Baseball Contracts

by pdxtribefan on Feb 24, 2008 8:26 PM EST

Just fishing for a little education here. Using CC's situation as a hypothetical (as opposed to flogging the dead beast), is there anything in baseball's CBA, luxury tax rules, or anything else, that would prevent a team from frontloading the money in a contract, similar to a signing bonus? What I'm getting at is mid-to-small market teams being able to unload some current-year contracts (if possible) in order to offer a bigger first year, thereby inflating the per-year averages of a contract and making it more enticing.

I'm not necessarily speaking of a situation like CC, where years appear to be the issue, rather a situation where the per-year money is the issue. The reason I ask is because I just don't see it very often. Johan's contract was typical, increasing in value over time. It seems there is some incentive for a team to take a one-year financial hit if it puts the team in a better position two or three years down the line. It also seems to open up a large avenue for creative financing.

Obviously not every team would be able to carve salary without hurting their depth, but some (cough, journeymen platoons, cough, utility-men) could. OK, I admit it, I'm talking about CC (one last kick of the carcass - I can't help it, I'm in law school).

What would the Tribe have to offer to convince him to drop the 5th year, and would it be worth it? The Tribe caved and offered Manny $20 million per year, but for less years than the Sox. Would up-front money have gotten the deal done? The saddest thing about this post is that I'm not even convinced CC is worth the money.

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Re: Baseball Contracts

There's no rule against it, but I don't see how it would help much. The purpose of signing bonuses in the NFL is to deal with the fact that individual later years in a deal aren't guaranteed -- often the signing bonus is spread out over multiple years anyway.

In other words, the purpose of a signing bonus isn't that the player gets the money this year rather than in a year or two, it's to make sure that the player gets any of that money at all.

Think about a four-year, $40 million deal. In football, there might be an $8 million signing bonus, but paid out $2 million over each of the four years. The net effect is a $16 million one-year deal with three club options at $8 million per. You don't see deals like that in baseball, because the history of the market for players dictates that they don't have to take a deal like this, they can get three years guaranteed for almost as much money and become a free agent after that.

Front-weighting deflates the "headline value" of the deal as compared with the real value -- the more deferred the payments are, the real value goes down while the headline value goes up. If you front-load a deal, the opposite happens -- it gets more expensive for the team while looking less expensive in the headline.

I guess the answer to your question is the problem with C.C.'s deal supposedly comes down to years rather than annual salary, but the bottom line is total guaranteed money just the same -- the Indians proposed about $80 million over five years (2008 included) and C.C.'s people probably were asking about something like $140 million over seven years, and they didn't see the point in talking about it much further. We can also say that the main difference is in the years until we're blue in the face, but the fact is, most major league pitchers right now won't be in line for any more $20 million salaries five years from now, regardless of their age. It's actuarial.

So it comes down to the Big Number, the total guarantee for the player and total risk for the team. And accelerating the payment schedule a little, so he gets paid more in 2008 and less in 2012, just isn't going to make that much difference, because doing that only results in a single-digit change in Present-Day Value. Not at all like an NFL signing bonus, which often doubles the guaranteed value of a deal.

by Jay on Feb 24, 2008 9:40 PM EST reply actions

Re: Baseball Contracts

Your last two paragraphs made the most sense to me (not your fault, because my post was vague). CC's contract will be so big, it would take too much up front to shift the NPV more than a single digit. And it will be big because the player has an incentive to go BIG once in their life, not several times.

I guess I was just trying to think about a GM's POV more than the player. If I had signed Mike Hampton to that contract, I would have rather had two $30 million eggs on my face than 10 years at whatever he had. Most players in Hampton's position would prefer the $100+ guaranteed, but some could be talked into going for the big bucks now, and testing free agency sooner.

If I'm a GM, it's at least an option I'm going to throw across the table to see if there is any potential to shift the tone of the talks, to show that I'm being creative and trying to get a deal done rather than just watching it play out. But I realize it probably won't overcome the realities you laid out.

Thanks for the perspective.

by pdxtribefan on Feb 25, 2008 11:58 AM EST up reply actions

Re: Baseball Contracts

[what he said]

And as long as the agent doesn't insist on a team inserting a contractual clause, free agency salary arbitration prompts a player to want the highest salary possible in his final year.

That way, if he actually ends up accepting arbitration, which is subject to the cut rule, he can make as much as possible even if he's expecting a decrease in salary.

It's not really applicable to a player of C.C.'s caliber. A long-term deal is almost certain, health assumed. But Greg Maddux stuck the Braves in a tough spot when he accepted, and the Braves had to trade Millwood to clear payroll. But again, not really a concern in C.C.'s case.

by rick @ Let's Go Tribe! on Feb 24, 2008 11:31 PM EST reply actions