Seduction of 'donut contracts' has MLB players leaving millions on table

Jeff Passan
MLB columnist
Yahoo Sports
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At one of the annual meetings of baseball agents this offseason, an official from the Major League Baseball Players Association tried to emphasize just how pervasive the trend of players accepting multiple club options on long-term extensions had gotten. If he worked for a team, he said, he would offer a player a deal with six club options, because he was sure someone in the room would take it.

Some chuckled. Others seethed. Ceding ground to teams in contract negotiations has become a massive issue for the union, which must balance the reality of its situation – suggesting, in many cases, a player turn down tens of millions of dollars – with the reality that doing so often is an exceedingly difficult proposition.

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In a vacuum, the issue gets a big, fat #richpeopleproblems hashtag. If the MLBPA's biggest problems revolve around a guy not getting enough millions, whooptie damn do. At the same time, that ignores an important principle, and one the union is stressing as long-term deals swing more and more in favor of teams: Baseball is a $9 billion industry, and every dollar that doesn't go to the players who make the game what it is funnels straight into the suit pockets of owners who are getting even more stinking rich with every successful long-term deal.

An analysis by Yahoo Sports of every contract extension since the beginning of the 2010 season shows a distinct trend toward giving teams not just friendly deals in terms of dollars but via club-option years. In the last two weeks alone, five players have agreed to deals with two club-option years – almost one-third as many in the previous five seasons.

Of the 209 contract extensions listed in MLBTradeRumors.com's database, 73 have included a club option for one season, 21 a pair of club options and eight with three club options.

The numbers get even more harrowing when narrowed down to the 96 deals for four years or more – generally the sort given to players considered a strong part of a team's future. Nearly two-thirds of the deals include a club option of some type: 38 for one year, 18 for two years and six for three years.

Certainly among the long-term deals exist some legitimate messes, ones that went definitively in favor of the player after his career went sour. In looking for security, however, players are leaving combined hundreds of millions of dollars on the table, and the worry runs deep inside the union that too many players are seeking the easy payday instead of exercising their right to free agency and the riches it provides those patient enough to wait.

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And it does take patience, certainly. For some players – particularly pitchers – the fear of not cashing in before an arm injury hits is palpable, especially considering the Tommy John surgery epidemic in the sport. For others, especially those from Latin America, the issue is often socioeconomic: One agent recounted that his client could barely conceive of a million dollars after growing up poor, and when a team offered him an eight-figure deal, he couldn't possibly turn it down, even if the contract didn't come close to compensating him for what he was worth.

The problems for players run even deeper. Some agents, fearful that their clients could get poached by another agent before he signs a deal, suggest players take money that's on the table to ensure they receive their commission. It is a dirty side of the business, client poaching a legitimate fear.

Such factors give teams an enormous amount of leverage, one they use to their advantage increasingly. One general manager suggested his team factors in a player's agent as to whether he's worth drafting, knowing some agencies are friendlier to the idea of long-term deals. Another GM said two club options is now a starting point with negotiations, something the union a generation ago would've considered hubristic and laughable.

Options hurt the player the most when they take him from free agency in his age 28, 29 and 30 season and up to 31, 32 and 33. While exceptions exist, the largest money in free agency goes to the youngest players. Three of those who signed deals with two club options in the last two weeks will be 33, 33 and 32 should their teams exercise both options.

Those are the sorts of deals agent Scott Boras – who in the last five seasons has agreed to long-term extensions for just three clients and not given a single club option – calls "donut contracts."

"It's a lot of sugar at the beginning," Boras said, "and a lot of holes at the end."

Boras speaks from a position of power, certainly, carrying a huge client roster and playing the big, bad wolf who's a threat to recruit a player at any time. Still, with the baseline for extensions barely shifting from where it was a generation ago, plenty of players are relinquishing riches that weren't guaranteed but, in hindsight, would have been mega-jackpots. They do so most often because of a tenet repeated this week by the latest player to agree to two team options:

"Never turn your back on your first fortune," said …

1. Chris Archer, the Tampa Bay Rays starter who now is generationally wealthy. He signed a six-year deal for $25.5 million that includes a pair of team options totaling $18 million. The 25-year-old right-hander has not been in the major leagues for even one season, and now he is a millionaire 25 times over, with baseball contracts fully guaranteed. Never before has a player with less than a year service time received so much.

Still, the Archer deal left one agent miffed that "now they're going to use that as a baseline when they offer [one of his clients] an extension." That is, after all, how the industry works, whether in free agency, arbitration or extensions. Templates are set and followed, and rarely do they evolve. When they do, it is often toward the team's side. The strongest deals for players are derisively referred to as outliers.

