Clayton Kershaw and the Rise of the Opt-Out Clause

Yesterday, the Dodgers signed Clayton Kershaw to a seven year, $215 million contract, or, if you prefer, a six year, $195 million extension, as they already owned his rights for 2014 at an arbitration price of around $20 million. That’s the amount that the Dodgers have guaranteed to pay Kershaw anyway, but I don’t know that it’s really all that accurate to describe it in that way, because there’s a pretty good chance the deal is actually going to end up as a five year, $150 million contract (or an extension of 4/$130M) when all is said and done. That’s because Clayton Kershaw is the latest to join the recent trend and get an opt-out clause negotiated into his deal; he can choose to void the final two years of the deal after the 2018 season if he so chooses and become a free agent again heading into his age-31 season.

Kershaw joins teammates Zack Greinke and Hyun-Jin Ryu in having received opt-out clauses from the Dodgers, so this is clearly something LA is comfortable negotiating into their deals in an attempt to outbid other suitors. Texas also gave two opt-outs to Elvis Andrus in his long term extension signed last year, so Kershaw is the fourth player in the last year to receive a guaranteed paycheck but also the right to reset the terms if he stays healthy and performs at a high level over the next few years.

This isn’t an entirely new trend, and probably the most famous opt-out was actually negotiated back in 2000, when Scott Boras got one included in Alex Rodriguez‘s initial 10 year, $252 million contract with the Rangers. Rodriguez used the opt-out after the 2007 season, and used the leverage to negotiate a new 10 year, $275 million contract that now looks like maybe the worst contract in sports history. By opting out, Rodriguez replaced the remaining $81 million over three years with that $275 million over 10 years, so essentially, he used the opt-out to negotiate an extra seven year, $194 million extension, and he’s only produced +6.4 WAR since the new money kicked in. Even if you subtract out the $25 million that he won’t be paid due to his 2014 suspension, the new money part of the extension will have cost the Yankees about $26 million per win, assuming he doesn’t produce any more value for them going forward.

Given that success, it’s easy to see why other players would also want to have the right to opt-out of their contracts in order to turn a few guaranteed years into another long term deal. And there have been other opt-outs put in play since: A.J. Burnett with Toronto, J.D. Drew in Los Angeles, CC Sabathia and Rafael Soriano in New York have all used opt-out clauses to go back into free agency and land larger, longer contracts than they were due from the remainder of their initial deal. Ubaldo Jimenez is a free agent right now because his deal with Colorado gave him the right to void the final year of the contract if he was traded, which he was, and he did.

Of course, not every opt-out clause gets used. Vernon Wells declined the right to walk away from the final three years and $63 million he was owed after the 2011 season, given that he was coming off a replacement level season and had turned into one of baseball’s most overpaid players. But, unless there have been a lot of unreported opt-out clauses that never became public knowledge, it appears that a majority of these player options have been exercised, and have usually led to better and longer guarantees for the player than they initially agreed to.

Which brings up an interesting question: are players that are receiving opt-out clauses identifiably different from the general pool of premium free agents, since they seem to have a much better success rate on their initial contract — hence their decision to opt-out of it — than the overall average? My first though would be that the players who are getting opt-out clauses are probably younger than the average free agent signing. Is this true? Let’s check it out.

Player Age at Signing Age at Opt-Out
Alex Rodriguez 25 32
J.D. Drew 29 31
A.J. Burnett 29 32
CC Sabathia 28 31
Vernon Wells 28 33
Rafael Soriano 31 32
Zack Greinke 29 32
Elvis Andrus 24 29
Clayton Kershaw 26 31
Average 28 31
Median 28 32

Those nine players represent the ones who were given the right to opt-out of at least two years of their original contract, that we know of anyway. There could very well be others that I’m missing, but I think these nine help illustrate the point that free agents who get opt-out clauses are certainly younger than the pool of free agents overall. This is a logical result, as it would make sense that these are also the players that should be motivated to try and hit free agency again. If you’re already in your 30s, even an opt-out after three or four years is going to put you in the range where your skills are beginning to decline and opting out to negotiate a raise seems less promising.

