much less money for that security, leaving the club to determine what length will ultimately be worth the investment. As Pat Gillick once put it, "I don't mind paying a player, but I don't want to pay for his funeral."

BONUS/STRUCTURE

A $32 million, four-year deal rarely calls for $8 million salaries each of four years. The payout structure is negotiated as well, based on cash-flow concerns of the parties.

Players often want up-front money in the form of a signing bonus, though this isn't always the case. Someone going through a divorce might want no bonus depending on his state's laws regarding community property. The team generally wants to structure the deal based on its commitments to other players over the next several years.

Doing backloaded deals, where most of the money comes late in the contract, or deals with salaries deferred past the contract term is attractive for many clubs, not just because they pay less for the player now but because it reduces the today's-dollar value of the deal. Then again, such contracts can haunt them by hamstringing their budgets years past the players' productivity. (See the Arizona Diamondbacks.) In the end, with most top free-agent contracts calling for higher salaries near the end of the deal, players--most of whom will be past their prime--deliver considerably more production per dollar at the beginning of the contract.

"This is probably an area dictated more by the club than the player," Astros president Tal Smith said. "It has to worry about payroll and previous signings. More clubs are taking the lead of spelling out what they want to do."

OPTIONS/BUYOUTS

A way to create value on either side is to build in an option year or two. This is flexibility in another form, either for the club or player.

Many contracts today include club options. In that case, at the end of the deal, the club has the choice of renewing it for one more year at a prescribed salary (usually a rough estimate of the player's worth at that point). This is how the Red Sox are keeping Bill Mueller this year, the Astros Craig Biggio, etc. Should the team wish to cut ties, it usually must pay the player a buyout--glorified severance pay.

This allows teams to retain bargains or avoid bloated deals. Had Houston decided to part ways with Biggio and not pick up his $3 million option, for example, the buyout was $1 million; they decided he was worth the extra $2 million. The Mets, on the other hand, faced with a whopping $15 million option on Richard Hidalgo, chose the $2 million buyout instead.

Player options are less common but still handy. "Sometimes if you convince a player to take a lesser value deal you give him the chance to get out of it," Giants assistant GM Ned Colletti says. "A three-year deal with one or two player options can give him peace of mind. It's a built-in opt-out clause."

NO-TRADE CLAUSE

A few years ago, when teams were rolling in money and couldn't imagine ever being hamstrung, no-trade clauses were doled out far more often than they are now. Once again, teams try to protect their flexibility.

The player wields leverage here by claiming that if he's going to make a commitment to a team for four or five years, he wants the same in return. However, clubs typically will not give full no-trade clauses anymore unless the player is clearly accepting a lower average annual value to play in a certain city. Negotiations often compromise with a no-trade clause for only a few seasons of the deal, or allowing a player to submit a list at the beginning of each season specifying some teams to which he could veto a trade.

"It makes no sense to give someone max dollars, max length and a no-trade," one NL GM said. "You do that, you're screwed. I only give a no-trade to a guy who's giving me a break."

AWARDS/INCENTIVES

These clauses break down into two main groups: those that reward health and those that reward performance.

Particularly with a player who has been recently injured, the team will protect itself by paying him less of an average annual value but build in a bonus structure depending on how much he plays. For example, the Giants have Jason Schmidt for four years at a $7.5 million, but have twice increased his base salary by $250,000 when he has pitched more than 200 innings. Whether based on innings for pitchers or at-bats for hitters, these clauses reduce clubs' risk and help ensure they pay for what they receive. (Sometimes, reaching certain levels trigger or vest entire options, implying the player has proven he is healthy or worthy of that salary.)

Performance bonuses, meanwhile, give the player extra money for winning an award or honor. Bonds and Vladimir Guerrero received $500,000 from the Giants and Angels, respectively, for winning this year's MVP awards. Others are for honors far less rare, like Manny Ramirez' $100,000 for winning Silver Slugger awards each of the last four years. Some clubs view these incentive packages as routine, while others, like the Yankees, make a policy of not offering them at all.

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