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How can MLB innovate in contracts?

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The opt-out is the latest idea, but there really aren't that many ideas.

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Compared to other sports, baseball has a fairly pedestrian system of compensating players once they hit free agency. The six years of team control at low salaries before free agency are unique to baseball, but once a player hits free agency the contracts become fairly mundane. All money is guaranteed, and not much really happens.

Here's what can be done / has been done in free agency (not necessarily an exhaustive list):

  • Deferred money
  • Opt-outs and other options (team options, mutual options)
  • No-trade clauses
  • Front-loading / back-loading
  • Playing time / award incentives
  • Injury / DL triggers (C.C. Sabathia, John Lackey)
  • Split contracts (X salary in the minors, Y salary in the majors)
  • Signing bonuses
  • Perks (suites on the road, season ticket suites for family as examples)
  • Guaranteed job with team after retirement
Most players just get a pile of guaranteed money. Baseball has no salary cap; there is the luxury tax threshold that somewhat operates as a "soft cap", but only a few teams hit that cap each year. Furthermore, one of those teams (the Dodgers) simply pretends that it doesn't exist. There's no actual rule preventing teams from spending more. Therefore, teams just offer players cash, the most tangible of assets carrying value.

In part because teams can simply spend more and in part because there is no salary cap, there's little pressure for innovation in contracts. Teams don't have to get creative to fit under a salary cap; they don't have to find ways to offer valuable assets in the form of something other than cash.

However, the creative things other leagues do regarding contracts are not always related to fitting under a salary cap. In the NBA, there is an element of service time known as "Larry Bird Rights". At a basic level, if a player has played with a single team for three years and has not been waived, the team with which he has played has the ability to exceed the salary cap to retain that player. Essentially, that gives players an incentive to stay with their current teams. Though Bird Rights are a little more complicated than I have laid out, the goal is to keep players with their current teams. That's a noble goal, right? Sure. But it exists because there is a salary cap.

Could baseball implement a version of Bird Rights? Probably the most analogous version would be luxury tax forgiveness for retaining a veteran player, but that does not apply to every team since not every team is even close to the luxury tax threshold. What if players agreed to an extra year of team control in exchange for a no-trade clause or a guaranteed higher salary in arbitration? In signing contracts during the initial six years of service time, usually players get just a "lower" amount of money for giving up years in arbitration, but the amount of money is guaranteed. In my proposed scenario, players and teams would still negotiate salaries on a yearly basis, and the money wouldn't be guaranteed.

That scenario seems to favor teams more; what would it take for players to add an extra year of team control aside from guaranteed money? Maybe there isn't a reason to deviate from the current practice of sacrificing years of control in exchange for guaranteed money that could be lower than what the player would make year to year. Players in other sports (like the NFL) don't get guaranteed money. Again, there is less pressure to innovate. Just offer money.

In the NFL, because there is a salary cap, teams and players often restructure contracts in order to fit under the cap. Tamba Hali with the Kansas City Chiefs is a recent example. I'll admit that the details are complicated, and I don't fully understand them (that's a point in favor of MLB's salaries in my mind - the simplicity). Essentially, Hali took a pay cut in 2015 to help give the Chiefs room under the salary cap. In exchange, the Chiefs gave Hali an "extension" in 2016-2019; however, that extension voids five days after the Super Bowl this year. Those extra four years function solely as prorated bonuses. The Chiefs deferred money to the future in order to have a lower cap hit now. MLB players have signed deferred money contracts (Max Scherzer and Chris Davis come to mind), but those contracts are not restructures from already-existing contracts. I think the player's union would freak out if the Nationals approached Scherzer about taking a pay cut.

In the end, baseball has a strong player's union. Guaranteed dollars for free agent contracts is a pretty big win for players, and teams have no reason to offer a whole lot that's different than dollars. However, the rise of opt-outs over the past few years and especially this winter show that maybe teams are starting to think about how they can give non-cash value to players. What are the next innovations? Ownership stakes? Stock? More lucrative advertising partnerships? What might be the push that starts teams innovating more?

Here's a different question. Take a step back: Is it a good thing that baseball is under no pressure to innovate due to the lack of a hard spending limit?

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Kevin Ruprecht is the Managing Editor of Beyond the Box Score. He also writes at Royals Review. You can follow him on Twitter at @KevinRuprecht.