It’s time to address an issue that has some team executives grumbling: Have the big-money clubs figured out a way to beat the luxury-tax system with this sudden outbreak of 11-year and 13-year contracts?
And if they are, at what point would Major League Baseball step in and say no more?
The new free-agent deals for Carlos Correa (13 years), Trea Turner (11) and Xander Bogaerts (11) all share a common drawn-out structure. But it was the Phillies’ negotiations with Bryce Harper in 2019 that first pushed the boundaries of contracts this long.
The 13-year term the Phillies awarded Harper was a record for a free agent. But before they got to that length, they talked internally about going even further, as reported by The Athletic‘s Matt Gelb. To 20 years. Infinity, and beyond!
The Phillies never made such an offer, never even mentioned the idea to Harper’s agent, Scott Boras. They were just trying to figure out how to get Harper the guarantee he wanted, above Giancarlo Stanton’s then-record $325 million, without crippling their year-to-year payrolls. After deciding the league probably would view a 20-year offer as a circumvention of the luxury tax, they offered Harper $330 million over 15 years, and later settled with him at 13.
At the time, the contract was an anomaly, the only deal of 11 years or longer in the first 46 years of free agency. The Turner, Bogaerts and Correa agreements quadrupled that total in a span of eight days. Which brings us back to the clubs’ latest accounting trick, flattening the average annual values used to calculate luxury-tax payrolls:
Where would the league draw the line?
Xander Bogaerts (Dylan Buell/Getty Images)
There is no answer, at least not yet. MLB, according to a spokesperson, reviews contracts on a case-by-case basis. The Turner, Bogaerts and Correa agreements, expiring after their respective age 40 seasons, all fall within the current line of reason. If teams start to push deals into players’ mid-40s, it might be a different story. Or maybe not.
The sport adopted a universal designated hitter last season. The change will enable some players to extend their careers. Albert Pujols, for example, just produced a season in which he hit 24 home runs and had an OPS+ 54 percent above league average at age 42. Go back to 1992, and Dave Winfield finished fifth in the American League MVP voting, serving mostly as a DH for the Blue Jays at age 40.
It seems like just yesterday when teams shied away from awarding players long-term contracts into their late 30s, preferring short-term, high-dollar agreements instead. Those deals are still happening, as evidenced by Justin Verlander’s two-year, $86.66 million deal with the Mets (Verlander, who turns 40 on Feb. 20, is one player who might be worthy of a contract at 45). But longer contracts are suddenly becoming more common, and not simply because players are training and conditioning better than in the past.
Teams are forever searching for new ways to beat the game’s economic system, loopholes they can exploit to maximum advantage. With the long deals that reduce AAVs, clubs have identified an edge when it comes to the luxury tax. But the league is not necessarily inclined to do anything about it, because nothing terribly egregious has occurred.
Yet.
Consider Correa. His AAV with the Giants will be $26.92 million, the 31st highest in history, thanks to the money being spread out over 13 years. Now, let’s say the Giants had signed him for a more modest 10 years, still long for a shortstop, still extending through his age 37 season. His AAV would have shot up to $33 million, a difference of more than $6 million per season.
That’s no small amount of luxury-tax payroll, and the Giants can now devote it to another player. Granted, they are unlikely to face the same type of tax concerns in 2023 that the Phillies do after signing Turner and the Padres do after signing Bogaerts. But in future seasons, who knows? In a sport already facing payroll disparity between high- and low-revenue clubs, some might argue the longer deals violate the spirit of the luxury-tax rules.
Baseball’s collective-bargaining agreement states neither players nor clubs shall enter into any agreement “designed to defeat or circumvent the intention” of the luxury tax. The language is vague, subject to interpretation. But if the league determined a circumvention occurred, it could conceivably ask the parties to restructure the contract, most likely by agreeing to a shorter term, or reject the deal entirely.
To this point, neither has happened. And if the league acted, it would face a fight. The Players Association almost certainly would file a grievance if MLB disapproved a deal on the basis of its length, according to a source with knowledge of the union’s thinking. The players also would object if the league sought to limit the lengths of contracts in bargaining, viewing it as a restriction on the market.
Two leagues with salary caps, the NBA and NHL, operate with such limits. The NBA’s maximum contract length is five years. The NHL’s maximum is eight years for teams that re-sign their own players, and seven for players signing a free-agent deal with a new team. The NFL has no maximum. Donovan McNabb’s 12-year extension in 2002 is the longest deal in league history, but only $20 million of his potential $115 million was guaranteed. The NFL, unlike the three other major North American sports leagues, does not typically guarantee multi-year contracts for veteran players.
So, let’s go back to the Phillies’ original 15-year offer to Harper, which would have expired, like the deals for Turner, Bogaerts and Correa, after his age 40 season. MLB almost certainly would have approved such a contract. But what if the Phillies had indeed attempted to sign Harper to a 20-year deal that would have extended until he was age 45? And what if, as the New York Post’s Jon Heyman reported, the Padres had followed through on an idea to offer Aaron Judge $400 million over 14 years, taking him to age 44?
The Padres never made Judge such a proposal, so the league had nothing to consider. But at some point, some club figures to push the envelope, and attempt to sign a long-term player through age 42, 43, 44. The motivation would be obvious. The longer deals not only reduce AAVs, but also act as a new form of deferrals, helping teams spread out payments. Correa, Turner and Bogaerts received three of the 13 highest guarantees in major-league history. But their respective AAVs for luxury-tax purposes rank between 28th and 37th. Harper is 38th.
Where will the league draw the line? Stay tuned. When a trend starts in a copycat league, it’s difficult to stop.
–The Athletic‘s Jayson Stark contributed to this story
(Top photo of Trea Turner: Mitchell Leff / Getty Images)
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