Basically, this is a selection bias effect. Players who receive opt-out clauses don’t perform better because they received opt-out clauses, but because the worst type of free agent signings — players on the wrong side of 30 — don’t bother asking for them, since they are of little benefit to a player who is signing away years where they will be a shell of their former selves. Guys who come up young and hit free agency young, however, are incentivized to bet on themselves maintaining their skills for a longer period of time, and thus can trade a little less in terms of guaranteed money in exchange for the right to hit the jackpot a second time.

And it seems like a pretty good plan for young free agents. By getting to free agency at 32 instead of at 35, Rodriguez probably earned himself an extra $100 million over what he would have gotten had he hit free agency after the PED revelations and the decline phase kicked in. Likewise, Sabathia, Burnett, and Drew managed to get nice raises after producing for the first few years of a long term deal, only to see their performance drop-off when they signed their new contract that added additional guaranteed years.

And it’s hard not see a pretty clear takeaway for GMs, based on this small sample of players anyway: you want to be the team giving the player the deal with the opt-out, not the team signing the player who just opted out. The best of the second contract performances was probably J.D. Drew, who gave the Red Sox +12 WAR for $70 million from 2007-2011. It wasn’t a good contract, but it also wasn’t the disaster that the second A-Rod deal has become.

Unless his arm falls off in the next few years, Clayton Kershaw will probably hit free agency again after the 2018 season, and if he continues to pitch well for most of the next five years, he’s probably going to trade in 2/$65M for something much larger. And that one probably won’t be a very good idea. That will be the one you don’t want to sign. This one, though? Clayton Kershaw is a pretty good bet to be worth an average of $30 million per year for the next five years. Yes, the Dodgers had to commit more than that to get those five years, and their downside risk is higher because of the two extra years that they might not get but will have to pay for if Kershaw is hurt or terrible. However, 5/$150M for Kershaw would have been a ridiculous bargain, so some extra cost to retain a player of his talents is justified.

That said, given the number of players who have benefited from opting out of their contracts, I wonder if perhaps teams aren’t giving them out a little too easily, or at least undervaluing the potential benefit to the player and not getting a big enough break on the AAV in order to include them. With young free agents, the ones who project to give you surplus value for more than just the first year or two of the contract, letting them opt-out after year a few years has hurt the teams and caused them to miss out on some pretty good seasons at reasonable prices. And they’ve allowed the players to make significant more money than they would have had the entire contract been locked in.

This is probably going to come up again in the negotiations for Masahiro Tanaka. Like Greinke and Kershaw, Tanaka is represented by Casey Close of Excel Sports Management, and they’ve shown a fondness for getting these opt-out deals included in their big contracts of late. Given Tanaka’s age and the fact that he’s still an untested MLB asset, there’s a pretty good chance that he could also benefit from an opt out in his upcoming contract, as two or three dominant seasons in the states would set him up as a before-30 free agent with a big league track record. The willingness to include an opt-out, and where it’s placed in the contract, might end up being a determining factor in who gets to sign Tanaka.




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Dave is a co-founder of USSMariner.com and contributes to the Wall Street Journal.


78 Responses to “Clayton Kershaw and the Rise of the Opt-Out Clause”

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  1. bdhudson says:

    Thanks, Dave. That a-rod paragraph is absolutely brutal – I’d never looked at it in those terms before.

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  2. rustyspatula says:

    A tabular nit-pick, but your ‘average’ age at signing is low.

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  3. RMD says:

    This is a rapidly escalating market of player salaries. With all these unknowns, I’m not surprised both sides are agreeing to opt-out clauses.

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  4. tz says:

    I’m willing to bet the Dodgers have bought an injury insurance policy on Kershaw.

    Coverage is probably worth somewhere near $65 million.

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    • Yirmiyahu says:

      I assume that teams buy injury insurance for all large contracts. My question is how much does it cost to insure a $215M pitcher.

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      • Rob says:

        Not sure if it is still the case, but there was a lot of talk after the Hampton and Neagle insurance policies (I think both contracts were insured for the duration with ~80% coverage of the salaries) resulted in huge losses for the insurers that insurance companies basically refused to insure anything beyond 2-3 years for pitchers. They may have relaxed some since then, but the premiums on the later years of a huge pitching deal would likely be well into the 7 figures on an annual basis.

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        • tz says:

          Someone (Jeff Zimmerman?) had compiled info on injury rates, but I think the 7-figure assessment is about right.

          If I had to start from scratch, I’d offer coverage at a declining % over the course of a deal (say 80% of salary in year 1, declining by 10-20% per year). For longer deals, an insurance company would want the team to have some skin in the game that so they wouldn’t just let an underperforming pitcher throw his arm out so they could collect the injury insurance $.

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  5. Los says:

    I think that Opt-out clauses can be beneficial for the team as well as long as you are not the team that signs the player to the contract after he opts out. I’d much rather have Kershaw at 5/150 rather than 7/215.Combined with the backloading of contracts this can be a great way to lock up premium talent into their prime and let another team pay for the remaining prime and the decline. Teams like the Pirates and Rays can lock up their stars to market rates include the opt out so that the player can leave mid-prime and sign albatross deals with LAD, NYY, or LAA. Sure it sucks to lose a player in their prime but it is better than the alternative.

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    • stonecutter7 says:

      And if they do it right they don’t lose them in their prime, they lose them just after. It uses another concept Dave has brought up- players trading longer term for AAV- to get a player relatively cheaper throughout their prime.

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    • vivalajeter says:

      Los, I too would rather have Kershaw at 5/150 rather than 7/215, but the Dodgers don’t have Kershaw at 5/150. The reason the first contract is a better option is because there’s less of a chance of having an albatross situation, whether it’s because he hurts his shoulder, loses effectiveness, or whatever other reason. The problem with this contract is that if anything bad happens to Kershaw, they’re stuck with 7/215 and the two albatross years. If he remains an elite pitcher and opts out (or if he’s just a solid player, but salaries escalate greatly) then the Dodgers would have preferred those extra two years to be guaranteed to them.

      In five years, it’ll be a lot more clear whether 5/150 or 7/215 was the better option. And at that point, Kershaw will be the one who decides which option he’ll take – the Dodgers won’t have a say in it.

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      • Yirmiyahu says:

        Exactly. The question isn’t whether the Dodgers would want to sign Kershaw to a long-term deal 5 years from now for his decline years, but whether they would want to sign him for 2/$65M.

        The point is that the PLAYER gets to choose whether to opt out, so there’s no way the shorter deal can benefit the team. If the team doesn’t want the last 2 years, then that’s exactly the kind of situation where Kershaw would want to stay for the last 2 years. And vice versa.

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    • Rob says:

      That’s not how options work. Options (not just in baseball but any sort of contract) only have value to the party that can exercise it. It is a liability for the party that writes it.

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    • jiveballer says:

      Backloading is not really mentioned in the article but that is probably the team’s best strategy rather than offering a lower AAV.

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  6. mymrbig says:

    Great article and a couple quotes brought a smile to my face. I used to post at USSM and argue in favor of player opt-out clauses as being good for the team under the right circumstances (specifically as something that might be useful for a King Felix extension or bringing in someone like Fielder). You basically laughed in my face on multiple occassion (or at least the internet version of it). It obviously has some pretty big risks to the team, but it can work out in the end, especially if the team lets the guy walk.

    Dave wrote: “And it’s hard not see a pretty clear takeaway for GMs, based on this small sample of players anyway: you want to be the team giving the player the deal with the opt-out, not the team signing the player who just opted out.”

    Dave also wrote: “That said, given the number of players who have benefited from opting out of their contracts, I wonder if perhaps teams aren’t giving them out a little too easily, or at least undervaluing the potential benefit to the player and not getting a big enough break on the AAV in order to include them.”

    This is a good point. My argument was always that the team should at least be able to reduce the AAV of the pre-opt-out years in exchange for the opt-out, but obviously the teams haven’t really been able to take advantage of it.

    Now when will more teams start front-loading long-term contracts instead of back-loading them? That was the other “bright” idea I had where you laughed in my face…

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    • olethros says:

      The Cardinals and Jhonny Peralta say hello.

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    • Surrealistic Pillow says:

      Any other petty chips on your shoulder that you would like to unload?

