NEWSLETTER
Although it isn’t as complex as Shota Imanaga’s wildly complex “five-year deal,” Cody Bellinger’s “three-year deal” with the Cubs probably merits the same deployment quotation marks. It’s not quite as simple as three years and $80 million.
Want all the gory details? Be forewarned that it’s some deeply nerdy stuff, and not especially brief …
We knew, nominally, that the contract was three years and $80 million, with opt outs after the first and second year. And, by and large, that’s the gist.
We have the full financial particulars now, though, per multiple reports, and here’s how it’ll work:
OK, you are now thinking two things: (1) man that’s needlessly complicated, and (2) so what’s the Average Annual Value of the deal for luxury tax purposes?
Pfft. You haven’t seen complicated yet.
(deep breath)
As for the Average Annual Value of the deal (the salary that matters for calculating a team’s luxury tax, aka competitive balance tax, payroll), it is actually really complex in cases of deals with player opt-outs and uneven salary distributions. You have to head to Article XXIII of the Collective Bargaining Agreement (‘Competitive Balance Tax’), Section E (‘Determination of Salary’) to even start to figure out the AAV for luxury tax purposes on a deal like this.
Here’s the operative language, in pertinent part:
“The AAV shall be calculated as follows: the sum of (a) the Base Salary in each Guaranteed Year plus (b) any portion of a Signing Bonus (or any other payment that this Article deems to be a Signing Bonus) attributed to a Guaranteed Year in accordance with Section E(3) below plus (c) any deferred compensation or annuity compensation costs attributed to a Guaranteed Year in accordance with Section E(6) below shall be divided by the number of Guaranteed Years …. “
“In the event that the Player has the right to exercise or nullify multiple Contract Years at one time (“Player Opt-Out”), the Contract Years following the Player Opt-Out shall be considered Guaranteed Years; provided however, that the Contract Years following the Player Opt-Out shall not be considered Guaranteed Years if the payment the Player is to receive if he opts out of the Contract is more than 50% of the sum of the Base Salaries in the Contract Years following the Player Opt-Out.”
I know that’s some funky legalese there, but the way I read it for purposes of Bellinger’s contract is that the AAV in 2024 is not simply 80 divided by 3, because the two years after the first are not going to be considered “Guaranteed Years” for purposes of the luxury tax.
Why? If Bellinger opts out after year one, he will have received $30 million, which is more than 50% of the $50 million he would otherwise have received after year one. See the language at the end of that second paragraph up there.
So, then, the way I read the CBA provision and the way I understand Bellinger’s contract: the AAV on his deal for 2024 is $30 million, period, no matter what else happens. If he sticks around, then the AAV for each of years two and three would be $25 million.
The player opt outs create a bit of a funky situation where you can’t just use straight guarantee-divided-by-years like we do for all other fully-guaranteed contracts. If I’m wrong on this, someone hit me up to correct me, but that’s the language straight from the CBA.
I believe this is designed to prevent situations where teams massively front-load a contract with opt outs – so the player gets a big payday – yet have an extremely low AAV on the deal. Imagine a team offering a guy a ten-year, $109 million contract, where $100 million is paid the first year, and then he has an opt-out after the first year. He gets $100 million, and the team’s AAV on that year was just $10.9 million? Pfft. No way the league would allow that, and this rule prevents it. That team would be hit with a $100 million AAV on the contract for that first year, no matter what happened thereafter. If the guy stuck around, well, then the AAV on those final nine years would be just $1 million.
OK. Whew. Haven’t exercised that legal-adjacent bone in a while, so I need to go meditate or something.
Fun fact from Michael to wrap this, assuming Cody Bellinger opts out after year one:
