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 deal with the team on Thursday, making him one of the highest-paid players per year, theoretically, as the pact unfolds. It has opt-outs that trigger top salary, a deferment 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.
"We ended up doing a three-year deal where he is going to make a lot more in the first few years than we've historically seen," he added, noting Bauer could make $85 million in the first two years of the deal.
Again, it's unique, and here's how it's structured.
Bauer is scheduled to make $38 million in his first year. If he opts out of the deal, that total becomes $40 million, as the Dodgers would pay him an extra $2 million on his way out.
The Dodgers can benefit. If Bauer departs, they can defer $20 million of the salary for future payment – similar to the Mets' agreement with Bobby Bonilla. There's also a $10 million signing bonus factored in to paid out over the 2021 season.
That bonus helps, since the money is only taxed in the player's state residence, whereas MLB game checks are taxed based on the city where clubs play during the year.
Year two of the deal totals $47 million. It's $32 million for the year but, should he opt-out, 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 the $15 million buyout but recoups it all with a $32 million payment for the deal's final year. The total: $102 million over three years.
"The structure gives him the chance to evaluate the situation year-by-year," Fetterolf said. "It's a different kind of contract, and it also reflects that he's a different kind of person."
Bauer, 30, has made his share of public relations mistakes. But a player of his caliber usually goes the long-term route – taking money and security over several years.
For example, New York Yankees pitcher Gerrit Cole signed a nine-year deal valued at roughly $324 million in 2019. He was 28 at the time but was locked into his contract until age 37. Bauer and Cole were teammates at UCLA, and both were selected at the top of the 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 make the minimum salary of the collective bargaining agreement. Once service time is reached, players have the right to negotiate with the team on salary, and if they disagree, there is an arbitration panel to determine the compensation.
If players don't agree to long-term deals during that window, especially starting pitchers, they'll agree once they hit free agency. Bauer emulated new teammate, David Price, who took a similar path to 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 with a one-year deal with the Detroit Tigers for the 2015 season. He flipped that into a seven-year, $217 million contract with the Boston Red Sox at age 30.
Both Price and Bauer were four-year salary arbitration players, traded by their clubs, and took one-year deals before landing mega contracts. Now 35, Price was traded to the Dodgers last February and is scheduled to make $32 million for the 2021 season. He'll be 37 once the deal is up after the 2022 season.
Fetterolf and Luba have been hired to represent numerous players in salary arbitration. Fetterolf explained why Bauer selected the short-term model instead of the long-play.
"Theoretically, if you're not going 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 have done the max," Fetterolf said. "He hasn't done that. Why? Because he wants to make sure that he's in a situation that he likes. I think that's different. We see that in basketball. I think one of the reasons we see it in basketball is these guys can make so much money off the court, far more than baseball players usually make," he continued. "But a lot of these guys want to make sure they are in a situation where they will have a chance to win."
Not all teams can afford contracts with costly per-year salaries, though.
Coming off a 2020 World Series win, its first since 1988, the Dodgers are capitalizing on a championship window. Landing Bauer at that salary will cost the team.
According to Spotrac, the Dodgers have a $234 million payroll, well above the Yankees' $189 million (second-highest) and are set to be the only team to pay a competitive balance 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 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 the lost revenue in 2020 due to Covid.
"It's got to be a club that views itself in a (championship) window and take on the salary," Fetterolf said. "And if it gets them to a World Series and he leaves, so be it. And it eliminates a lot of teams in baseball."
Asked if more players should consider the short-term play if available, Fetterolf said circumstances differ but pointed to flexibility as the lure.
"A player like Trevor looks at it and says, 'I would rather see if I can maximize my yearly earnings upfront and also get flexibility along with it." 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 helped Bauer save on agent fees.
"The player is different," Fetterolf added. "He got the contract he wanted and got a record-breaking contract at a cheaper rate than everyone else. You're getting filet mignon, and you're paying half price. That's not a bad deal."