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      • mymrbig says:

        Haha, wasn’t trying to come off as petty. Just glad to see I was completely crazy for thinking this could sometimes benefit the team.

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    • Anon21 says:

      Can you explain how frontloading a contract might benefit a team?

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      • Rob says:

        In theory, if you expect real interest rates to remain negative over an extended portion of the deal it makes sense. I guess you could also make an argument if you expect massive deflation to hit at some point in the middle of the deal it would also make sense. But in reality those things are exceedingly unlikely so it only makes sense in certain situations in sports with salary caps.

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        • JimNYC says:

          It also makes sense for teams that run perpetual annual operating losses. If a team’s business model is to lose 5% per year in operating revenue in the expectation of a 10% annual capital gain, and run the net operations off of borrowings against the increased franchise value, it can help lower expected interest rates for operating borrowing to clear more salary obligations off the books sooner.

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      • mymrbig says:

        (1) The player would like the contract front-loaded (because of the time-value of money), so it could give the team a negotiating edge. Would also give the team the opportunity to ask for something in return.
        (2) Players are expected to be more-productive the first few years of the contract and less-productive later in the contract. So the team is paying them what they are worth. When the player begins declinging, at least he won’t be massively over-paid to the point he is destroying the team’s budget.
        (3) If the team decides to part ways with the player, the later years of the contract won’t be quite as bad of an albatross.
        (4) Harder to forcast a budget further into the future, so the team pays some extra to give itself more financial flexibility later.

        Obviously there are a number of counter-arguments. Like player opt-outs, the team really should only consider it in very limited circumstances for a player they really want.

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        • Simon says:

          (2) is irrelevamt, (3) is untrue, as the team with the back loaded contract could simply throw in the difference in cash between what they have already paid out and what they would have paid out under a front loaded contract, and your problem is solved, and (4) is not really true given TV deals, historical information on revenues and so on. It’s exceptionally unlikely that MLB budgets will contract or do anything other than grow at a reasonable rate most years.

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    • Ian Russell says:

      I’m pretty sure Dave is saying that the teams giving the opt-out clauses are better off than the teams signing the opted-out players. That doesn’t mean that giving the opt-out clause is a good idea – it just means it’s a better idea than signing a player who’s close to or at the end of his peak.

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      • mymrbig says:

        I agree that is the thrust of the argument. But giving the player an opt-out clause can give the team a competitive advantage vis-a-vis a team that will not include such a clause. So it is good in that sense.

        But Dave pretty much explains that all the examples of a player opting-out didn’t really hurt the team that gave him the opt-out (unless the team re-signed him). Any player has to be viewed as having increasing risk as he gets older, from a combination of performance decline and injuries. So the team goes into the contract believing that the last years of the contract are, by far, the riskiest. If they could, they would prefer to sign the player to a 5-year contract instead of the 7-year contract. But since that isn’t an option, and the team is still willing to take the risk of the 7-year contract anyway, the opt-out can benefit the team by getting them out of the 2 riskiest years of the contract.

        The counter-argument is that, if the player stays mostly healthy and productive for the first 5 years, then the team is worse-off when the player opts-out, because the 2-year contract the player is getting out of would be a great deal for the team. But this argument relies on information that wasn’t available to the team at the time the initial contract was negotiated.

        Sure (from the team’s perspective), a team option is vastly preferable to the player option. And a shorter contract is vastly preferable to the longer contract. But the player-option still gives the team a chance to escape the riskiest years of the contract and gives them a negotiating edge.

        Of course as Dave points out, the teams that have offered opt-out clauses don’t really seem to be getting much of a discount despite giving these clauses. In that case, it seems like a total windfall for the player and doesn’t make any sense for the team. If I’m the team, I offer the player two contracts, one with an opt-out and one without. He gets the higher AAV without, so the team gets a discount on pre-opt-out years.

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        • Rob says:

          There is one big flaw in your theory though. If the played does decide to opt out, it is only because his current contract is below market value. If a good player has a below market value contract you can trade him for something else of value if he does not have the opt out. The team loses either way (given the information available to them at the time), either getting locked into a longer deal for someone who is not worth it or losing an asset that has value for nothing (well maybe a draft pick but that isn’t guaranteed in the next CBA and players in the past have managed to get the team to not make the QO as part of the deal).