The Rays are a perfect example of this. General manager Andrew Friedman has set a standard for Tampa Bay, and it is brilliant: club options are a must. All eight of the long-term extensions Friedman has given out since 2010 included at least one club option, including Archer's and shortstop Yunel Escobar's this past week. He was the architect of James Shields' incredible deal that landed Wil Myers, and Evan Longoria's initial six-year, $17.5 million contract with three club options that for half a decade represented the single team-friendliest agreement in the game.

Whether Archer turns into a Shields or Longoria type – or even someone like Matt Moore, signed similarly cheap – will unfold over the next six (or seven or eight) seasons. Even though risk exists, the Rays understand this is extremely good business, the sort personified when players like … 

2. Chris Sale end up signing long-term extensions. Now, Sale is a pitcher, and not your cookie-cutter one, either. He has an atypical body type and an atypical delivery, both of which scared off teams in the draft and made an extension a risky proposition.

He has stayed healthy, though, and matured into a true ace, and true aces get paid far, far more than the five-year, $32.5 million deal that includes club options for 2018 and 2019 bringing his total maximum to $56.5 million. With his 2017 season at $12 million, the Chicago White Sox own three of Sale's potential free-agent years for $36 million. In 2017 alone, Clayton Kershaw will make $33 million.

Had he not signed, Sale would have hit free agency at 27 years old. The last elite pitcher to reach free agency was Zack Greinke, and he got $147 million at 30 years old. Cliff Lee fetched $120 million at 32. Sale at 27 is a $200 million pitcher, and granted, he still will be a free agent at 30, and if he's still healthy, he'll cash in. This is all so easy to second-guess, too, considering the case of … 

3. Ricky Romero and his disappearing career. In the midst of his breakout 2010 season for Toronto, he signed the deal pioneered by Jon Lester almost 18 months earlier: five years, $30.1 million with a club option. Romero followed in 2011 with 225 innings of 2.92 ERA ball, an All-Star appearance and the air of a bargain.

Then he fell apart. In 2012, he couldn't throw a strike. In 2013, he barely cracked the big leagues. In 2014, he is beginning the season in Triple-A Buffalo, his $7.5 million salary helping push the Blue Jays toward austerity. He's owed another $7.5 million next year, and barring a miracle turnaround, Toronto will buy out his $13.1 million option for just $600,000.

Toronto's Alex Anthopoulos is the king of club options, going 11 for 11 on contract extensions since 2010. He hit enormous home runs with deals for Jose Bautista and Edwin Encarnacion. The Romero deal was a terrible misfire, the sort that should give teams pause but doesn't because the economics are weighed that much in their favor. Take, for example, the deal …

4. Martin Perez signed in November with the Texas Rangers. Perez just turned 23. He may not look the elite part quite yet, but he is a 6-foot-tall, hard-throwing left-hander with a vicious changeup, and that's the very pedigree that won Johan Santana a pair of Cy Young awards and landed him a $137.5 million contract.

Perez could get that someday, because his contract allows him to reach free agency at 29. In the meantime, though, he is guaranteed only $12.5 million over the next four seasons, and the Rangers own three options for a total of $22.5 million more. One more time: Kershaw gets $33 million for one year, Perez can max out at $35 million over the next seven. 

Club options should exist for one reason and one reason only: to mitigate risk for a team on the front end. When the team is giving up next to nothing in the guaranteed years of the contract, giving club options – and ones with meager buyouts at that – are a gift. And the single greatest present bequeathed in baseball today was from …

5. Salvador Perez to the Kansas City Royals. On Feb. 27, 2012, after two months in the major leagues, Perez signed a five-year, $7 million deal with three club options that total $14.75 million. Even with the $5 million in potential salary increases during the option years with All-Star appearances and Gold Gloves, it is a very simple calculus.

Perez's contract is the best in the game today for a team, bar none, and there's no contender within a mile. He is one of the five best catchers in baseball, up there with Buster Posey, Yadier Molina and Brian McCann, and their deals are for $167 million, $75 million and $85 million, respectively.

On one hand, it seems unseemly, if not unfair, to prey on a player with a deal like Perez's. It's the business, though, and some players simply want security no matter the cost. The player can put it simply to an agent arguing otherwise: If you don't negotiate it, I'll hire someone who will.

So donut contracts, especially those with option years, can turn into a second long-term deal – and still at a massively discounted rate. See Longoria's follow-up to his first: a well-under-market six-year, $100 million pact. It makes the deal …

6. Mike Trout signed look good by comparison, though Trout could be the perfect example of someone who stood to benefit everyone by going to free agency and shattering every single record.

Then again, he got $144.5 million. One more time: He is 22 years old and got $144.5 million. And even though his people want to criticize him – had he waited to go to free agency, some team would have given him 10 years and $400 million – and that criticism, crazy as it sounds, is fair, he still got $144.5 million guaranteed, and he can say with complete certainty Mike Trout VII will be driving the latest flying Tesla in the year 2200.

