Can the Yankees Avoid Paying A-Rod’s Milestone Bonuses?

The legal controversy surrounding Alex Rodriguez seemingly knows no end. Fresh off a season-long suspension – and a year filled with litigation – Rodriguez is currently preparing to return to the New York Yankees for the 2015 season. In addition to the $61 million the Yankees still owe A-Rod under the 10-year contract he signed back in 2007, Rodriguez can potentially earn another $24 million in bonuses by reaching four different home run milestones in the next three years.

Under the terms of his 2007 contract, the Yankees will pay A-Rod $6 million every time he moves up the all-time home run leaderboard. Rodriguez’s 654 career home runs currently rank fifth all-time, trailing only Willie Mays, Babe Ruth, Hank Aaron and Barry Bonds. If Rodriguez hits six home runs in 2015, he would earn the first $6 million bonus by tying Mays’ career 660 home runs.

According to a recent report in the New York Daily News, however, the Yankees are preparing to contest the bonus provisions in A-Rod’s contract. When the team agreed to the milestone bonus structure back in 2007, it assumed Rodriguez’s march to the all-time home run crown would prove to be quite lucrative. In light of Rodriguez’s subsequent fall from grace, though, the team now understandably thinks A-Rod’s home run milestones will not be nearly as valuable as it initially hoped. As a result, the team is exploring its legal options.

So do the Yankees have any realistic chance of voiding Rodriguez’s bonuses? As is so often the case with the law, the answer is: It depends.

Assessing the Yankees’ odds of success in this case are particularly difficult because A-Rod’s home run milestone bonuses are not a part of his standard playing contract, but instead are incorporated in a separate side agreement between Rodriguez and the Yankees. Because that agreement has not been made public, it is obviously impossible to know exactly what the contract says — and what the Yankees can argue to get out of the agreement.

Nevertheless, one can reasonably assume the Yankees’ legal attack will follow one of two approaches: First, the Yankees may be able to argue Rodriguez has breached the milestone bonus agreement in some way. Depending on the terms of the agreement, for example, it is possible that the payment of the bonuses is conditioned on Rodriguez not violating Major League Baseball’s Joint Drug Agreement. A-Rod’s suspension for his involvement in the Biogenesis scandal, then, could theoretically give the team the legal grounds to terminate the bonus agreement.

Realistically, though, if Rodriguez’s agreement included a provision relating to his use of performance-enhancing drugs, we likely would have heard about it by now. Indeed, as soon as news of the Biogenesis scandal broke back in January 2013, the Yankees reportedly began exploring whether the team could cancel the rest of Rodriguez’s playing contract. While the team was unable to void A-Rod’s standard player contract because it specifies that MLB’s JDA sets the punishment for PED use, the same limitations may not apply to the side agreement.  Nevertheless, if there were a cut-and-dried argument that A-Rod has violated the milestone bonus agreement, the team presumably would not still be exploring its legal options two years later.

Instead, the Yankees will likely rely on a different argument to contest Rodriguez’s bonuses. As the Daily News reported, the team is apparently preparing to argue that A-Rod signed the bonus agreement under false pretenses. Under traditional principles of contract law, if you convince someone to enter a contract with you by lying about a central aspect of the agreement, then the other side can void the contract on the basis of fraud.

In this case, the Yankees will presumably argue that Rodriguez defrauded the team by failing to disclose his prior PED usage. Remember, when A-Rod signed the bonus agreement back in 2007, he still had not publicly confessed to steroid use. It was not until February 2009 that Rodriguez admitted he took PEDs during his time with the Texas Rangers.

The Yankees, then, will likely assert that A-Rod should have disclosed his prior PED usage to the team before signing the bonus agreement. In particular, the Yankees can argue that Rodriguez knew the team was willing to pay the bonuses in exchange for the positive publicity and goodwill his career home run chase would generate. The team can also assert that A-Rod knew that if his prior PED use were to become public, then those benefits would largely disappear. Given all that, the team will likely contend Rodriguez was legally obligated to notify the team that he had previously used PEDs.