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        • mymrbig says:

          Yeah, that was Dave’s point as well (back when he gave me a WWF / WWE smackdown).

          If I’m the team, I’m hoping for the opt-out. Even if he’s been great up until the opt-out, I wave goodbye and am thrilled to have gotten a really good player during the prime of his career for a good price. I view the opted-out (“lost”) years as just avoiding the likely first few years of decline. Sure, those years might have some free-agent value. But at the time the contract was signed (which is the only information you have at the time), those years are also BY FAR the riskiest.

          I’d be interested to hear, using Dave’s examples above, how the players performed during the opted-out years (rather than over the full 2nd contract after he opted-out). My suspicion is that even the opted-out years wouldn’t have been such a great deal for the original team, even if the player had stuck around. Especially with pitchers.

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        • Ya but says:

          All of your arguments rely on the team saving on AAV, and it is hard to determine exactly how much Kershaw left on the table in order to include the opt-out. Maybe the agents and teams that signed these deals can give you the answer you seek (and seem to think you’re correct about).

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        • Rob says:

          mymrbig,

          Your point does not make any sense. If the player opts out, the team loses because they lose an asset. Sure, the player in question has a greater risk of decline, but if you want to mitigate that you just trade him since he has net positive value (otherwise he would not have exercised the clause).

          On the other hand, as you mentioned, those out years are the riskiest. What you seem to be ignoring is that the team is still taking on that risk. Those last years are not only riskiest because the player will be older and more likely to get injured or decline, but also because he of the possibility of injury/decline in the preceding years, which would almost assuredly lead to the player accepting the option.

          I mean sure, if you give an opt-out clause you want the player to exercise it (assuming he is rational and has perfect information) because that means he more than lived up to the contract up until that point. However, given the same performance, you would obviously prefer he not exercise the clause since he is then a positive value asset who you are more than welcome to trade for something else of value if you are risk averse.

          Basically, you are really only saying you are hoping the player performs well, because if the player performs well he will almost certainly opt out. As the team though, if he performs well, you should still be praying he makes a mistake and chooses not to opt out. In that case you either get a guy paid below market rate or, if you are worried about decline, you should have no problem flipping him to someone else.

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        • mymrbig says:

          Rob, yes the team leaves some “value” on the player if he opts out, but you don’t have that information at the time the contract is signed. If the team is rooting for good performance and an opt-out on the day was signed, it feels disingenuous to then regret losing “value” 5 years later. Be happy you got exactly what you wanted and go spend that money on a similar player that is 5 years younger than the guy who just opted out!

          Trust me, I understand your points. All of them. Yes, even that one! I only think this is a good idea under very limited circumstances. Very limited.

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        • Simon says:

          There is a possibility that both teams and players are underestimating the risk of a collapse in performance with opt-out clauses, and thus that the team can benefit when a player does opt out (assuming they aren’t daft enough tnen to extend him).

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        • Atreyu Jones says:

          All the supposed team benefits (except for getting the player to agree to a lower AAV) of the opt-out can be accomplished without an opt-out – by trading the player. Think of current longterm contracts in which there might have been an opt-out at this point in the deal: for example Holliday, Miggy, Adrian Beltre, and Carl Crawford. Crawford wouldn’t want to opt-out, so he is moot. For the others, the team could avoid the risky parts and decline parts of the contract by trading them AND they would get something in return because they have positive trade value.

          I have not heard anyone suggest that these players should be waived/traded to avoid the less efficient parts of their deal.

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        • Robert J. Baumann says:

          mymrbig, regarding how the pitchers did, it’s a short list, so it’s easy to look up…

          Sabathia produced 4.2 RA-WAR (7.3 WAR) in the first two years after his opt out (he actually opted out of 4 years), compared to 18.5 RA-WAR (17.5 WAR) in the three years before it.

          The Blue Jays got 9.9 RA-WAR (10.7 WAR) from Burnett 2006-2008; he opted out and gave the Yankees 4.2 RA-WAR (4.3 WAR) during 2009-2010, which were the years he opted out of.

          Two pitchers doesn’t make for much of an argument, though.

