Trevor Bauer # 27 of the Cincinnati Reds celebrates after the final out of the sixth innings during Game 1 of the Wild Card Series between the Cincinnati Reds and the Atlanta Braves at Truist Park on Wednesday, September 30, 2020 in Atlanta, Georgia.
Adam Hagy | Major League Baseball | Getty Images
The Los Angeles Dodgers recently signed the 2020 National League Cy Young winner Trevor Bauer for one of the most unique contracts in Major League Baseball history.
Bauer on Thursday agreed a $ 102 million three-year deal with the team, which theoretically makes him one of the highest paid players of the year as the deal unfolds. It has opt-outs that cause the highest salary, a postponement and a short-term model structure. But most of all, it has flexibility, something a player of Bauer’s talent usually avoids.
“This is what this player wanted,” Jon Fetterolf, a partner at litigation firm Zuckerman Spaeder, told CNBC on Thursday. Fetterolf is one of the two MLB co-agents who negotiated Bauer’s deal. The other is Rachel Luba of Luba Sports.
“Ultimately, we made a three-year deal where he’s going to earn a lot more in the first few years than we’ve seen before.”
Again, this is unique, and here’s how it’s structured.
Within the transaction
Bauer is expected to earn $ 38 million in his first year. If he does not opt for the deal, the amount will be $ 40 million, because the Dodgers would pay him an extra $ 2 million on the way out.
The Dodgers could benefit from that. If Bauer leaves, they could defer $ 20 million of salary for future payments – similar to the Mets deal with Bobby Bonilla. There is also a $ 10 million bonus paid in over the 2021 season.
The bonus helps, as the money is only taxed in the player’s state residence, while the MLB match tax is taxed based on the city where clubs play during the year.
Year two of the deal is $ 47 million. That’s $ 32 million for the year, but if he does not accept it, the Dodgers will pay him another $ 15 million.
These salaries make Bauer the highest paid player (per year) in MLB for 2021 and 2022.
And if Bauer is still a Dodger after two years, he misses out on the $ 15 million buyout, but recovers it all with a $ 32 million payment for the final year of the deal. The total: $ 102 million over three years.
“The structure gives him the opportunity to evaluate the situation year after year,” Fetterolf said. “It’s a different kind of contract, and it also reflects that he’s a different kind of person.”
Short-term thinking
Bauer, 30, made his share in the PR mistakes. But a player of his caliber usually goes the long-term route by taking money and security over a few years.
For example, New York Yankees pitcher Gerrit Cole signed a nine-year deal worth about $ 324 million in 2019. He was then 28, but was locked into his contract until he was 37 years old. Bauer and Cole were teammates at UCLA, and both were selected at the top of the 2011 MLB draft.
Once set up and at an MLB club, it takes players six years to become a free agent, and along the way, they earn the minimum wage of the collective bargaining agreement. Once the service time has been reached, players have the right to negotiate salary with the team. If they do not agree, there is an arbitration panel to determine the compensation.
If players during the window do not agree with long-term offers, especially not for the start of pitchers, they will agree as soon as they get free agency. Bauer followed new teammate David Price, who followed the same path as his mega-deal.
Price put in his years of service with the Tampa Bay Rays, endured salary arbitration along the way and bet on himself a 1-year deal with the Detroit Tigers for the 2015 season. He turned it into a $ 217 million seven-year deal with the Boston Red Sox at age 30.
Both Price and Bauer were a four-year arbitration player, traded by their clubs, and entered into one-year deals before entering into mega-contracts. The 35-year-old award was traded to the Dodgers last February and would earn $ 20 million for the 2021 season. He will be 37 once the deal is finalized after the 2022 season.
Fetterolf and Luba have been appointed to represent numerous players in salary arbitration. Fetterolf explained why Bauer chose the short-term model instead of the long-term one.
“Theoretically, if you do not want to go most years, most dollars, he wants to give himself the ability to control his life,” Fetterolf said, using short-term basketball contracts as an example.
“He could do the maximum,” Fetterolf said. “He did not do it. Why? Because he wants to make sure he’s in a situation he likes. I think it’s different. We see it in basketball. I think one of the reasons we see it in basketball. “These guys can make so much money off the court, much more than baseball players usually earn,” he continued. “But many of these guys want to make sure they’re in a situation where they have a chance to to win. ‘
Trevor Bauer # 27 of the Cincinnati Reds plays in the third inning against the Milwaukee Brewers at Miller Park on August 7, 2020 in Milwaukee, Wisconsin.
Dylan Buell | Getty Images
Half price filet mignon
However, not all teams can afford contracts with expensive salaries per year.
The Dodgers achieve a world championship victory in 2020, the first since 1988, and use a championship window. The land will cost Bauer against the salary.
According to Spotrac, the Dodgers have a $ 234 million payroll, well above the Yankees’ $ 189 million (second highest) and are the only team to pay a competitive balance on a luxury tax bill. Clubs are taxed dollar for dollar if it exceeds $ 210 million for 2021.
But the Dodgers are familiar with taxes, paying a record $ 43.7 million in 2015. The bet is that Bauer’s deal will help the team earn their money with another title, and this time with fans on the tribunes to compensate for the lost revenue in 2020. due to Covid.
“It has to be a club that sees itself in a (championship) window and takes in the salary,” said Fetterolf. “And if it brings them to a World Series and he leaves, then so be it. And that eliminates a lot of teams in baseball.”
Asked if more players should consider the short-term game if available, Fetterolf says the circumstances differ, but points to flexibility as the lure.
“A player like Trevor looks at it and says, ‘I’d rather see if I can maximize my annual earnings in advance and also get flexibility in doing so.’ He said he only charges a 1.5% fee on contracts ( more conspicuous MLB agents can charge up to 5%) and an hourly rate during negotiations.The fee structure helped Bauer save agent fees.
“The player is different,” Fetterolf added. ‘He got the contract he wanted and got a record-breaking contract at a cheaper price than everyone else. You get filet mignon and you pay half the price.