More than that, Trout hits free agency at 29 after the final year of his contract expires in 2020, and he should strike it plenty rich then, too. It’s not too late for a 10-year contract considering nearly every other one was given to players older than that. Look at what Detroit did with …

7. Miguel Cabrera and his 10-year, $292 million deal – which includes, somewhat shockingly, a pair of club options, the last at $30 million with no buyout. It’s essentially a free look at a 42-year-old Miggy in 2025. When the nicest thing to say about a contract is that it includes the ability to say no to paying a baseball geriatric $30 million, that probably doesn’t bode well for it.

Arguments exist in favor of the Cabrera deal, or any big deal, though they come off hollow and specious. The idea that one player can change the image or fortune of a franchise? Temporarily, sure, but have we not learned the greatest game-changer is winning, and that massive-salaried players and winning do not necessarily correlate? Moreover, the concept that such players deserve decade-long deals at advanced ages is a function of history, not pragmatism.

Such contracts make sense only for the handful of teams looking to shrink the contract’s average annual value, since AAV factors into teams’ luxury-tax calculations. For the Yankees, sure. For the Angels, maybe. For the Mariners and Robinson Cano, absolutely not, which makes that contract all the more ridiculous.

Trying to justify such deals instead of monster-AAV, shorter-term contracts that pay a player for his most productive seasons is an understandable reaction considering how few avenues players now have to wring the most money out of teams. The amateur draft is capped. Same with international spending. Extension dollars aren’t what they should be. And as …

8. Stephen Drew and Kendrys Morales will attest, free agency ain’t what it used to be, either. There could be movement with both of them soon, though, because Boras now has much greater motivation to push the remaining vagabonds of the qualifying-offer system to a team.

While it isn’t a loophole, per se, a misunderstood part of the free-agent compensation rules helps Drew and Morales. Much like players who cannot be tendered qualifying offers if they’re traded, those who do not start the season under contract with a team cannot receive an offer at season’s end, either. Which means as of opening day, Drew and Morales can sign one-year deals with the guarantee of unencumbered free agency after the season.

Of course, the problem to this point has been that both come attached to draft-pick compensation, and whichever team signs them must forfeit their highest choice this season. It neutered the market for qualifying-offer free agents and continues to freeze out Drew and Morales, both of whom, in a truly free market, would’ve long ago been snatched up, even if Boras’ asking prices started higher than they would’ve liked.

While there’s a possibility both players could wait until after the June draft, when the compensation attachment disappears, Boras said he believes both will sign before then and are open to both one-year contracts and multi-year offers.

“The reason for us waiting was that we found in the rules and advised our clients they should wait until after opening day to sign,” Boras said. “They’ll be true free agents at young ages. It was far better to be an unrestricted free agent than signing one year for the qualifying offer.”

Granted, the qualifying offer is likely to exceed $15 million this offseason, or about half of what …

9. Starling Marte received from the Pittsburgh Pirates, who often throw out an all-contract-extension outfield. They run the gamut, too.

Reigning MVP Andrew McCutchen signed a six-year, $51.5 million deal with a $14.5 million option that will keep him a Pirate through his 32nd birthday. It is almost surely one of the five best contracts in the game.

Then there is backup outfielder Jose Tabata, who locked himself in for $15 million guaranteed by signing a six-year contract with three club options. Were Tabata any good, the contract might be as bad as either of the Perezes'. Tabata isn’t very good, though, and it’s a stretch that he ever would have made $15 million otherwise.

Marte is 25, entering his second full season, and the Pirates locked him up for $31 million over six seasons, plus a pair of club options for $21 million total that covers the entire prime of his career. This was Marte’s first fortune, and he didn’t turn his back on it, even if he did turn his back on much, much more. He and …

10. Chris Archer and plenty of others do this for one reason or another, and some at the union bellow at it, because even if the players’ association exists specifically to allow players to make these very sorts of decisions, if the education in place isn’t stressing enough of how they are allowing owners to create permanent siphons with such deals, it needs to be better and stronger.

The cases are illustrated annually in free agency. Outfielder Shin-Soo Choo was offered the same sorts of deals second basemen Matt Carpenter and Jason Kipnis accepted this offseason: six years and around $52 million, with one club option. He turned it down, hung through an arbitration system that didn’t well reward his best assets, hit free agency at 31 and signed a $130 million contract.

It takes patience and production in equal volumes to do what Choo did, to do what almost any free agent does, and in a sport where failure is palpable, the prospect of continued success strikes fear into even some of the best players.

Nevertheless, the mantra will be repeated by the union for fear that what the players have lost already won’t get worse. Emboldened, some teams are making multiple club options standard in their discussions with players. The slippery slope is icier than ever, and players are sliding down in record numbers, getting their piece of the action: bigger than imaginable in real life, paltry by comparison to what it could – and should – be.