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  7. Evan says:

    Is there a meaningful difference between an opt out clause and a multi-year player option or is this merely semantics?

    Doesn’t Tanaka have to have at least 6 years in MLB before he finishes his contract in order to be a free agent?

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    • TKDC says:

      This is exactly what I was thinking (point 1). The “player option” is a rather common thing and not that new. Most of these opt-outs are for only 2 years, so it is just a slight extension on the 1-year option.

      Is there something about this structure versus the option structure that helps with the luxury tax? I seem to remember there being some difference in how AAV is treated depending on who holds the option.

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    • Anon21 says:

      There is a real difference, as I understand: the opt-out binds the player for multiple additional years, whereas a player option only applies to the following year. If they’d given Kershaw two player options at the same price at the end of the deal, that would be more favorable to Kershaw. Imagine the following scenario: in the season preceding the opt-out, Kershaw has a very poor year, or he is injured in a way that substantially lowers his expected market value. In opt-out world, the cost of that to him is that he will now have to commit to play for the Dodgers for two additional years, and if he has a rebound in opted-in year 1, he’s lost the chance at a higher potential salary for opt-in year 2. In player-option world, his rebound in year 1 allows him to seek a free-agent contract covering year 2.

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      • TKDC says:

        But it is still an “option” as that word is normally used in contracts. You could call a one-year player option after a six year deal a “seven year deal with an opt out after six years.”

        Of course, every player would love to be able to opt out of a contract any year they wish, but I’m not sure what is actually better between a one year option and a two-year option. I’d guess the earlier option costs Kershaw more in terms of the total value.

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        • Anon21 says:

          Well, you do need to distinguish between the timing of the options and how frequently they can be exercised. Yes, Kershaw almost certainly gave more back for making two years subject to an option rather than only one than he would have by going from the current structure (opt-out for final two years) to the alternate structure (two player options at the end of the deal). But the latter is the most favorable situation to Kershaw of all, so presumably he’d have had to give back even more in AAV to get it.

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    • Belloc says:

      No. The parties can stipulate in the contract that a player becomes eligible for free agency before he acquires six years of service time. The A’s agreed to those terms with Cespedes when they signed him (he becomes eligible for free agency after four years). Aoki has that same agreement in his contract, and Fukudome also became a free agent after four years.

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  8. Jg says:

    I believe that the first opt out clause was actually awarded to Roger Clemens by the Blue Jays in ?1997?.
    I recall discipline being handed down to the team at the time so the structure may have been somewhat different.

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    • JG says:

      Apologies. Having spent the time to look it up, it seems rather than a real opt-out, the agreement was one which allowed Clemens to demand a trade.

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  9. vivalajeter says:

    Maybe I’m looking at it wrong, but this seems to be a huge benefit to the player, with none to the team. If a straight 7-year deal would’ve cost another $10-20 million and the opt-out saved them money in that regard, then yes, that benefits the team. But a straight 7-year, $215 MM contract appears – to me, at least – a much better contract for the Dodgers than a 7-year, $215 MM contract with an opt-out clause.

    The only way the player should opt-out is if the last two years are below market, in which case the team wishes they would have been able to keep him for those two additional years.

    Sure, the first few years of the initial contract will most likely be a better bargain than whatever Kershaw signs for in five years (assuming he does opt out), but that’s really beside the point – that doesn’t mean the opt-out clause benefits the team.

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    • Atreyu Jones says:

      “7-year, $215 MM contract appears – to me, at least – a much better contract for the Dodgers than a 7-year, $215 MM contract with an opt-out clause.”

      Of course it is, but presumably Kershaw wouldn’t have signed the regular 7-year, $215M contract (or at least they bluffed that he wouldn’t).

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    • Surrealistic Pillow says:

      LA essentially got Kershaw at 5/$150M with a player option. The idea is that, because the player option is of value to Kershaw, he would demand more than 5/$150M without it. Thus, the benefit to LA is the reduced cost of the first 5 years, which is a direct result of the player option.

      Likewise, as you suggest, 7/$215M is better for LA than 7/$215M with a player opt out. However, given that the opt out is of value to Kershaw, there is no reason to think that he wouldn’t demand more $$$ in the absence of the opt out.

