Trevor Bauer #27 of the Cincinnati Reds celebrates after the final round of the sixth inning 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 2020 National League Cy Young winner Trevor Bauer to one of the most unique contracts in Major League Baseball history.
Bauer agreed to a three-year, $102 million contract with the team on Thursday, making him one of the highest-paid players per year, theoretically, as the deal unfolds. It has opt-out options that trigger the highest salary, a deferral, and a short-term model structure. But above all, he has flexibility, which a player of Bauer’s talent usually avoids.
“That’s what this player wanted”, Jon Fetterolf, a partner at litigation firm Zuckerman Spaeder, told CNBC on Thursday. Fetterolf is one of two MLB co-agents who brokered Bauer’s deal. The other is Rachel Louba by Luba Sports.
“We ended up doing a three-year deal where he’ll make a lot more in the first few years than we’ve seen historically,” he added, noting that Bauer could make $85 million over the two years. early years of the agreement.
Again, it’s unique, and here’s how it’s structured.
Bauer is expected to earn $38 million in his first year. If he walks out of the deal, that total becomes $40 million, because the Dodgers would pay him an additional $2 million when he leaves.
The Dodgers can take advantage of that. If Bauer leaves, they can defer $20 million of salary for future payment — similar to the Mets’ deal with Bobby Bonilla. There’s also a $10 million signing bonus factored in to be paid out in the 2021 season.
This bonus is useful because the money is taxed only in the player’s state residence, while MLB game checks are taxed based on the city where the clubs play during the year.
The second year of the agreement totals $47 million. It’s $32 million for the year but, if he retires, the Dodgers will pay him an additional $15 million.
Those 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 gets it all back with a $32 million payout for the final year of the deal. The total: $102 million over three years.
“The structure gives him the chance to assess the situation year by year,” Fetterolf said. “It’s a different type of contract, and it also reflects that he’s a different type of person.”
Bauer, 30, has does its share of public relations errors. But a player of his caliber usually goes for the long haul – taking cash and security over several years.
For example, the New York Yankees pitcher Gerrit Cole signed a nine-year deal valued at around $324 million in 2019. He was 28 at the time but was locked into his contract until he was 37. Bauer and Cole were teammates at UCLA, and both were selected at the top of the standings. 2011 MLB Draft.
Once drafted and with an MLB club, it takes players six years to become a free agent, and along the way, they earn the collective bargaining minimum wage. Once service time is reached, players have the right to negotiate with the team over salary, and if they disagree, there is an arbitration panel to determine compensation.
If players don’t accept long-term deals during this window, especially starting pitchers, they will accept once they reach free agency. Bauer emulated his new teammate, David Price, who followed a similar path to his mega contract.
Price put in his years of service with the Tampa Bay Rays, endured salary arbitration along the way, and bet on himself with a one year contract with the Detroit Tigers for the 2015 season. He turned that into a seven-year, $217 million deal with the Boston Red Sox when he was 30 years old.
Both Price and Bauer were four-year-old salary arbitrage players, traded by their clubs, and went on one-year deals before landing mega deals. Now 35, Price was traded to the Dodgers last February and is expected to earn $32 million for the 2021 season. He will be 37 once the deal closes after the 2022 season.
Fetterolf and Luba have been hired to represent many players in salary arbitration. Fetterolf explained why Bauer chose the short-term model instead of the long-term game.
“Theoretically, if you don’t go there most years, most dollars, he wants to give himself the opportunity to control his life,” Fetterolf said, using short-term basketball contracts as an example.
“He could have done the maximum,” Fetterolf said. “He didn’t do that. Why? Because he wants to make sure he’s in a situation that he likes. I think it’s different. We see that in basketball. I think the one of the reasons we see it in basketball is these guys can make so much money off the court, way more than baseball players usually make,” he continued. “But a lot of these guys want to make sure they’re in a position where they’ll have a chance to win.”
Trevor Bauer #27 of the Cincinnati Reds throws in the third inning against the Milwaukee Brewers at Miller Park on August 07, 2020 in Milwaukee, Wisconsin.
Dylan Buell | Getty Images
However, not all teams can afford contracts with expensive annual salaries.
Get out of a 2020 World Series Victory, its first since 1988, the Dodgers enjoy a championship window. Landing Bauer at this salary will cost the team.
According to Spotrac, the Dodgers have a $234 million in payroll, well above the Yankees’ $189 million (the second highest) and should be the only team to pay a balanced luxury tax bill. Clubs are taxed dollar for dollar if they exceed $210 million for 2021.
But the Dodgers are familiar with taxes, having paid a record $43.7 million in 2015. The bet is that Bauer’s deal will help the team get their money’s worth with another title, and this time with fans in the stands to make up for lost revenue in 2020 due to Covid.
“It has to be a club that sees itself in a (league) window and takes on the salary,” Fetterolf said. “And if that gets them to a World Series and he leaves, so be it. And that eliminates a lot of teams in baseball.”
Asked if more players should consider the game at short notice if it was available, Fetterolf said circumstances differed but pointed to flexibility as a lure.
“A player like Trevor looks at him and says, ‘I would prefer to see if I can maximize my annual income in advance and also have some flexibility with that.’ He said he only charges a 1.5% fee on contracts (more notable MLB agents can charge up to 5%) and an hourly rate during negotiations. The fee structure has helped Bauer save on agent fees.
“The the player is different“, added Fetterolf. “He got the contract he wanted and got a record deal at a cheaper rate than everyone else. You get filet mignon and you pay half price. It’s not a bad deal.”