How strong this argument will prove to be is somewhat uncertain. If the Yankees can show they specifically asked Rodriguez about his past PED usage during the negotiation of the contract, and that he lied about it, then the argument could be successful. If the team never specifically asked A-Rod about PEDs, though, then his legal obligation to disclose his prior usage becomes less certain. Indeed, considering that PED use in MLB was already quite well known in 2007, Rodriguez can argue the Yankees assumed the risk that he might one day be tied to steroids.

This is a dispute that will likely continue to percolate for awhile. Rodriguez’s first milestone bonus won’t become due until he hits his sixth home run of the season and ties Mays. At that point — assuming the Yankees decide to contest the bonus — the team will refuse to pay Rodriguez. A-Rod and the Major League Baseball Players Association then will presumably file a grievance against the team, a process that would likely take several months to play out before being decided by an arbitrator. And if A-Rod loses the arbitration, there is always a chance that he could once again decide to appeal that decision to a federal court, even though the odds would be heavily stacked against him at that point.

Ultimately, then, legal controversy appears likely to continue to follow A-Rod for quite some time.

Nathaniel Grow is an Associate Professor of Business Law and Ethics and the Yormark Family Director of the Sports Industry Workshop at Indiana University's Kelley School of Business. He is the author of Baseball on Trial: The Origin of Baseball's Antitrust Exemption, as well as a number of sports-related law review articles. You can follow him on Twitter @NathanielGrow. The views expressed are solely those of the author and do not express the views or opinions of Indiana University.

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7 years ago

I don’t get why all this logic doesn’t apply to his standard contract. And the yanks tried to void it and clearly couldnt.

7 years ago
Reply to  Pr

Agreed. Has this situation led to teams adding contract provisions that allow them to terminate a contract after failed PED test?

Pirates Hurdles
7 years ago
Reply to  Nate

His player contract is well protected by the union and collective bargaining. The CBA does not allow teams to void contracts for PED’s, the PED punishment system was bargained and agreed upon during the last contract negotiation.

I also think that the bonuses will stand, its seems like nonsense to me that the Yankees think they took zero risk when they offered those incentives. There was already plenty of smoke on the horizon and to argue that they never had any idea that he may have used PED is pretty disingenuous.

7 years ago

Or if they really cared about a positive, PED-free home run chase, that would have been in the contract….

Carson says
7 years ago

You would think they might be worried that A-Rod could somehow prove that they completely knew he was using the whole time.

7 years ago

If they were concerned that he might point out they knew all along they would be very unlikely to pursue this course.

At the time in 2007 there was plenty of talk about A-Rod being the guy to clean up the HR record mess due to McGwire, Sosa, Bonds, etc.

Also remember that he was originally outed as a result of the leak of his positive tests during baseball’s original year of “anonymous” testing that led to – when the players couldn’t hold up their end – mandatory testing to follow. An outing, and frankly violation, of the agreement between MLB and the Players’ Association, though neither were directly responsible for it (as far as we know). And the other offenders by and large remain safe in their anonymity – maybe Manny and Big Papi also, though Ortiz maintained innocence and receives not nearly the condemnation.

Not that I want to defend A-Rod. He doesn’t deserve it, and I hope somehow NY prevails, though I consider it unlikely.

Just trying to add context and caution against people slinging unfounded suspicions – perhaps based on their feelings for or against particular organizations or individuals – of what they knew or didn’t know or do. This has hurt the perception of players in HOF voting and others based simply on suspicion or lazy analysis (“They’re all guilty”).

7 years ago

Arod will be arguing the Yankees were aware of abuse and complicit. (Clemens, Giambi, Pettite, Knobloch, Justice, Stanton, Neagle, Grimsley). They benefited greatly when those violations went unseen, but now want a refund when it backfires.