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    • Anon21 says:

      Maybe I’m looking at it wrong, but this seems to be a huge benefit to the player, with none to the team.

      Here’s the way to look at it: the player trades some amount of additional guaranteed money for a one-sided bet on the years subject to opt-out. The team trades the risk of overpaying for the opt-out years for a lower AAV.

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    • Yirmiyahu says:

      No one (at least no one intelligent) is arguing that the opt out benefits the team in any way if the money is the same.

      The point is that the team was able to (theoretically) negotiate a lower AAV by agreeing to the opt out. So maybe the framework started out as a straight 7/$230M deal, and then Kershaw’s agent asked for an opt-out, and the Dodger’s countered with the current 7/$215 with the opt out. That’s how it saves money.

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    • jiveballer says:

      The Arod opt-out is an example of how a team can benefit from an opt-out. Often the best years of a contract are over by then, so the team reduces the risk of a stinker season at a higher, backloaded salary. Its an issue of shelf-life, and the team just has to be willing to let the player go rather than renegotiate an even worse deal (arod, sabathia).

      Of course, it won’t always work like that but in general the teams are better off with shorter contracts and the players benefit from longer contracts. The opt-out is a special case that can’t hurt the player but doesn’t really hurt the team either.

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      • CM52 says:

        No, the team did not benefit from having A Rod opt-out. They would have loved to keep him for his age 32-34 seasons with no commitment beyond that. He opted out because he could make much more money as a free agent, so he did exactly that.

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        • jiveballer says:

          For one thing, the Rangers made out like bandits on Arod’s opt-out.

          The Yankees traded into the opt-out and should have realized the risk of the Arod opt-out at age 31. Therfore, his value to them was always done at 2007.

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        • CM52 says:

          You really don’t think the Yankees didn’t account for the opt-out in trade negotiations? Of course they did; it’s beyond ridiculous to think that didn’t affect trade negotiations.

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      • Atreyu Jones says:

        Do you think the Rangers should give away Adrian Beltre? The best years of the contract are over, so the team could reduce the risk of a the backloaded salary.

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        • jiveballer says:

          Since Beltre is an impossible hypothetical, I’d add a hypothetical $10M to his annual salary and then, yes the Rangers may be better off if he did (hypothetically) have the opt-out and exercised it.

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        • Atreyu Jones says:

          What makes the Beltre hypothetical impossible?

          If Beltre’s salary was $10m higher per year, he wouldn’t opt-out and so the Rangers would receive no benefit.

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        • jiveballer says:

          then why do you bring up a player with no opt-out as an example in an opt-out conversation?

          No, Beltre seems good for the $17-18M for a team with plenty of money. If he was the highest paid player in the game then it wouldn’t necessarily hurt the team if he voided his contract.

          If you think that I am implying that all opt-outs are beneficial for the team then your reading comprehension could use some work.

          But its not like its should come as some shocking surprise to the team when a player uses the opt-out so they can’t be damaged too badly by it. They can be hurt much worse by paying an extra couple of years to an aging, highly payed underperformer.

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        • Atreyu Jones says:

          I brought him up because he seemed to fit the criteria of when an opt-out is supposedly good for the team: an oldish player past the best part of his contract.

          What current contract is an example of one in which an opt-out clause this offseason would be good for the team?

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        • CM52 says:

          “They can be hurt much worse by paying an extra couple of years to an aging, highly payed underperformer.”

          But if he was projected to underperform his contract, then he wouldn’t opt out because no one would pay him more than he’d get by staying, so it’s moot. Having an option in a contract is never of positive value to the party that doesn’t have the choice.

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        • Anon21 says:

          “Having an option in a contract is never of positive value to the party that doesn’t have the choice.”

          I guess it could be, hypothetically, if the player massively overrated his own market value. But that’s what these guys have agents for, so in practice I agree.

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      • Bill says:

        I think the Arod contract is the only example where the signing team may have benefited from the opt-out. The Ranger’s were paying a portion of the final two years of his initial contract. Once he opted out, Texas was off the hook. But, I don’t see this situation happening very often. Essentially, Arod was an elite player when he was traded, but he was still so over paid that Texas needed to pick up part of his contract in order to move him. This is the only way a player option helps a team even accounting for a lower AAV.

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  10. Joebrady says:

    Like Evan says, it is really a 5+1+1 contract. You have to weight the 1+1 risk against the 5 years you have locked in. And since next year at $20M is a virtual certainty at this point, it is like they gave him $130M/4, plus two option years for $32M and $33M. I don’t look at that as onerous considering the alternative might have been a real contract of closer to $300M/10.

    And not that it adds a lot to the calculus, they get a draft pick if he opts out.

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    • Tim says:

      We’ll have a new CBA before then, so maybe they get a pick.

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    • Rob says:

      It’s not a 5+1+1. That implies he has the chance to opt out after either the 5th or the 6th season. He only gets to make a choice after the 5th season. If he opts in at that point, he’s locked in for both years.

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  11. pft says:

    ” Given Tanaka’s age and the fact that he’s still an untested MLB asset, there’s a pretty good chance that he could also benefit from an opt out in his upcoming contract, as two or three dominant seasons in the states would set him up as a before-30 free agent with a big league track record.”

    I thought whoever signed Tanaka had him under team control for 6 years. If he opts out at 3 years he goes to arbitration if he can’t hammer out a new deal with the same team. Right?

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  12. Hank says:

    Players who receive opt-out clauses don’t perform better because they received opt-out clauses

    There is not a single shred of data in this article evaluating this one way or the other. I’m not sure if this is meant to mean something different, but the only thing Dave has done is determine WHO receives opt out clauses, not if they play better as a result of them.

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  13. DD says:

    Two things: Who are the agents negotiating these into the deals? Is it consistently Boras? Second, if Trout gets extended before completing his arb years, I assume he’s definitely getting an opt out as well.

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  14. jdbolick says:

    It doesn’t appear that opt-out clauses are an exchange for lower AAV so much as the player’s willingness to sign long-term at all instead of testing free agency. The answer for teams may be including opt-outs of their own, much as individual year player options are often balanced by team options.

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    • jiveballer says:

      There have been player/team/mutual options for a long time. I think the only special aspect of the “opt-out” is that its more than one year.

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  15. TangoAlphaLima says:

    I think another player who got an opt-out clause was Royals OF Alex Gordon. I think he can void just the last year in his deal.

    For the record, I really dislike these clauses for the clubs. It’s all risk for them. The only time a player doesn’t exercise the opt-out clause is if he’s injured or awful. If I’m the Dodgers, I’d rather have paid a more (it’s hard to say how much more it would take) for those last two years to get rid of that opt-out clause.

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    • Anon21 says:

      ” If I’m the Dodgers, I’d rather have paid a more (it’s hard to say how much more it would take) for those last two years to get rid of that opt-out clause.”

      The Dodgers presumably did know or have a pretty firm idea of how much more it would take, and found this to be more in their interests. I’m better they got it right, given the information available to them at this time.

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    • CM52 says:

      Similarly, if the player is injured or awful the team will reject any team options they may hold on them, so those are all risk for the player. It’s not a matter of liking or disliking options, it’s a matter of both parties agreeing to a contract value that reflects the risk associated with including that option.

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  16. murphym45 says:

    Let’s not forget that Darvish had an opt-out clause that only triggers if he has a few seasons where he finishes at or near the top of Cy Young voting. Granted, the circumstances are very different because of the change in posting system, but I could see something similar being used to lure Tanaka. Give him 6 or 7 years guaranteed with the ability to opt out after 5 if he has a few excellent years. A team looking to win now that was desperate could give an unconditional opt-out after 3 or 4 years.

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  17. RC says:

    “because there’s a pretty good chance the deal is actually going to end up as a five year, $150 million contract”

    That’s a really poor way to look at it. It only ends up as a 5/150 deal if Kershaw outperforms it. 5/150 is the UPSIDE for the team. On the downside (he gets hurt, or turns into Lincecum), they end up paying him the whole contract.

    Basically that last 2/65 only gets paid if hes terrible. Opt-out clauses arte like really nasty player options – they significantly limit the upside for the team and significantly increase the possible expense.

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